Three Sides of Two Coins: The 90/10 Dilemma
In October, 2021, the Department of Education (DoE) began rewriting regulations that could negatively impact for-profit schools. It is possible that the DoE could create tighter restrictions by imposing limitations on what for-profit schools can count as “non-federal revenue sources”. These limitations, both current and projected, form the basis of the 90/10 Rule.
The 90/10 Rule
Conceptually, the rule is simple: for-profit schools can receive no more than 90 percent of their revenue from federal “Title IX” student aid programs.
The inverse of that statement is: for profit schools are expected to make at least 10 percent of their revenue from other than federal sources.
Currently, the GI Bill and Tuition Assistance programs do not count as federal student aid classified by Title IX definitions. Which means that any VA benefits received by any school do not count against the 90% limit on federal funding. They count towards the 10% of non-federally funded revenue.
However, the American Rescue Plan Act of 2021 plans to expand those definitions to include ALL federal education benefit programs, like those used by military and veteran students. The law is set to take effect in 2023.
Debating the 90/10 Rule
Advocates for this change, which includes some veterans’ organizations, are excited that the “90/10 loophole” will be closed by congressional action. The “loophole”, to which it is commonly referred, alludes to the predatory practice of some for-profit institutions who heavily incentivise the recruitment of military and veteran students.
This predation on veteran students does not seem to be isolated. Some states like Maryland have passed their own state-level limitations on for-profit schools in response to these problems. Maryland’s new education law will also take effect in 2023.
Organizations like Veterans Education Success have taken a strong stance against for-profit institutions, claiming that the 90/10 Rule “gives for-profit colleges an incentive to see service members as nothing more than dollar signs in uniform”.
The Veterans Education Success also released an article documenting the findings by the Department of Education that for-profit colleges used the GI Bill and Tuition Assistance programs to “skirt the 90/10 regulation”. You can find the article here: New Analysis Finds Many For-Profit Colleges Skirt Federal Funding Limits (Dec. 2016).
However, critics of the legislation, to include the Veterans Education Project, are speaking out about what they consider an unfair targeting of for-profit institutions.
The Opposition to the 90/10 Rule’s Existence
The Veterans Education Project published a punchy response, titled Collateral Damage, in which the VEP decried the 90/10 rule as outdated. It is a good title and one that advertises their opposition well.
“The rationale for the policy is that a worthwhile educational provider should be able to attract other sources of revenue beyond federal grants and loans, and that students should be willing to put some of their own money toward their education.”
The VEP refers to the notion of a student or family contribution as having “skin in the game”, which, in my opinion, has got to be the most-repeated phrase threaded throughout their 23-page response to the 90/10 Rule.
Even so, one of their most concise arguments, and one that makes a lot of sense, highlights the inconsistencies between the 90/10 Rule and other federal rules. The meat of their argument revolves around the use of the Student Aid Index, a new name coming in 2022 for the current Expected Family Contribution (EFC).
The EFC is calculated for federal aid by projecting the amount of money the student or the student’s family can contribute to higher education. The VEP cites the Department of Education data indicating that 40% of undergraduate students have an EFC of $0.
This means that if a student can’t contribute any money toward their education, and is then required to take out federal funding, then the for-profit schools must charge a higher price for education to ensure that the federal loans only account for 90% of the total revenue.
When framed in that manner, the “skin in the game” paradigm makes little sense. However, it is all about framing and rhetoric, as both advocates and opponents to the 90/10 Rule argue for what they think is best for the student.
A History of Best Intentions
Land-Grant College Act of 1862
Federal involvement in education can be traced back to the 19th century with the Land-Grant College Act of 1862. Also known as the Morrill Act, this legislation provided federal land grants to states in order to finance the establishment of colleges.
The Morrill Act granted 30,000 acres of land to each state for each congressional seat it possessed. Some states sold the land to start schools, while others gave the money to existing colleges to create agriculture and mechanic (A&M) schools.
As an interesting note, all land-grant schools were required to have military training as part of their curriculum, which led to the formation of the Reserve Officer Training Corps (ROTC).
The Servicemen’s Readjustment Act of 1944
In June, 1944, President Roosevelt signed into law the Servicemen’s Readjustment Act which gave WWII veterans money for college, unemployment insurance, and housing. It is the first instance of federal money being given for the purposes of financing higher education.
Since the establishment of the GI Bill of Rights in 1944, the possibility of making access to college more equitable has gained tremendous attention. The reasoning, it is supposed, is that if the federal government can grant college money to veterans, then why can’t it do the same for lower income students.
The Growing Beast of Financial Aid
In 1958, Congress passed the National Defense Education Act which gave low-interest loans to college students. If, after graduating, students became teachers, then their loan debts were cancelled.
In 1972, legislators determined that funding aid directly to the student, rather than to the colleges and universities, was the best way to make higher education more accessible to low income families.
This is also the year that the legislative verbiage changed from “higher education” to the more inclusive “postsecondary education”. The goal was to highlight that there were other options available besides the full-time, four-year college experience.
As it relates to the 90/10 Rule debate, it was also in 1972 that for-profit schools, also called proprietary schools, were granted full rights to participate in the Title IX programs.
The Proliferation of Education Profiteering
From a business standpoint, it is not surprising that for-profit institutions are responsive to policies impacting federal student aid. Their livelihood depends on it.
