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90/10 Rule

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This section of FinAid provides background information concerning the 90/10 rule. The 90/10 rule requires for-profit colleges to get no more than 90% of their revenues from Title IV federal student aid. This discussion is technical and is unlikely to be of interest to consumers.

Revenue Percentage Data

The FSA Data Center includes data concerning Proprietary School 90/10 Revenue Percentages.

Related VA Rule

The Department of Veterans Affairs has a similar rule, which requires no more than 85% of a program's students receive VA funding. Note that the VA rule relates to the percentage of students, not funding.

The 85-15 student ratio rule was added by the Veterans' Benefits Act of 1992 (PL 102-568, 10/29/1992) and appears in 38 USC 3680A(d)(1):

Except as provided in paragraph (2) of this subsection, the Secretary shall not approve the enrollment of any eligible veteran, not already enrolled, in any course for any period during which the Secretary finds that more than 85 percent of the students enrolled in the course are having all or part of their tuition, fees, or other charges paid to or for them by the educational institution or by the Department of Veterans Affairs under this title or under chapter 106 of title 10. The Secretary may waive the requirements of this subsection, in whole or in part, if the Secretary determines, pursuant to regulations which the Secretary shall prescribe, it to be in the interest of the eligible veteran and the Federal Government.
Similar language appeared previously in 38 USC 1673(d), which was enacted as part of the Veterans' Readjustment Assistance Act of 1952, also known as the Korean Conflict GI Bill (PL 82-550, 7/16/1952).

Legislative History

The restrictions on revenue percentages at for-profit colleges were initially introduced in 1992 as the 85/15 rule and subsequently modified into the 90/10 rule in 1998.

  • The Higher Education Amendments of 1992 (PL 102-325, 7/23/1992) amended subsection 481(b) of the Higher Education Act of 1965 [20 USC 1088(b)] to introduce the 85/15 rule effective October 1, 1992. The legislation added paragraph (6): "which has at least 15 percent of its revenues from sources that are not derived from funds provided under this title, as determined in accordance with regulations prescribed by the Secretary".

  • The Higher Education Amendments of 1998 (PL 105-244, 10/7/1998) moved the language defining the 85/15 rule to section 102(b)(1)(F) of the Higher Education Act of 1965 [20 USC 1002(b)(1)(F)] and substituted "10 percent" for "15 percent" and "Title IV" for "this title", effective October 1, 1998.

  • The Higher Education Opportunity Act of 2008 (PL 110-315, 8/14/2008) moved the language to section 487(a)(24) of the Higher Education Act of 1965 [20 USC 1094(a)(24)] and replaced the regulations for calculating the percentage of revenues with a statutory encoding in a new section 487(d), effective upon enactment on August 14, 2008. It also clarified the reference to "Title IV" for technical reasons.

The current language for the 90/10 rule appears in section 487(a) of the Higher Education Act of 1965 [20 USC 1094(a)(24)]:

In the case of a proprietary institution of higher education (as defined in section 1002(b) of this title), such institution will derive not less than ten percent of such institution's revenues from sources other than funds provided under this subchapter and part C of subchapter I of chapter 34 of title 42, as calculated in accordance with subsection (d)(1), or will be subject to the sanctions described in subsection (d)(2).

The formula for calculating the revenue percentages is specified in 20 USC 1094(d)(1):

  1. Implementation of non-title IV revenue requirement

    1. Calculation

      In making calculations under subsection (a)(24), a proprietary institution of higher education shall —

      1. use the cash basis of accounting, except in the case of loans described in subparagraph (D)(i) that are made by the proprietary institution of higher education;

      2. consider as revenue only those funds generated by the institution from —
        1. tuition, fees, and other institutional charges for students enrolled in programs eligible for assistance under this subchapter and part C of subchapter I of chapter 34 of title 42;
        2. activities conducted by the institution that are necessary for the education and training of the institution's students, if such activities are —
          1. conducted on campus or at a facility under the control of the institution;
          2. performed under the supervision of a member of the institution's faculty; and
          3. required to be performed by all students in a specific educational program at the institution; and
        3. funds paid by a student, or on behalf of a student by a party other than the institution, for an education or training program that is not eligible for funds under this subchapter and part C of subchapter I of chapter 34 of title 42, if the program —
          1. is approved or licensed by the appropriate State agency;
          2. is accredited by an accrediting agency recognized by the Secretary; or
          3. provides an industry-recognized credential or certification;

