Many For-Profit Colleges Get More Than 90% Of Funding From Federal Government

For-profit colleges operate under the so-called “90/10 Rule,” which states that a school can’t receive more than 90% of its revenue from the federal government. However, there’s a loophole that does not count certain military-related education funds — like the GI Bill — against that 90%, meaning these schools can go over that 90% threshold without violating the 90/10 Rule. And according to a new report, hundreds of for-profit schools are indeed getting nearly every dollar of their funding from taxpayers.

The Department of Education released an analysis Wednesday suggesting that nearly 200 for-profit colleges would be in violation of the 90/10 rule if revenue from the Department of Veterans Affairs and the Department of Defense programs were included in the calculation of the “90” portion of the 90/10 rule.

What Could Be

According to the report [PDF], if the VA’s Post 9/11 GI Bill benefits were counted as federal aid under the rule, the number of schools in breach of the regulation would jump from 17 to 200.

Based on funds recorded in the 2014 to 2014 fiscal year, the Dept. of Education estimates that if the loophole were closed, the total federal aid dollars obtained by schools in violation of the rules would increase from $80 million to $8 billion.

For-profit colleges’ exploitation of the 90/10 rule is nothing new. Last year, lawmakers determined that in the past five years, 40% of Post-9/11 GI Bill tuition benefits have gone to for-profit colleges even as questions continue to be raised about these institutions’ graduation, default, and job placement rates.

Lawmakers have long called on their colleagues and the Dept. of Education to take action to better protect current and former servicemembers who are often targeted by for-profit colleges because of their GI benefits.

It’s unclear exactly why more veterans are choosing for-profit colleges over more economically priced and recognized public schools, but there’s a pretty good chance it has something to do with for-profit’s purported convenience and aggressive recruiting methods.

Holly Petraeus, the Assistant Director for Service Member Affairs at the Consumer Financial Protection Bureau, on Thursday described the 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,” U.S. Under Secretary of Education Ted Mitchell said in a statement. “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.”

Sen. Dick Durbin (IL), who commissioned the Dept. of Education report, said in a statement that the analysis confirmed what many lawmakers already knew: “for-profit colleges are some of the most highly subsidized companies in America.”

“The current 90/10 rule, with its failure to include GI Bill and Defense Tuition Assistance makes our nation’s servicemembers and veterans an attractive target for predatory for-profit colleges,” Durbin said. “Today’s data should encourage Congress to close this loophole and reduce the amount of revenue these so-called private sector companies receive from taxpayers.”

Schools In Violation

While the Dept. of Education’s analysis focuses mostly on what schools could be in violation of the 90/10 rule, it also points out that 17 actually are in violation currently.

Schools in violation include:
• Southern Careers Institute
• United Medical and Business Institute
• Coast Career Institute
• Pat Wilson’s Beauty College
• Institute of Professional Careers
• New Concepts School of Cosmetology
• American Institute
• Southeast School of Cosmetology
• A & W Healthcare Educators
• Head’s West Kentucky Beauty College
• ABC Beauty College
• Kaplan Career Institute
• KC’s School of Hair Design
• American Educational College
• Setting the Standard Barbering and Natural Hair Academy
• Cheryl Fell’s School of Business
• Bridges Beauty College
• A – Technical College

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 schools on the list are first-year offenders, two others — Pat Wilson’s Beauty College and United Medical and Business Institute — missed the ration for the second year in a row. The two schools lost eligibility for Title IV federal student aid for two years effective Jan. and July 2015.