Analysis Finds Many For-Profit Schools Bending Federal Student Loan Limits

New analysis released today by the U.S. Department of Education reveals many for-profit schools would likely exceed the 90/10 federal funding limits if revenue from Department of Veterans Affairs (VA) and the Department of Defense (DOD) programs were included in the 90/10 calculation the same way Title IV funds are included. The annual 90/10 report also released today finds 17 for-profit colleges out of compliance with existing federal funding limits.

New estimates by the VA and DOD found that by counting VA’s Post 9/11 GI Bill benefits as federal aid, the number of schools receiving at least 90 percent of their revenue from federal education programs would jump from 17 to nearly 200. The total federal aid dollars administered by schools that rely on federal funds for more than 90 percent of their total revenues would increase from approximately $ 80 million to an estimated $ 8 billion. This analysis considers revenue reported by institutions for institutional fiscal years ending during the 2013-14 award year.

Currently, for proprietary institutions participating in Federal student aid programs, no more than 90 percent of revenue can come from Title IV Federal student loans and grants. The long-standing 90/10 rule requires that for-profit institutions derive at least 10 percent of their revenue from non-Title IV student aid programs to show that institutions can attract funding from sources other than solely from the federal government, as a proxy for quality. However, because of a statutory loophole, the 90/10 rule does not count GI Bill educational benefits administered by the VA and DOD Tuition Assistance program as federal funding.

“These benefits were created in recognition of the selfless sacrifices made by our veterans and servicemembers, not to make them a target for predatory businesses,” said U.S. Secretary of Education John B. King Jr.

The loophole has created a well-documented incentive for certain for-profit institutions to target eligible servicemembers, veterans, and their families in an effort to more easily meet the 10 percent non-federal aid requirement. Holly Petraeus, the Assistant Director for Service Member Affairs at the Consumer Financial Protection Bureau, described this loophole as causing for-profit colleges to see servicemembers as nothing more than “dollar signs in uniform.”

“These findings shine a light on the institutions skirting the 90/10 Rule by relying on the hard-earned education benefits awarded to servicemembers,” said U.S. Under Secretary of Education Ted Mitchell. “Closing the 90/10 loophole would remove the incentive for-profit schools have for recruiting veterans and servicemembers aggressively for programs that may not serve them well.”

To protect America’s troops and veterans from targeting by predatory institutions, the President’s Budget has proposed including all Federal educational aid programs, including veteran and servicemember aid and reverting the 90 percent benchmark back to the original 85 percent in the calculation. If the threshold were lowered, analysis shows that the number of failing schools in a single year would increase from 17 to 563 schools that receive combined federal aid totaling $ 12.6 billion.

In November, President Obama issued a Presidential Memorandum aimed at strengthening the Federal Government’s work in promoting fair practices by education institutions that serve servicemembers, veterans, eligible spouses, and other family members. The Memorandum directed the Department of Education, DOD, VA as well as the Department of Justice to establish an enforcement subcommittee focused on improving the handling of servicemember and veteran-student complaints; deterring false or misleading advertising by educational institutions or others concerning their education benefits; advancing protocols for removing non-compliant schools from the Principles of Excellence, or developing other appropriate measures to protect the integrity and accuracy of information about this initiative; and developing a common set of early-warning protocols and accountability measures to improve performance by educational institutions on behalf of servicemembers and veterans.

Annual 90/10 Reports Reveals 17 For-Profit College As Out of Compliance

A report released today identifies 17 for-profit colleges that derived more than 90 percent of their annual total revenue from federal Title IV student aid dollars based on audits completed during the 2014-2015 award year, placing each in violation of the 90/10 Rule. Two of the 17 schools, Pat Wilson’s Beauty College and United Medical and Business Institute, missed the required ratio for two consecutive years and effective January and July 2015, respectively, lost eligibility to participate in Title IV federal student aid programs for at least two years.

If a school is found in violation of the rule for two consecutive award years, it becomes ineligible to participate in Title IV federal student aid programs for at least two fiscal years. Fifteen of the 17 institutions found in violation of the rule will remain eligible on a provisional basis because they satisfied the 90/10 rule for the institution’s previous fiscal year. After these institutions submit their next financial statement audits, the Department will determine if the remaining 15 institutions are eligible for continued participation in federal student aid programs.

The full report includes detailed information about the amount and percentage of each for-profit institution’s revenues from Title IV sources and non-Title IV sources.

Ensuring Servicemembers Receive the Benefits they Deserve

In March, Secretary King directed federal loan servicers to review borrower accounts dating back to 2008 and automatically provide credit to any eligible servicemember who had not already received lower federal loan interest rates in accordance with the Servicemembers Civil Relief Act (SCRA). Loan servicers have made significant progress in their reviews and in providing these credits. As of December 2016, approximately 113,000 borrowers have been identified as eligible for lowered interest rates. To date, roughly 83,000 adjustments have been completed and an estimated $ 4 million will be returned to eligible borrowers.

Since May, 2014, federal loan servicers have been required to actively identify borrowers eligible for SCRA benefits through an online database. The eligibility check will ensure the eligible servicemembers receive the interest rate benefit automatically.

At the request of members of Congress, the Department commissioned an independent audit to evaluate federal loan servicer Navient’s compliance in awarding SCRA benefits to eligible servicemembers who requested those benefits between June 2009 and May 2014. The audit found that Navient complied in all material respects with applicable SCRA requirements and that isolated incidents of improper denial of benefits had since been retroactively remediated.

Steve Rhode
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