The “90/10 Rule” is meant to ensure that for-profit schools are, in fact, competitive in the marketplace and are not relying only on taxpayers to survive. In other words, the rule is based on the principle that a viable educational program should be funded in part by students or employers who are willing to pay cash to invest in career training for themselves or their employees, respectively. Although a small percentage of proprietary schools have failed the 90/10 test in recent years, between 11 and 20 percent of schools derive over 85 percent of their revenues from Title IV sources.
Because so many proprietary institutions’ revenue distribution falls so close to the 90/10 Rule threshold, it is important to pay close attention to the sources that for-profit colleges rely on as revenue. In some instances, schools rely on other forms of public funding, such as the GI Bill or state funding, to pass the 90/10 test by the letter of the law, if not the spirit. Other times, institutions draw funding from sources such as venture capital and private investors, unlike public and non-profit institutions which rely on charitable donations and state appropriations. Some of this revenue may represent tuition paid directly by students or their employers, but students often turn to private loans to finance their education after they have reached the limit of available Title IV funding.
Predatory institutions have sought out loopholes in the regulations in order to continue to extract federal and other public funding for programs that would not otherwise be capable of meeting 90/10 requirements. Historically, the 90/10 regulation’s failure to include GI Bill benefits alongside Title IV funding as federal funding has created a major loophole that has enabled predatory practices that prey on student veterans and their dependents. As a result, tens of thousands of our nation’s veterans have been lured into for-profit schools that have exhausted their educational benefits while leaving them with little to show for the time and money they invested.
In response to for-profits’ disgraceful treatment of veterans, Congress directed the Department of Education to close this loophole in 2021 on a bipartisan basis with the passage of the American Recovery Act. The proposed regulations expand the coverage of the 90/10 rule to include federal funding beyond Title IV sources and include other federal sources, including the GI Bill. The draft language is an improvement on current regulations and meaningfully protects veterans and their dependents from exploitation.