If a company routinely charges more for its products than the competition and its product is often inferior to the more affordable option, that business won’t remain open for long. But thanks to deep-pocketed backers and a government that has handed over hundreds of billions of dollars in federal student aid without asking too many questions, the for-profit college industry continues to rake in the bucks while frequently leaving its students with subpar educations and faint employment hopes. Some federal regulators have attempted to make the industry more accountable, but these schools continue to take advantage of loopholes while legislators and consumer advocates scramble to make reform.
One attempt came in the form of the so-called 90/10 rule, which bars for-profit colleges from receiving more than 90% of their revenues from Department of Education federal student aid. The remaining 10% of the company’s revenue must be found through other means.
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If an institution fails to comply with the 90/10 rule for two consecutive fiscal years, it loses eligibility to participate in federal aid programs like Stafford loans and Pell grants for at least the following two years.
During the 2011-12 federal aid award year, the Dept. of Education found 29 schools to be in violation of the funding rule. One of those schools, Montebello Beauty College in California lost its eligibility for federal funds, while the other 28 schools were only in their first year of violation.
The following year, nearly 372 of the 2,042 for-profit institutions in the United States were receiving 85% to 90% of their revenue from federal student aid.
That same year, the Huffington Post reports, three of the 15 institutions in violation of the funding rule lost their federal student aid eligibility. Those schools included Healthy Hair Academy, based in California; College of Office Technology, based in Illinois; and Suburban Technical School, based in New York. Healthy Hair and Suburban Technical School eventually close.
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While it appears that the rule does have the effect of highlighting rogue aid-abusers, advocates say there are glaring issues that pose a big problem for prospective students and their futures.
“The 90/10 rule as currently written doesn’t go far enough to protect students and taxpayers from shoddy for-profit college programs,” Suzanne Martindale, senior counsel for Consumers Union, tells Consumerist. “It only applies to Title IV money – so, Pell grants and federal student loans mostly – meaning that other kinds of federal dollars can be counted in the remaining 10% the school takes in.”
Those funds include veterans’ and active duty servicemembers’ federal student aid – such as G.I. bill benefits and the Department of Defense’s tuition assistance funds. And as a result, for-profit educational institutions have been aggressively recruiting and enrolling veterans, service members and their families to their programs as a way to comply with the 90/10 rule.
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“The 90/10 or 85/15 rule is important, but… it’s not the end-all be-all,” Parrish says. “The Gainful Employment Rule is even more important.”
The Gainful Employment Rule, which is currently being finalized after a previous attempt failed to create a useful rule, would require institutions to certify that all career-education programs meet applicable accreditation requirements, along with state and/or federal licensure standards.
Programs would be deemed failing if loan payments of typical graduates exceed 30% of discretionary income or 12% of total annual income. Programs would be given a warning if a student’s loan payments amount to 20-30% of discretionary income, or 8-12% of total annual income. Discretionary income is defined as above 150% of the poverty line and applies to what can be put toward non-necessities.
Regulations Help To Rein In Runaway For-Profit Colleges, But Schools Still Find Loopholes – Consumerist
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