For-Profit Colleges Show Increasing Dependence on Federal Student Aid

February 15, 2011

Eight for-profit colleges failed to meet the requirements of a federal law that says they can get no more than 90 percent of their revenues from federal student-aid programs, and an additional 257 of them took in nearly the legal limit, exceeding the 85-percent mark, a report released on Wednesday by the Department of Education shows.

The report for the most recent accounting period also shows that an increasing number of for-profit colleges are becoming more heavily reliant on federal student-aid—so much so that a number of them are close to the point at which they could lose eligibility to participate in federal student aid programs.

For that reason, many of the colleges have been vigorously lobbying Congress to ease or eliminate the law, known as the "90/10 rule."

Colleges that fail to comply with the rule for two consecutive years lose their eligibility to participate in the federal government's Pell Grant and subsidized student-loan programs. Colleges that fail the test for one year remain eligible for the programs, under a "provisional" basis, which means their opportunities for drawing down federal funds is restricted and closely monitored.

The figures in the new report, which the department is required to post on its Web site, were based on the colleges' financial statements for a fiscal year that ended between July 1, 2008, and June 30, 2009.

The 90/10 rule applies only to for-profit colleges. And only federal student-aid money, commonly referred to as Title IV funds (for the section of the Higher Education Act that authorizes them), is counted toward the 90-percent limit. Other sources of federal aid, such as money from the GI Bill or military tuition reimbursements that many students use to pay for college, are not treated as part of the Title IV side of the calculation.

In the previous year, no colleges failed the test, a report released in 2010 shows.

According to the new report, 550 colleges received more than 80 percent of their revenue from Title IV sources, and more than 1,000 colleges received at least 70 percent of their revenue from those sources. In the previous year, by comparison, only 457 colleges had federal-student aid revenue in excess of 80 percent, and 830 were above 70 percent.

Four of the colleges that failed the test in the most recent year—two campuses of ATI Career Training Center and two campuses of South Texas Vocational Technical Institute, are owned by the same entity; the other four are also primarily technical or beauty colleges.

The 257 institutions with a proportion of federal-student-aid funds in excess of 85 percent include 11 institutions owned by Kaplan Inc. (nine of them under the Kaplan name and two of the TESST College of Technology brand).

It also includes five colleges, operating under the Everest brand, owned by another major higher-education company, Corinthian Colleges Inc. Just a couple of weeks ago, Corinthian announced that it would raise its tuition—putting it above the amounts covered by Pell Grants and student loans—to avoid violating the 90/10 rule, even though that will require students to borrow more money from more-expensive nonfederal sources to attend.

Two of the colleges with Title IV revenues in excess of 85 percent are owned by Remington College, an institution that recently converted from for-profit to nonprofit status.