Published on 2013/12/17

Reviewing the 90/10 Rule: The Need to Keep Step with Today’s Reality

Reviewing the 90/10 Rule: The Need to Keep Step with Today’s Reality
For-profit schools are increasingly circumventing and simply ignoring federal rules mandating the amount of federal money that can make up institutional operating budgets, to the detriment of veteran students.
Generally, in Washington, there are no quick and easy fixes to problems; however, with regard to certain sections of the Higher Education Act, there are a few easy adjustments most reasonable people can agree upon. The 1965 Act, which introduced federal financial aid, mandated that a for-profit institution was required to obtain at least 15 percent of its revenue from sources other than financial aid.  Essentially, the student’s, his or her parents’ or other non-governmental portion was to be 15 percent.

This was, in later years, watered down to 10 percent and came to be known as the 90/10 Rule. Similarly, the preceding Montgomery GI Bill was established with an 85/15 split.  These ratios were established to prevent institutions from selectively exploiting a single resource fund of taxpayer dollars. One of the loopholes that has emerged over recent years, however, is that GI Bill funds and Department of Defense Tuition Assistance are counted as private dollars on the 10 percent side.

In recent years, there has been a perverse incentive for some schools to aggressively recruit students using veteran benefits (GI Bill), active duty military students using Military Tuition Assistance (MilTA) and spouses using the Department of Defense’s MyCAA Military Spouse and Family Educational Assistance Program since these Department-funded programs are not considered taxpayer dollars in the 90 percent portion of the equation. Every dollar of these benefit and entitlement programs that a school receives effectively raises, by $9, its ability to accept other forms of federal student aid, such as Pell grants or government-backed student loans. These unfettered dollars over a three-year period average amount to almost $6 billion.

This has led some unscrupulous colleges to aggressively and deceptively recruit veterans, service members and their families to enroll in often high-priced, low-quality programs. Some of these schools have recently settled claims with the Department of Education or have pending class-action suits pertaining to aggressively recruiting distance learning students, some of whom did not even own computers, to signing up and financially obligating Wounded Warriors with cognitive injuries so great they couldn’t remember which courses they were enrolled in. Some of these same aggressive seekers of those 10-percent funds have lost accreditation or are under review for promising placement in high-paying careers and failing to find their graduates jobs or provide the necessary skills and training to their graduates to make them employable in today’s job market. If the first step is admitting there is a problem fermented by a few bad apples, the second step has to be the application of some regulations, incentives or outcome requirements. An attitude of laissez-faire or self-regulation in an industry which lacks any enforcement capabilities is useless, and relying solely on accrediting bodies comprised of peer institutions to enforce good standards is, perhaps, a Sisyphean task.

Most colleges, for-profit and traditional, have no difficulty staying within the 90/10 threshold. So, why the fuss?

Simply put, no college would ever want to move from a wide-open, multi-source and loosely-regulated revenue stream to a singularly calculated and regulated revenue stream that demands greater accountability. Furthermore, the game of politics has been played by leveling exaggerated claims and allegations at opposing views, circumventing any real discussion of the issue and diluting any real legislative enforcement or change. This is not surprising in a distance learning industry fresh from fighting for their validity over traditional, brick-and-mortar methods of teaching, with substantially deep pockets and teams of lobbyists. In 2009, one for-profit institution was spending $100 million annually on advertising.[1]  With that kind of budget, it’s more effective to make large campaign contributions and flood the halls of Washington with scores of lobbyists than it is to advocate for change and be the standard bearer for an entire industry.

Readers should not conclude that I have an axe to grind with the for-profit industry or distance learning programs. To the contrary, I have sung the praises of both, privately and in publication, over the traditional classroom for years. It should be noted, however, that both the 85/15 GI Bill Rule and the 90/10 Rule were established in a time without online learning and without the behemoth of today’s for-profit education industry. Proponents of the status quo have been reflexively invoking untenable and disingenuous arguments regarding access to education and claims of being the only valid distance learning option available, yet often these same colleges have woeful retention, graduation, default and gainful employment numbers.

