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Maryland General Assembly moves to tighten federal aid restrictions on for-profit colleges

The Maryland General Assembly approved legislation that would make the state the first to close a loophole that advocacy groups say invites for-profit college to prey on veterans. (Jonathan Newton/The Washington Post)

Maryland is poised to become the first state to limit the revenue for-profit colleges can receive from enrolling veterans.

On Tuesday, the state House of Delegates unanimously passed legislation to close a loophole in the “90/10 rule,” which bars for-profit colleges from getting more than 90 percent of their operating revenue from federal student aid. Military and veterans’ education benefits do not count toward that threshold despite being federal aid, an exception that some veterans groups say invites aggressive recruitment from unscrupulous for-profit schools.

The vote arrives weeks after the state Senate approved the measure, which heads to Gov. Larry Hogan (R) for signing.

Michael Ricci, a spokesman for the governor, said Hogan will “give the legislation thoughtful consideration when it reaches his desk.” If Hogan were to veto the bill, lawmakers could override him.

“Because of this loophole, for-profit colleges targeted our veterans,” said Marceline White, executive director of the Maryland Consumer Rights Coalition, which advocated for the legislation. “We hope that Maryland is the first in a number of states to eliminate the 90/10 loophole.”

Under the legislation, all federal funding that for-profit colleges operating in Maryland receive would count toward the 90/10 rule. Maryland’s regulation would also apply to for-profit schools based in other states that enroll residents in online education programs — a restriction that could encounter problems.

Maryland is a member of the State Authorization Reciprocity Agreement, a compact that makes it easier for colleges to offer online education throughout the country. The agreement establishes a common regulatory framework that bars members from imposing their own rules on out-of-state schools offering programs within their borders.

“As currently written, Maryland’s 90/10 loophole bill would force the state out of compliance with its membership agreement,” said Lori Williams, president and CEO of the National Council for State Authorization Reciprocity Agreements, the organization that governs the reciprocity agreement. “This means [State Authorization Reciprocity Agreement] institutions in Maryland who wish to offer online programming to out-of-state students would need to gain authorization from each state where it is required.”

There are a host of steps, including hearings, needed before Maryland could lose its membership.

The Maryland Attorney General’s Office has already rebutted claims that the 90/10 legislation endangers the state’s participation in the agreement.

In a letter sent Monday to House Appropriations Committee Chair Maggie McIntosh (D-Baltimore City), Assistant Attorney General Christopher J. Madaio explained the reciprocity agreement does not prevent the state from enacting its own consumer protection laws. The state would simply refrain from applying those laws to out-of-state schools that are covered by the agreement.

At the federal level, efforts to treat military education benefits the same as federal student aid under the revenue rule have stalled. Republicans have largely remained on the sidelines, even though veterans’ issues usually garner bipartisan support in Congress. Many have questioned the fairness of the 90/10 rule because it applies only to for-profit colleges. But last year, a powerful Republican lawmaker started to come around.

In November, Senate Health, Education, Labor and Pensions Committee Chairman Lamar Alexander (R-Tenn.) threw his support behind a bipartisan bill — introduced by Sens. Thomas R. Carper (D-Del.), James Lankford (R-Okla.), Bill Cassidy (R-La.) and Jon Tester (D-Mont.) — to close the loophole. The legislation, dubbed the Protect VETS Act, would end the exemption and impose penalties for violating the revenue rule. While the bill stalled in committee, higher-education experts expect it will make its way into broader legislation to reauthorize the Higher Education Act.

Congress first capped the amount of taxpayer dollars for-profit colleges could receive at 85 percent in 1992 to crack down on fly-by-night schools making money from student aid programs. The government figured a for-profit school with quality programs should have no trouble deriving at least 15 percent of its revenue from students willing to put up their own money. The for-profit industry fought the rule, which was relaxed six years later as the cap was raised to 90 percent.