Sneak Preview: ED Finalizes Amendments to Its ‘90/10’ Regulation
(The following was excerpted from a recent Thompson Grants Compliance Expert article.) The Department of Education (ED) amended its regulation discussing how a proprietary (i.e., private for-profit) institution of higher education must determine the source of its revenues for each fiscal year (known as the “90/10” rule). The agency, in an Oct. 28 final rule that revised provisions at C.F.R. Parts 600, 668 and 690, also enabled confined or incarcerated individuals to receive Pell Grants funds for eligible prison education programs provided by participating postsecondary institutions.
The new regulations become effective July 1, 2023, although the 90/10 regulations will apply to institutional fiscal years beginning on or after Jan. 1, 2023. ED received public comments from 142 parties on the agency’s July 28 Federal Register notice in which it proposed the revisions (see “ED Proposal Would Amend 90/10 Rule, Pell Grant Eligibility”).
Under its current regulations at 34 C.F.R. §668.28, ED states that a proprietary institution must follow a formula within the section to calculate its revenue percentage for the latest complete fiscal year to determine whether 10% of its revenue is derived from sources other than ED’s Higher Education Act Title IV program funds. The agency now will change “Title IV program funds” to encompass all federal funds.
In federal fiscal year 2021, proprietary institutions were eligible to receive funding from at least 26 non-Title IV federal programs, which could be included within their 10% portion. Of note, lawmakers and other stakeholders over the last decade have raised concerns that counting federal funds provided by the Department of Defense and the Department of Veterans Affairs as non-Title IV revenue resulted in some proprietary institutions aggressively marketing their programs to service members and veterans, as well as military-connected family members.
Proprietary institutions can count federal aid for veterans and service members to meet the 10% revenue test, so they specifically targeted these populations “because every $1 brought in from these students mean[s] they could receive $9 more in ED funding without needing to secure any private investment,” according to the agency. Moreover, Education Secretary Miguel Cordona added, “These new rules crack down on some of the most deceptive practices we see in higher education, such as predatory marketing tactics that target U.S. service members and veterans.”
ED’s current regulation at 34 C.F.R. §668.28(a)(4) provides that a proprietary institution must presume that any Title IV program funds it disburses or delivers on behalf of a student will be used to pay the student’s tuition, fees or institutional charges (and thus covered under the 90% federal portion), unless those charges are covered by other sources that comprise the 10% portion. These sources include: (1) grant funds provided by nonfederal public agencies or private sources independent of the institution; (2) 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; (3) funds used by a student from a savings plan for education expenses established by or on behalf of the student if the plan qualifies for special tax treatment under the Internal Revenue Code of 1986; or (4) institutional scholarships that meet specific requirements and are counted as revenue generated from institutional aid (i.e., loans and grants offered to students as student aid) for the purposes of the 90/10 calculation.
(The full version of this story has now been made available to all for a limited time here.)
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