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Thursday, September 22, 2016

Accessing Title IV $$: 90/10 or 85/15... does it matter?

The U.S. Department of Education takes a pretty hands-off approach to deciding which colleges are entitled to receive student financial aid under Title IV of the Higher Education Act. Generally, institutions must merely be licensed by the state in which they operate, accredited by a federally recognized accrediting agency, the institution's former students may not exceed certain default rates on existing Title IV loans, and, as I previously pointed out, they also cannot have filed for bankruptcy. For-profit education companies must satisfy some additional requirements, including the gainful employment rules and the 90/10 rule. This post is about the 90/10 rule.

The 90/10 rule allows for-profit institutions of higher education to derive up to 90 percent of their revenue from Title IV's loan and grant programs. The purpose of this limit is to use students' willingness to have some "skin in the game" as a proxy for that school's quality, thus obviating the need for the federal government to separately consider the school's quality. However, the way the regulations are written, VA and other military tuition assistance benefits are not included in the 90 percent calculation. One result is that for-profit colleges have aggressively recruited veterans. To the extent the 90/10 rule could have been an effective proxy for institutional quality, this loophole virtually ensures that it is not. Because of this loophole, in 2014, more than 130 for-profit colleges were almost completely taxpayer subsidized and hundreds more were close to hitting the 90 percent cap. If nothing else, this loophole should be eliminated.

DeVry Education Group, one of the nation's largest, for-profit college chains, recently announced that it would "voluntarily limit the amount of revenue that each of its six Title IV institutions derive from federal funding to 85 percent." In addition, it promised to stop using the military benefits loophole, and count military tuition assistance benefits, such as benefits under the G.I. Bill, in that 85 percent figure. My response below the fold.

DeVry describes the move as underscoring its "commitment to finding solutions to the issues facing higher education today,” as "part of a broader effort to . . . demonstrate the quality and value of our programs.” Others consider the move to be "a response to broad criticisms of the for-profit education industry." To me, however, this just seems like marketing. Reportedly, none of DeVry's campuses currently receive more than ~ 80 percent of their revenue from federal funds. And, as pointed out by Inside Higher Ed, "There is growing and bipartisan support for returning to the 85 percent limit on federal funds and for closing the veterans and military funds loophole." In other words, DeVry announced that it would adhere to a limit it wasn't currently exceeding, and that may be forced upon it one way or the other. That's smart business, but nothing to write home about.

But even if the 90/10 rule reverts to being the 85/15 rule (which was the rule from 1992-98) and the military benefits loophole is closed, it's not clear that these are sufficient improvements to ensure that colleges aren't siphoning off taxpayer dollars while granting students worthless degrees. For example, a number of for-profit colleges have been accused of using private loan programs to subvert the 90/10 rule. These private loans count toward the ten percent of non-Title IV loans that a school must demonstrate it receives. For example, now-defunct Corinthian Colleges used a private loan program dubbed "Genesis" to circumvent the 90/10 rule. While approximately 60 percent of the half a billion dollars in Genesis loans reportedly defaulted within three years, these private loans allowed Corinthian to remain Title IV-eligible. Was Corinthian Colleges providing the type of high-quality educations we want taxpayers to subsidize? Was ITT Tech? Is DeVry?

It seems that a different regulatory approach is needed. Preferably an approach that doesn't use teenagers' assessments of the future value of their degrees to assess whether an institution should be Title IV eligible.

Posted by Matthew Bruckner on September 22, 2016 at 11:09 AM | Permalink

Comments

Feds have taken some action on lightweight accrediting agency ACICS, http://acics.org/news/content.aspx?id=6782

Posted by: Matthew Bruckner | Sep 22, 2016 7:00:04 PM

The CFPB has stepped in to take action related to Corinthian's Genesis program. see https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-aequitas-capital-management-aiding-corinthian-colleges-predatory-lending-scheme/

Posted by: Matthew Bruckner | Aug 18, 2017 10:25:47 AM

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