      3. presume that any funds for a program under this subchapter and part C of subchapter I of chapter 34 of title 42 that are disbursed or delivered to or on behalf of a student will be used to pay the student's tuition, fees, or other institutional charges, regardless of whether the institution credits those funds to the student's account or pays those funds directly to the student, except to the extent that the student's tuition, fees, or other institutional charges are satisfied by —
        1. grant funds provided by non-Federal public agencies or private sources independent of the institution;
        2. funds provided under a contractual arrangement with a Federal, State, or local government agency for the purpose of providing job training to low-income individuals who are in need of that training;
        3. funds used by a student from savings plans for educational expenses established by or on behalf of the student and which qualify for special tax treatment under title 26; or
        4. institutional scholarships described in subparagraph (D)(iii);

      4. include institutional aid as revenue to the school only as follows:
        1. in the case of loans made by a proprietary institution of higher education on or after July 1, 2008 and prior to July 1, 2012, the net present value of such loans made by the institution during the applicable institutional fiscal year accounted for on an accrual basis and estimated in accordance with generally accepted accounting principles and related standards and guidance, if the loans —
          1. are bona fide as evidenced by enforceable promissory notes;
          2. are issued at intervals related to the institution's enrollment periods; and
          3. are subject to regular loan repayments and collections;
        2. in the case of loans made by a proprietary institution of higher education on or after July 1, 2012, only the amount of loan repayments received during the applicable institutional fiscal year, excluding repayments on loans made and accounted for as specified in clause (i); and
        3. in the case of scholarships provided by a proprietary institution of higher education, only those scholarships provided by the institution in the form of monetary aid or tuition discounts based upon the academic achievements or financial need of students, disbursed during each fiscal year from an established restricted account, and only to the extent that funds in that account represent designated funds from an outside source or from income earned on those funds;

      5. in the case of each student who receives a loan on or after July 1, 2008, and prior to July 1, 2011, that is authorized under section 1078-8 of this title or that is a Federal Direct Unsubsidized Stafford Loan, treat as revenue received by the institution from sources other than funds received under this subchapter and part C of subchapter I of chapter 34 of title 42, the amount by which the disbursement of such loan received by the institution exceeds the limit on such loan in effect on the day before May 7, 2008; and

      6. exclude from revenues-
        1. the amount of funds the institution received under part C of subchapter I of chapter 34 of title 42, unless the institution used those funds to pay a student's institutional charges;
        2. the amount of funds the institution received under subpart 4 of part A;
        3. the amount of funds provided by the institution as matching funds for a program under this subchapter and part C of subchapter I of chapter 34 of title 42;
        4. the amount of funds provided by the institution for a program under this subchapter and part C of subchapter I of chapter 34 of title 42 that are required to be refunded or returned; and
        5. the amount charged for books, supplies, and equipment, unless the institution includes that amount as tuition, fees, or other institutional charges.

Arguments For and Against the 90/10 Rule

Proponents of the 90/10 rule argue that the rule ensures that students have "skin in the game" by requiring them to pay for part of the costs of their education at a for-profit college. They characterize the 90/10 rule as preventing low-quality schools from obtaining federal student aid.

Opponents of the 90/10 rule argue that the students at for-profit colleges are predominantly low-income students without the financial resources to cover 10% of the costs on their own. They also argue that the 90/10 rule forces for-profit colleges that are close to the 90% threshold to raise tuition whenever Congress increases federal student aid funding. The opponents to the 90/10 rule argue that the rule does not correlate well with quality of the education. They also argue that most community colleges would not pass the 90/10 rule if they were subjected to the rule and state grants and appropriations were counted alongside federal student aid.

A US Government Accountability Office report, For-Profit Schools: Large Schools and Schools that Specialize in Healthcare Are More Likely to Rely Heavily on Federal Student Aid (GAO-11-4, October 4, 2010), addressed the 90/10 rule, finding no relationship between a college's tuition rate and the likelihood of having a high 90/10 revenue percentage. Colleges with low tuition rates did not have much higher 90/10 revenue percentages. The GAO report did not evaluate correlations between the magnitude of changes in a college's tuition rates, changes in federal student aid funding per student and 90/10 revenue percentages. The GAO report did find that colleges with a high proportion of low-income students (Pell Grant recipients) tended to have higher 90/10 revenue percentages.

Current Issues

Some proponents of the 90/10 rule have proposed a variety of changes to the rule, including a return to the 85/15 rule and the inclusion of military student aid (GI Bill and Tuition Assistance funds) within the scope of the rule. Opponents have been lobbying for a repeal of the 90/10 rule.

 

 
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