From the early 1970s and throughout the 1980s and 1990’s, the for-profit industry exploded as a result of their inclusion in federal programs. That’s not necessarily a bad thing, though. Hundreds of for-profit schools emerged, many in low-income metropolitan areas.
These schools not only offered programs in business, but they also brought other vital training that would feed employment opportunities to those disadvantaged students. Programs in welding, mechanics, truck driving, and other trades certainly helped keep some people away from poverty.
So, what’s the big deal?
As in every business industry, there were some for-profit schools that abused the federal aid programs, which obviously prompted a legislative response. As a result of this bad publicity and congressional intervention, the for-profit industry shrank considerably.
But that didn’t eliminate the problem. It just eliminated the number of players in the education game that provide learning opportunities to students around the country. This, on its face, is the foundation of VEP’s objection to the 90/10 rule.
They argue that most for-profit schools offer legitimate learning opportunities, which is true. The VEP also argues that the instruction received at for-profit schools, which ties directly to student outcomes, is comparable to public and private colleges and universities that are not proprietary in nature.
Another part of the VEP’s argument is rightfully focused on the provable outcomes faced by students at these public and private universities. Not every student that starts a program finishes it. Not every student that graduates goes on to make a middle-class income. Many do, but not all.
So, by comparing the outcomes between both the for-profit schools and the gargantuan non-profit university systems around the country, the VEP has created the image of equal-footing between proprietary schools and every other school.
But are they equal?
All schools that remain eligible to receive VA benefits on behalf of their veteran students must adhere to rigid protocols and regulations. There is now this idea that for-profit institutions are being unfairly targeted for simply being “for-profit”. When you read the VEP’s rebuttal of the 90/10 Rule, you get the sense that they stopped just short of labeling the current legislation as “prejudicial”.
In a sense, all legislation is prejudicial, as it judges some things to be good and others to be bad. It accepts certain social and universal behaviors, and it rejects others. So, the legislation that places limitations on for-profit schools should not be seen as unfairly targeting proprietary institutions, despite what the VEP says.
Legislation changes, which is why they wrote Collateral Damage. They have every right to be concerned, but so does the government.
A Different Perspective
If you take a satellite view of the situation, here’s what it looks like to me. The federal government, through taxation and legislation, funds the federal student aid programs that make up a hefty portion of the annual budget.
This means that the taxpayers are the ones who ultimately fund the education grants and loans issued by the federal government. The money doesn’t care if it ends up in the vaults of a non-profit or the coffers of a for-profit school. The distinction, and the reason for federal intervention on behalf of the taxpayer, lies in the category in which each school falls.
When federal funding is granted to students and used at non-profit institutions, there is an understanding that the school brings value to the outcome of the student’s life, even if they fail. Even if they do not make a billion dollars over the course of their life. These institutions are not-for-profit, even if they do in fact make a profit. It’s how they’re classified.
Now, when federal funding, or taxpayer funding, is granted to a student and used at a for-profit institution, there is the understanding that the school is a business first, and an institute of higher learning second. When student outcomes, like graduating and making decent money, are less than what was advertised, then there is a consumer concern.
For-profit schools are run like a business, because they are, in fact, businesses. And yet, they are businesses that draw most of their revenue from the federal government through student aid. In essence, taxpayer funding is paying for a large majority of the revenue received by for-profit schools.
Because of this, it seems to weaken the notion that for-profit schools should be somehow protected from the forces of the market. They are businesses, so shouldn’t they live and die based on the market’s desire for their products?
The answer should be “yes”.
These proprietary institutions should want their education services to be desirable enough to attract consumers of all kinds, not just the veterans. But, since many for-profit schools have tied their very existence to programs like the GI Bill, they are in danger of closing if they can not update their policies before the changes take effect.
Countdown to 2023
It must be known that I am not for or against proprietary schools. I think they have a place in society and educate thousands of students every year. In fact, in today’s terms, wouldn’t Plato’s Academy be considered for-profit?
The fundamental flaw that I see in the argument against the 90/10 Rule is that for-profit institutions want more than anything to have the protections of their non-profit counterparts. This is understandable, but all of their problems exist at a legal level.
No one forced these proprietary schools to organize and register themselves as “for-profit”. It was an entrepreneurial drive that founded most proprietary schools. I will also concede, though, that forming a nonprofit college or university is much harder to do. Which means that the decision to become a for-profit institution was done with the knowledge that they will operate both in the realms of business and education for the duration of their existence.
Ultimately, it’s about what is best for the student. Whether those students are veterans, come from homes below the poverty line, or even if they hail from other countries, no one wants to have a poor education.
To my mind, education is one of the most valuable investments anyone can make in their lives. I believe that an educated citizenry is the foundation of a free society. Knowledge should be available for everyone.
It is foolish, however, to think that education will cause everyone to agree on everything. Humans have disagreed on most things for as long as we’ve walked this planet. But education does grant the freedom to think differently, and even dissent from what is popular at the time.
This extends to the 90/10 debate. I believe that both sides are arguing for what’s best, both for their students and, as it directly ties to their livelihood, their schools. I don’t want to see good schools go under because of a whimsical legislative change. But I also don’t want to see bad schools continue to dupe students and taxpayers.
This debate is sure to heat up as we draw closer to the deadline. In 2022, there will certainly be significant developments as the Department of Education rewrites the rules for federal student aid.
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