It is simply absurd to believe minority, active military, veteran or economically-disadvantaged students can only be serviced by large for-profit institutions pushing the barriers of the 90/10 Rule. California’s per-unit tuition rate is $46, for example, and recent legislation prioritizes enrollments for community college graduates into the state’s four-year schools. Several states now either have articulation agreements between their very affordable community colleges and their four-year institutions or are beginning to offer traditional four-year degrees through their community college systems. For-profit colleges no longer hold the reins of online learning, so they cannot claim to be the only accessible degrees for a non-traditional student body. The argument that altering the 90/10 Rule would lead to lower levels of accessibility among the underserved populations is untenable given the array of college opportunities spanning across all geographical areas, economic levels and federal aid need levels.

With the more easily understood and higher profile issues of gainful employment, state authorization, scrutiny of accrediting agencies, retention, graduation and default rates, it’s possible the 90/10 Rule will continue as it is into the latest ratification of the Higher Education Act. Modification to this rule should seriously be considered, however, since it has not kept pace with the times. The rise of distance (online) learning over the last two decades and the increase of for-profit institutions bringing with them the shareholder-driven commercialization of education beg for a critical look at the current ratios. Just the statistic that student-loan default rate at for-profit institutions is at 47 percent should justify a greater evaluation of the current formulas.[2]

Admittedly, there is a lot of room for discussion about this issue, should it ever occur in a meaningful way. For instance, when calculating “federal dollars,” should federal research grants be factored into the discussion? Should the rule be adjusted based on an institution’s ability to create qualified, employable graduates with a low student debt to earnings ratio? It would be naïve to put too much hope in this year’s scheduled ratification of the HEA, yet that is the best opportunity for meaningful change. The last reauthorization of the Higher Education Act in 2008 took five years longer than was scheduled and the current committee is also in the process of updating the Elementary and Secondary Education Act. Although previous ratifications have had tremendous positive effects, such as the implementation of cost-transparency measures, the current level of dysfunction in Washington coupled with the exponential increase in campaign contributions to key decision makers leaves little hope for substantive change. The education industry spent more than $91 million on lobbying in 2012, and since non-profits are forbidden from such lobbying activities, we can reasonably assume the majority of that money was from the for-profit sector.[3] With campaign contributions now being difficult to track to a single donor, the collective dollars flowing into the campaign coffers of the Senate’s Higher Education Subcommittee is likely an equally lofty sum.

To establish a benchmark goal, a return to the 85/15 calculation of the rule with the inclusion of military and veteran student aid (GI Bill, Tuition Assistance, MyCAA, etc.) would be a positive step forward in updating an increasingly antiquated and circumvented rule.  Even if the ratios are maintained, at the very least, “federal dollars” should account for all “federal dollars” and Veterans Affairs and Department of Defense dollars should be factored into the 90 percent alongside Department of Education contributions. This would close an exploitable loophole and protect our service members, veterans and taxpayers. Once this obvious problem is discussed and resolved, perhaps a pattern of dialogue can be established that would truly lead to transforming education — one that accounts for current economic realities and contemporary educational institutions.

– – – –

References

[1] Marissa Miley, “A Lot of Branding but Not Much Understanding,” Advertising Age, September 7, 2009. Accessed at http://adage.com/article/news/university-phoenix-spends-100-million-annually-advertising/138849/

[2] Aaron Smith, “For-profit schools cash in on the GI Bill,” CNN Money, June 26, 2006. Accessed at http://money.cnn.com/2012/06/26/news/economy/veterans-schools/

[3] OpenSecrets: Center for Responsive Politics, “Lobbying Spending Database: Top Industries,” 2012. Accessed at http://www.opensecrets.org/lobby/top.php?indexType=i&showYear=2012

