Beginning late last year, Democrats in the U.S. House and U.S. Senate have introduced legislation substantially modifying the 90/10 provision of Title IV of the Higher Education Act of 1965 that limits the amount of Title IV revenue a private sector institution may receive. Private sector institutions participating in the Title IV programs need to be aware that there is a groundswell of sentiment from Democrats in the House and the Senate pushing to impose stricter requirements to the 90/10 calculation. Unless opinions on this matter are swayed substantially or the congressional balance of power changes significantly, there is presently an air of inevitability that 90/10 will become a much more difficult requirement for private sectors institutions to meet.
II. PENDING LEGISLATION
A. POST ACT
On June 30, 2010, Senator Richard Durbin, Democrat of Illinois delivered a speech at the National Press Club where he proposed:
Creating the Consumer Financial Protection Bureau (CFPB) to oversee private student loans at for-profits;
Considering the “appropriate[ness]” of using federal funds for “slick” marketing campaigns; and
Considering the “appropriate[ness]” of the practice of buying accreditation from non-profit schools.
A few weeks later, on July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which among other things, created the CFPB.
Most recently, Senator Durbin made good on his proposal to seek to “tighten” the 90-10 rule, the statute which presently imposes a limit of 90% as the portion of revenue a for-profit institution may receive in funds authorized by Title IV of the Higher Education Act. On January 22, 2012, Senator Durbin introduced the Protecting Ours Students and Taxpayers Act (POST Act). The bill is co-sponsored by Senator Tom Harkin, Democrat of Iowa.
The bill, if passed, would do the following:
- 90/10 to 85/15
The bill reinstates the 15% minimum on revenue that comes from sources other than the Federal Government.
- What is Included in 90 (85) Side of Equation
Under current law, only Title IV funds are included as federal funding with a maximum limit. Under the Post Act, G.I. Bill funds, Department of Defense Tuition Assistance benefits and all other federal funds would be subject to the maximum limit.
The bill places the Title IV revenue restriction back into the portion of the Title IV statute that defines a “proprietary institution of higher education.” This would have the effect of making any single failure to meet the restriction cause for termination of eligibility for Title IV participation.
- Non-Title IV Programs
Current law permits institutions to count non-Title IV revenue from non-Title IV programs to count toward the 10% (15% under the POST Act) side of the 90/10 fraction if the program is approved by an appropriate state agency; accredited by an agency recognized by the Secretary, or provides an industry-recognized credential or certification. The POST Act would eliminate this provision.
- Funds that Rebut the Presumption
Government contract revenue: Current law permits funds provided under a contractual arrangement with a Federal, State, or local government agency for the purpose of providing job training to low-income individuals (e.g., WIA funds) to rebut the presumption that those funds are being applied to tuition, fees, and other institutional charges. In other words, under existing law, WIA and WIA-type funds will not count toward the 90 (85 under the POST Act) portion of the fraction if there is a sufficient amount of other revenue that may be attributed to such charges. The POST Act would eliminate this provision and presume that all federal funds are used for such charges.
Institutional scholarships: The POST Act specifies that for institutional scholarships to count on the 10 (15 under the POST Act) side of the fraction and to rebut the presumption, the outside source funding such scholarships may not have employees in common with the institution. Current law has no such provision.
- Restriction on Definition of “Revenue”
The POST Act excludes from the definition of “revenue” to be included in the 85/15 calculation:
*All federal matching funds from the institution, not just Title IV matching funds
*Refunds of any federal funds, not just refunds of Title IV funds.
- Institutional Loans
The Post Act eliminates the ability of schools to use the accrual basis for accounting for institutional loan revenue.
B. OTHER LEGISLATION
1. Military and Veterans Education Protection Act.
In mid-February, Senator Tom Carper, Democrat from Delaware together with Representatives Jackie Speier (D-CA), Rosa DeLauro (D-CT), Mike Quigley (D-IL), and Walter Jones (R-NC), introduced the Military and Veterans Education Protection Act (Senate Bill 2116 and House Bill 4055). This legislation, like the POST Act would place Department of Defense (DOD) and Department of Veterans Administration (VA) revenue in the 90% part of the 90/10 calculation. However, it is not as draconian as the POST Act. For example, it does not change 90/10 to 85/15 and it would not have a one-strike-you’re-out rule, like the POST Act. Nevertheless, the sanction for not complying would be not only the loss of Title IV eligibility but also the lost of DOD and VA funding.
2. Ensuring Quality Education for Veterans Act
This series of legislation was launched by Maxine Waters, Democrat from California with the Ensuring Quality Education for Veterans Act. She introduced the bill on December 20, 2011. This bill, like the others, would include veterans’ education benefits in the 90 side of the 90/10 calculation and would make non-compliant institutions lose not only Title IV eligibility but eligibility for veterans’ education benefits as well.
3. Senator Al Franken’s Remarks
Senator Al Franken, Democrat from Minnesota, has recently stated that he is also considering similar legislation that would include veteran education benefits in the 90 side of the 90/10 calculation.
For additional information about both the current requirements of the law or the pending legislation, you may contact Yolanda Gallegos, Esq. at [email protected].