Senators Mull Changes in 90/10 Rule to Rein In For-Profits

March 02, 2011

Eight months after Sen. Tom Harkin, Democrat of Iowa, began his much-publicized crackdown on for-profit colleges, key senators appear to be coalescing around a plan to limit the amount of federal money flowing to the sector.

Their solution, for-profits and their critics say, would be to count military aid in the federal share of the 90/10 rule, which requires for-profit colleges to receive 10 percent of their revenue from nonfederal sources to be eligible to receive federal student aid. Many of the colleges would fail that test if they had to count military aid as federal money.

Lawmakers have been building a case for changing the formula for months, sending letters and issuing reports that raise concerns about the growing share of military money going to the for-profit sector, and the questionable recruiting tactics of some of its institutions.

On Wednesday, Sen. Thomas R. Carper, Democrat of Delaware, held a hearing on a report by the Government Accountability Office that found gaps in the Defense Department's oversight of its tuition-assistance program for active-duty veterans. While the report did not single out any institutions for criticism, it described a few examples of "improper or questionable marketing practices" by for-profit colleges.

In an interview after the hearing, Mr. Carper said he had been "surprised" to learn that military tuition assistance isn't counted as federal aid in the 90/10 calculation. Asked if he supported including it, he said it was "something we should consider."

"I'm a big advocate of skin in the game," he said. "There has to be skin in the game for markets to work."

Senator Harkin, who has held three hearings on for-profits, has also expressed interest in expanding the categories of funds counted as federal money in the 90/10 rule. But the idea is certain to run into opposition in the Republican-led House of Representatives, where many lawmakers favor softening the formula. One possible compromise would be to include military and veterans benefits in the federal share, but allow a larger share of colleges' revenue to come from the federal government.

Without such relief, many for-profits would cross the 90-percent threshold and become ineligible to receive federal student aid. Hundreds of colleges are already dangerously close to the cutoff, with 257 institutions receiving more than 85 percent of their revenue from federal student aid, according to the Education Department's latest figures.

This wouldn't be the first time the 90/10 rule has been used to cleanse the sector of its "bad actors." Congress created the rule in the 1992 reauthorization of the Higher Education Act to crack down on fly-by-night institutions that had been set up to reap profits from the student-aid programs. The rationale behind the rule was simple: If a program is worthwhile, a for-profit college should be able to derive at least 10 percent of its revenue from students willing to spend their own money on it.

For-profit colleges have vigorously fought the rule, saying it penalizes colleges for educating low-income students and drives up tuition. Congress has softened the rule several times but has refused to do away with it altogether.

To stay in compliance with the rule, for-profit colleges have aggressively recruited veterans and service members with Defense Department and GI Bill benefits. Twenty for-profit companies received a combined $521.1-million in veterans and Defense Department benefits in 2010, according to a recent report by the Senate education committee. The sector as a whole has received more than a third of the benefits paid out under the new GI Bill, even though it enrolls only 10 percent of all students.

Nonprofit colleges have also courted veterans, eager for their benefits. In 2009, a task force in Senator Harkin's home state developed a strategy for increasing veteran enrollment at the University of Iowa. Its report concluded that adding 100 veterans a year would result in an additional $800,000 in tuition income annually and a potential $2-million in revenue for Iowa City.

Still, it is for-profit colleges that have taken the heat over recruiting practices. On Wednesday, the Veterans Affairs Department announced that it had withdrawn education benefits from three Westwood College campuses in Texas because of misleading advertising and enrollment practices.