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The U.S. Department of Education on Tuesday released a series of new regulatory proposals that would limit the amount of federal financial aid for-profit colleges can receive, add new rules for proprietary institutions converting to nonprofits lucrative and extend Pell Grants to incarcerated students.
Ed Department officials outlined the proposals as part of the Biden administration’s plan to reduce student debt and strengthen oversight of for-profit colleges.
“Today’s announcement is an important step the Biden administration is taking as part of a broader effort to ensure student debt is affordable and colleges are held accountable for unaffordable debt,” said James Kvaal, the department’s top higher education official, during a call with reporters.
The Department of Education will soon officially publish the draft regulations, which the public can comment on for 30 days. The agency plans to finalize the rules later this year so they can go into effect July 1, 2023.
Closing the loophole 90/10
The proposed settlement would change the 90/10 rule, which requires for-profit colleges to derive at least 10% of their revenue from sources other than Title IV financial aid. Title IV aid includes federal student loans and Pell Grants.
For years, for-profit colleges were able to count military education funding, like GI Bill benefits, on the 10% side. Many policy advocates have argued that this creates a legal loophole and pushes for-profit colleges to aggressively recruit veterans.
However, Congress passed legislation last year to put all federal education funds into the 90% calculation. Department Ed’s proposal will make that change in the regulations, a move it says will protect veterans.
“Before this change, this loophole led some institutions to aggressively target these populations, because every dollar contributed by them meant they could receive an additional $9 in aid from the Department of Education without needing to secure an investment. private,” the agency wrote in a fact sheet. accompanying the proposals.
The proposal would also restrict when for-profit colleges could count institutional loans and other funding arrangements as non-federal revenue. Colleges would not be able to include in the calculation of the 10% revenue that arises from the sale of their student loan portfolios, according to the draft document.
Earlier this year, the Ed Department reached consensus with multiple stakeholders — including for-profit colleges, nonprofit institutions and consumer representatives — on the draft regulatory language for the 90/10 Rule.
Still, career colleges and universities, which represent for-profit institutions, criticized changes to the 90/10 rule on Tuesday.
“The 90/10 rule established by Congress is misguided policy,” said CECU President and CEO Jason Altmire. “While we fundamentally disagree with this flawed measure of accountability, we commend the Department for adopting the consensus language agreed upon during the process of developing the negotiated rules.
Crack down on non-profit conversions
Dozens of for-profit colleges have sought in recent years to become non-profit institutions when acquired. But policy advocates have warned that some of these schools could still benefit their owners financially, even if they shed the regulatory burden of being for-profit.
Kvaal echoed those arguments on Tuesday.
“We are concerned that some colleges seek to be nonprofits in name only, enjoying the benefits of that status and avoiding rules such as the 90/10 rule while owners and managers continue to profit from them,” said said Kvaal.
The United States Government Accountability Office, an audit agency for Congress, has reported some of these offers.
GAO counted nearly five dozen nonprofit conversions between January 2011 and August 2020. In about a third of those transactions, the new college nonprofit still maintained a relationship with its former owners, allowing them to influence the institution’s financial decisions.
The new proposed rule would clarify that a college would generally not be considered a nonprofit if it has a revenue-sharing agreement with a former owner, current or former employee, or board member. which is inconsistent with market value. This change could impact colleges seeking not-for-profit status, depending on the value of their contracts.
The University of Arizona, for example, recently acquired Ashford University, a for-profit institution, and rebranded the institution as the University of Arizona Global Campus. However, UAGC donates part of its revenue to its former owner, Zovio, in exchange for services such as marketing and recruiting.
The regulatory proposal would also require some colleges looking for new owners to post letters of credit, a type of financial guarantee, equal to 10% or 25% of their federal Title IV student aid. The move is intended to ensure that taxpayers are protected against risky transactions, according to the Department’s Ed.
Extending Pell Grants to Incarcerated Students
Incarcerated students have been largely excluded from the Pell Grant program since the 1990s, when then-President Bill Clinton pushed a series of tough-on-crime policies. But more 9,000 students incarcerated earned a certificate or diploma through a limited federal experience, called Second Chance Pell, which has allowed some inmates to use federal education funding since 2016.
Starting in July 2023, a new federal law will allow all incarcerated students to access Pell grants. With that in mind, Tuesday’s regulatory proposal would establish requirements for providers of prison education programs.
The draft would prohibit colleges from enrolling incarcerated students in programs designed to lead to licensure or employment in certain professions if state or federal laws prevent them from entering those fields because of their criminal convictions.
For example, Florida law automatically denies massage therapist licenses to applicants who have been convicted of certain crimes, including kidnapping or human trafficking.
The proposal would also change requirements for colleges requesting a waiver from a statutory limit that prohibits institutions from enrolling more than 25% of their students from correctional facilities. Waivers would be granted based on factors such as completion rates and the financial health of the institution.