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Readers Comments

Chuck Dull 2013/12/17 at 8:55 am

The problem with the 90/10 rule is that is makes no sense. The assumption, false assumption, is public schools always and in all ways contribute at least 10% of the tuition in the form of scholarships, endowments and other offsets. The ease of selling this to the public is by tuition rates being lower, in some cases at public schools. The trouble with this is the general public never see the actual tuition rate, which are tax funded. Apples to apples tuition rates are not that different, yet the Title IV funding model is, and for no other reason than a profit motive. There was an article in this publication just the other day noting how all hospitals were once non profit and now most are for profit. I wonder if we all stay away from hospitals because they are for profit. Profit and non profit have very little to do with quality, it is just how we define revenue. Non profits flush with cash pay large salaries, buy homes for their Presidents and more, and what does all that have to do with education quality: nothing. The 90/10 rule has outlived whatever useful life it had, we need education innovation regardless of the driver. As a country we love that profit motivation, and if you look closely you’ll find this could have the same positive effect on education when you stop wasting money on legislation that only increases the tuition price. To prove how silly 90/10 is, one way a school meets it is to increase tuition. Correct, increase tuition. What good does that do any student? Tuition would decrease without 90/10, but then that would cause public schools to compete.

C Demichelis 2013/12/17 at 1:47 pm

I commend Shawn Mann for taking the unpopular, but necessary, position of uncovering the shady practices of some “double dipping” institutions. It’s a shame students, especially military veterans, are having to pay the price for these unscrupulous providers. It’s time for the government to tighten the loopholes.

Philip Balis 2013/12/17 at 4:50 pm

I am concerned that the author is writing this from the prospective of a non-profit school. Non-profits don’t fall under the 90:10 rule.

If non-profits did have to comply with 90:10, they’d have the same problem as many for profits; the student can ask for (and receive) cost of living student loans (well above the cost of tuition), making achieving the 90:10 goal difficult.

    Henry Smalling 2013/12/18 at 9:35 am

    The author’s institution may have some, small impact on his perspective but it doesn’t change the matter at hand.

    There’s no way non-profit or public institutions should fall under the 90/10 rule because they have entirely different purposes. Just look at their profit classification.

    If an institution’s motive is profit for itself and its shareholders, why wouldn’t they do everything they can to line their pockets with public money?

    Non-profits and publics have an obligation to put that money back into the institution, their students and society. For-profits have a responsibility to be profitable.

    End of inane argument.

Anon 2013/12/18 at 1:19 pm

“The argument that altering the 90/10 Rule would lead to lower levels of accessibility among the underserved populations is untenable given the array of college opportunities spanning across all geographical areas, economic levels and federal aid need levels.”

I think Mann betrays how disconnected he is with the statement above. I agree that the federal government should reexamine the 90/10 Rule and update it to match the current context. But to pretend this won’t have an impact on who can access higher education is simply naive. The government, of course, is interested in protecting and maximizing its investments. Institutions, for their part, have a vested interest in getting as much as they can from the government. My hope is that students’ interests don’t get lost in all of this.

    Shawn A. Mann 2014/01/08 at 3:26 pm

    Anon- you anonymously state my position is disconnected and naive, yet you fail to address the evidence offered “…is untenable given the array of college opportunities spanning across all geographical areas, economic levels and federal aid need levels.” And you fail to offer a counter argument.

    The reality is that college has never been more accessible. No longer is a student unable to access college because of geographical location, work/life schedules or their economic situation. I’m not aware of a community college in the country without some type of affordable, distance learning program and the community college mission is to be open to all. It is not the mission of these institutions and many other not-for-profit and private institutions to charge the maximum allowable federal financial aid amount, nor do they. Those are the facts.

    It is clear that many for-profit institutions start their tuition prices at the maximum amount they can receive and, in so doing, do not base their tuition prices on actual costs (i.e. delivery, faculty, administration, facilities, etc.). They base the price on potential profit (i.e. maximum financial return to shareholders). I would argue that this is not the same method of pricing most State, private and not-for-profit institutions use.

Shawn A. Mann 2015/02/12 at 11:26 am

Just as I predicted when this article came out, the discussion to move GiBill dollars into the proper side of the equation is occurring. I am doubtful anything meaningful will come of it, but the discussion is occurring.

http://www.military.com/daily-news/2015/02/11/budget-proposal-restricts-gi-bill-funding-to-for-profit-colleges.html?ESRC=todayinmil.sm

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