July 26, 2022–Today, the U.S. Department of Education (Department) released proposed regulations that would implement critical changes in the American Rescue Plan Act of 2021 that better protect veterans and service members from being subject to aggressive targeting practices by requiring private for-profit institutions to obtain at least 10 percent of revenue from non-federal sources.
This is a change from current practice, in which institutions can count federal aid for veterans and service members to meet the 10 percent revenue test. The proposed rules would also strengthen the requirements for institutions undergoing changes in ownership, including with respect to for-profit institutions seeking to convert to nonprofit status. These ownership conversions have been flagged by the U.S. Government Accountability Office as a source of concerning institutional behavior. Finally, the proposed rules would clarify how incarcerated individuals can begin to access Pell Grants for qualifying prison education programs operated by public and nonprofit institutions.
“Predatory, deceptive practices that target veterans and servicemembers have no place in higher education, period,” said U.S. Secretary of Education Miguel Cardona. “The Biden-Harris Administration believes educating our veterans and service members should be about honoring their contributions to our country, not exploiting them for financial gain. These proposed regulations enact welcome changes by Congress to better protect students who have served, and continue to serve, our nation. These rules will also ensure that efforts by for-profit colleges to convert to nonprofit status are genuine changes, not mere ploys to evade accountability to students and taxpayers.”
This regulatory package is the latest step in the Biden-Harris Administration’s continued commitment to ensure that institutions are held accountable and that all students have access to a valuable postsecondary education. The proposed regulations, which were negotiated by two committees of stakeholders last year, reflect significant input from the community and consensus agreements among negotiators.
“These proposed regulations are a milestone in the Biden-Harris Administration’s ambitious regulatory agenda, both with respect to accountability and oversight of colleges, particularly for-profit colleges,” said James Kvaal, Under Secretary of Education. “Today, we take the next step toward addressing some of the most significant and pervasive problems in higher education, including unscrupulous recruiting of veterans and abuses of the change of ownership process. We are committed to finalizing these regulations expeditiously and turning to the work yet to come.”
“Prison education programs bring hope to incarcerated students and their families and help prepare people for meaningful jobs and careers when they return home to our communities,” said Amy Loyd, Assistant Secretary for the Office of Career, Technical, and Adult Education. “These proposed regulations will help to provide critical opportunities to students in prison and support the institutions working to serve them.”
The proposed regulations will be officially published in the Federal Register in the coming days, and the public is invited to provide comment for 30 days after the official publication through Regulations.gov.
The Department expects to finalize the rules later this year, so they take effect no later than July 1, 2023. The rules would make considerable improvements in the U.S. higher education system, including:
Strengthening the “90/10” Rule for for-profit colleges.
For-profit institutions have long been required by the Higher Education Act to obtain at least 10 percent of their revenue from sources other than federal student aid provided by the Department (e.g., Pell Grants and federal student loans). The American Rescue Plan Act that
President Biden signed into law requires that at least 10 percent of funds come from sources other than any federal education assistance—not just aid awarded by the Department. The proposed regulations would be a change from current practice, in which institutions can count federal aid for veterans and service members to meet the 10 percent revenue test. Prior to the proposed change, a loophole led some institutions to aggressively target these populations because every $1 brought in from these students mean they could receive $9 more in Department of Education aid without needing to secure any private investment. These proposed regulations, on which negotiators reached consensus, would codify this statutory change and ensure for-profit institutions are not overly reliant on taxpayer-financed aid. The proposed changes would also strengthen the 90/10 calculation by ensuring institutions cannot evade the metric, including by counting revenue from the sale of institutional loans, income-share agreements, or similar alternative financing options.
Clarifying procedures for institutions undergoing changes in ownership, including those converting from for-profit to nonprofit status. A growing number of institutions now undergo often-complex changes in ownership transactions, leading the U.S. Government Accountability Office to raise warnings that many of these conversions involved continued “insider involvement,” presenting risks to students and taxpayers. The Department sought to clarify the requirements and processes institutions must follow in order to expand protections for students and taxpayers. The proposed regulations would clarify the definition of a nonprofit institution to prevent improper financial benefits to a former owner or other affiliate of a college. Additionally, institutions undergoing a change in ownership would be required to notify–both the Department and the institution’s students at least 90 days prior to the change to ensure advance notice is provided. Institutions undergoing a change in ownership may also be required to provide additional financial protection or to comply with additional conditions to protect against the risk of the transaction.
Extending Pell Grants to incarcerated individuals. Postsecondary programs offered in correctional facilities have been demonstrated to increase students’ skills, improve employment outcomes, and reduce recidivism. Congress recently established eligibility for Pell Grants for incarcerated individuals enrolled in qualifying programs. These proposed regulations, on which negotiators reached consensus, would ensure that state departments of corrections, the Federal Bureau of Prisons, or another entity, as appropriate, fairly assess institutions’ eligibility to offer prison education programs based on the best interests of the students and with the input of affected stakeholders; clarify requirements for such prison education programs; and ensure transparency and data to demonstrate how well these programs are serving their students. The changes will take effect July 1, 2023. In the interim, the Department expanded its Second Chance Pell program under the Experimental Sites Initiative to serve incarcerated individuals in nearly every state.
An Agenda for Equitable Postsecondary Education
The changes proposed today are a continuation of the Department’s commitment to protecting students and taxpayers and building a stronger, more accessible higher education system. The Department launched negotiations on affordability and student loan issues with a series of public hearings in June 2021; and released the first set of proposed rules from those negotiations on July 6, 2022. This proposed rule includes negotiators’ consensus agreement on expanding access to Pell Grants to incarcerated students. Another proposed rule related to income-driven repayment is expected to be released in the near future. The Department also formed a rulemaking committee for issues related to ensuring accountability for colleges and programs that receive federal financial aid and completed negotiations in March 2022. These proposed rules include two of the key issues from that rulemaking—regulations governing the 90/10 Rule and changes in ownership—with the remainder of the regulations expected to be released in early 2023.
The Biden-Harris Administration has demonstrated a commitment to increased accountability by requiring entities that operate private colleges, particularly those with potential risk factors, to sign the agreements between colleges and the Department and to assume joint responsibility for any liabilities. These proposed rules, and others to come, will further ensure colleges are held financially accountable for their conduct.
Additionally, the Biden-Harris Administration has already approved more than $27 billion in targeted student loan relief for nearly 1.4 million borrowers through executive action. The Department has also announced steps to remedy long-standing problems in the income-driven repayment plans that will help millions of borrowers move closer to debt forgiveness and tens of thousands more receive immediate forgiveness.
