President Biden signed the $1.9 trillion American Rescue Plan stimulus bill last week that contained a long sought-after provision that will eventually stop the deceptive marketing and scams that many for-profit schools use to target veterans and servicemembers.
The provision closes what is known as the 90/10 loophole. Under the current rule, for-profit schools can collect no more than 90% of their revenue from federal sources. However the issue has always been that GI Bill and Tuition Assistance money collected is not counted as federal revenue and thus exempt from the 90% cap. For years, veteran advocates and organizations have argued that this loophole is an incentive that for-profit colleges use to deceptively recruit veterans and servicemembers.
History of the 90/10 Rule
The 90/10 rule dates back to just after World War II when several questionable night schools started up in an effort to meet the increased demand of post-secondary education by troops returning from the war. The Veterans Administration created the then 85/15 rule which capped the maximum revenue a school could derive from the GI Bill at 85%. The other 15% would have to come from non-government sources such as tuition or fundraising.
In 1990, lawmakers were concerned by the education practices some for-profit schools were using. One fact that raised a red flag was that 50% of the student loan defaults came from for-profit schools, although they only accounted for 20% of the loans.
In 1998, as part of the Higher Education Act reauthorization, Congress changed the 85/15 rule to the current 90/10 rule, but the issue still remained that GI Bill and military Tuition Assistance revenue were excluded from being counted as sources of federal revenue. This enabled many of the unscrupulous for-profit schools to capitalize on the exclusion and market to military members and veterans having education benefits left to use.
In 2012, a Senate Health, Education, Labor and Pension committee investigation uncovered deceptive and aggressive practices used by many for-profit schools that led to legislation that would have included Tuition Assistance and GI Bill revenue as part of the 90% cap. However the legislation did not pass at that time; another attempt to change the rule in 2015 also failed; last year (2020), the rule change gained some momentum, but failed to become law by the end of the term.
Finally the Rule Change
However 2021 is different. Included in the American Rescue Plan bill, the 90/10 loophole was finally closed, but with a couple of compromises: First, the rule change implementation date would be delayed for six months … until October 2021.
Senate Veterans’ Affairs Ranking Committee Member Jerry Moran (R—KS) said of the rule change, “By providing a six-month delay before the start of a negotiated rulemaking process, Congress now has time to work together with our veteran service organizations and the higher education community on a bipartisan plan to deliver reasonable and needed protections for veterans and taxpayers alike.”
Second, implementation would not be fully completed until 2023. The rationale is it would give students just starting a four-year program time to complete their degree and schools time to adjust their policies and procedures. Schools not in compliance by 2024 will be penalized.
The completion delay is important because many education experts believe that with the new rule in place, several affected schools will no longer find it financially advantageous to continue and end up closing their schools. While many for-profit schools have already changed their recruiting practices in recent years in anticipation of an eventual closure of the loophole, at least 37% of for-profit schools today will be affected by the rule change.
Carrie Wofford, president of Veterans Education Success said, “After nearly a decade of requests from veterans and military organizations, we are grateful Congress is moving to finally remove the target from the backs of veterans and servicemembers by closing this loophole. For too long, bad actor colleges have treated veterans and servicemembers as nothing more than dollar signs in uniform.”
