Michigan Attorney General Dana Nessel is joining a bipartisan group of states in providing comments commending the U.S. Department of Education’s proposed improvements to the 90/10 Rule following a months-long negotiated rulemaking process aimed at reaching new regulatory proposals to prohibit for-profit schools from receiving more than 90 percent of their revenue from federal student aid. The comments also call on the Department to adopt stronger regulations to protect borrowers from the perils of improper conversions by for-profit schools to nonprofit status.
The letter applauds the Department for proposing regulations that would protect borrowers from dangerous loopholes that have plagued the 90/10 Rule, eliminating financial incentives for schools to aggressively target members of the military. The proposed regulations were approved by consensus during the negotiated rulemaking in which representatives from the Massachusetts Attorney General’s Office and Minnesota Attorney General’s Office served on behalf of all state attorneys general.
“Over the years, it has become increasingly clear that for-profit schools require additional regulation to prevent them from taking advantage of the very people who come to them for help improving their lives through higher education,” Nessel said. “These institutions have used loopholes to subvert the 90/10 Rule to target our military servicemembers and veterans with high-pressure recruiting tactics. This proposed new rulemaking is a step in the right direction if we are going to protect student borrowers and prevent for-profit schools from converting to nonprofits in name only. I proudly stand with my colleagues in supporting this critical update.”
The 90/10 Rule was originally directed by Congress in 1992 as a response to findings of fraud, waste, and abuse in the for-profit higher education sector, including issues like tuition increases tied to maximum financial aid, disbursements of financial aid without concern for whether students could repay their debt, and other problems with program integrity. According to the letter, Congress created the 90/10 Rule as a “bright-line quality-control measure” for schools.
Bad actors, however, soon found ways to exploit gaps in the 90/10 framework, specifically the exclusion of benefits disbursed from Veterans Affairs (VA) from the calculation of federal aid revenues. Because the Post 9/11 GI Bill made billions of dollars in new educational revenue available for veterans and their families, a market of potential paying students emerged for schools looking to exploit and maximize financial aid. While the new benefits administered by the VA were funded by taxpayers, none of these dollars counted towards schools’ 90% cap on federal funding. According to the letter, the “90/10 loophole” not only undermined the purpose of the Rule, but it created perverse incentives for abusive and low-quality programs to target recruitment at servicemembers and veterans.
The Department’s proposed updates to the 90/10 Rule effectuate Congress’s recent action to close the loophole related to financial aid administered by the VA and improve the Rule’s application.
In addition to supporting the Department’s proposed 90/10 regulations, the comments also address the Department’s proposed regulations regarding changes in institutional ownership. While the coalition applauds the Department for addressing the risks associated with for-profit to nonprofit conversions, it urges the adoption of additional measures to ensure that the Department is not “inadvertently creating loopholes that are subject to abuse by institutions with problematic financial incentives.” A report published in 2020 found that 75 percent of institutions converting from for-profit to nonprofit status between January 2011 and August 2020 were sold to entities that have never before operated education institutions. One-third of these transactions involved some level of “insider involvement,” raising the risk of continued financial entanglements with previous owners.
The letter also includes recommendations to strengthen protections against improper revenue-sharing between converted nonprofit institutions and former owners or affiliated entities, and to reconsider regulations that would reduce the threshold for what automatically constitutes a change of ownership requiring Departmental review.
In addition to AG Nessel, the bipartisan letter, led by Massachusetts Attorney General Maura Healey and Minnesota Attorney General Keith Ellison, is also joined by the attorneys general of Alabama, California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Illinois, Maryland, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Washington, and Wisconsin.
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