Education Dept. to Provide Limited Relief to For-Profit Colleges on '90/10' Rule

June 07, 2011

The U.S. Education Department will, for the first time, allow some colleges to limit how much their students borrow to pay for their education, a department official announced on Tuesday at a Senate hearing on student debt.

The pilot program, which will let colleges test alternative ways of administering federal aid, is likely to provide relief to some for-profit colleges that will be in danger of violating a federal regulation known as the 90/10 rule at the end of this month, when a short-term exemption to the rule expires.

Under the 90/10 rule, for-profit colleges must receive at least 10 percent of their revenue from sources other than the Education Department to remain eligible to receive federal student aid. When Congress raised student loan limits by $2,000 in 2008, it allowed for-profit colleges to temporarily treat the newly available funds as part of their 10 percent, rather than as aid from the department.

With the exemption set to expire on June 30, for-profit colleges that are close to the 90-percent cutoff have been lobbying Congress and the Education Department for an extension or a reprieve. The pilot project should help at least some of them remain eligible for millions of dollars in federal student aid.

Still, the program won’t provide anything close to the sectorwide fix the colleges have been seeking, department officials said. The pilot program will not be limited to for-profit colleges, and only a handful of programs at each college will be chosen to participate, said James Kvaal, deputy under secretary of education.

The goal, he said, was not to provide broad relief on 90/10, but to help institutions comply with the new "gainful employment" rule, which will penalize programs in which students carry high debt burdens relative to their income.

"There have been rumors about a 90/10 pilot—this is not it," he said. "This is really about gainful employment"

Congress set limits on the share of revenue that for-profit colleges may receive from the federal government almost two decades ago, following a Senate investigation into the sector. At the time, the ratio was 85/15; it was relaxed to 90/10 six years later, after Republicans regained control of Congress.

Since then, the rule has been softened several times to allow additional sources of revenue to count toward the 10 percent. But for-profit colleges have continued to push for a full repeal, arguing that they have little control over how much their students borrow beyond the cost of attendance. (Although colleges can limit borrowing on a case-by-case basis, current law prohibits blanket exemptions for groups of students.)

In testimony on Tuesday before the Senate Committee on Health, Education, Labor, and Pensions, the under secretary of education, Martha J. Kanter, said the pilot program would offer colleges "new tools to reduce student debt."

"We will let institutions reduce the size of student loans, while carefully measuring the impact on students' access and success, to see if it's possible to design lower-cost programs," she said in prepared remarks.

The Senate, though, may be moving in the opposite direction on 90/10. During the hearing, the committee's chairman, Sen. Tom Harkin, Democrat of Iowa, repeated his suggestion that federal veteran and military benefits be included in the 90 percent. If that were to happen, for-profit colleges would have much more to worry about than a $2,000 exemption.