First on CNN: New Biden administration rule closes loophole incentivizing for-profit colleges to target veterans

By Katie Lobosco, CNN

The Biden administration finalized a new rule Thursday, cracking down on predatory for-profit colleges by doing away with a longstanding loophole that created a financial incentive to target veterans and service members.

For years, closing the loophole, known as the “90/10 rule,” has been a top priority of veterans and military organizations. They have argued that some for-profit colleges use aggressive practices and deceptive marketing to recruit veterans and service members in particular.

Congress included a provision to close the loophole in the American Rescue Plan, a pandemic aid package that was signed into law by President Joe Biden in 2021. The provision delayed the implementation of the change for two years. In the meantime, the Department of Education has been consulting with experts in a formal rule-making process in order to finalize the details of the new regulation.

The new rule will take effect in January 2023. Schools will have to comply beginning whenever their new fiscal year starts.

The 90/10 rule is meant to limit the amount of revenue that for-profit colleges receive from the federal government. It requires that 10% of an institution’s revenue come from non-federal sources.

But the rule has allowed these colleges to count G.I. Bill and Defense Department Tuition Assistance benefits toward the 10% of revenue supposed to be coming from non-federal sources. This created a financial incentive for for-profit colleges to enroll more veterans and military members.

Starting in 2023, for-profit colleges will no longer be able to count money from veteran and service member benefits toward that 10% revenue requirement.

As is the case now, schools will lose eligibility to participate in the Title IV student aid programs if they fail the 90/10 calculation for two consecutive years. That would make their students ineligible from receiving federal student loans and grants, a move that could deliver a devastating blow to a school’s enrollment.

Closing this loophole is one of two rules finalized by the Biden administration Thursday that aim to hold for-profit colleges accountable for their actions.

The second rule aims to strengthen the requirements for higher education institutions that are undergoing changes of ownership, particularly for-profit institutions seeking to convert to nonprofit, tax-exempt status. The rule will take effect in July 2023.

While a for-profit college may convert to nonprofit status for a variety of reasons, the US Government Accountability Office has warned that in some cases, former owners or other insiders could improperly benefit from the conversion.

“These new rules crack down on some of the most deceptive practices we see in higher education, such as predatory marketing tactics that target U.S. service members and veterans, and changes in ownership designed to evade accountability to taxpayers,” said Education Secretary Miguel Cardona in a news release.

Under Biden, the Department of Education has also accelerated processing claims from former students who claim they were defrauded by their for-profit colleges. There was a backlog of these applications, which are known as borrower defense claims, when Biden took office. Since then, the Department of Education has approved about $14 billion in student loan cancellation for more than 1 million borrowers under this program.

The Department of Education also finalized a separate rule Thursday, which will make incarcerated individuals enrolled in qualifying prison education programs eligible for the federal Pell grants, which can be worth up to $6,895 a year for low-income students.

Congress authorized the change in 2020, lifting a yearslong ban on Pell grants for people in prison, as part of a large federal spending package. The provision won’t take effect until July 2023.

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