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Education Dept. proposes tougher regulation of for-profit colleges

Education Secretary Miguel Cardona. (Carlos Osorio/AP)
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The regulations that were advanced Tuesday by the Education Department would limit the revenue for-profit colleges can receive from enrolling military veterans and curtail their efforts to convert to nonprofit schools, as the Biden administration steps up its policing of proprietary institutions.

Months in the making, the proposed rules signal a return to Barack Obama-era efforts to root out abuses at for-profit colleges, a campaign criticized by Republicans and industry groups.

Chief among the proposals is eliminating a loophole that excludes military and veterans’ education benefits from the 90/10 rule, which prohibits for-profit colleges from getting more than 90 percent of their operating revenue from federal student aid funding. Veterans groups say for-profit colleges aggressively recruit military members to circumvent the rule. The Government Accountability Office (GAO) found nearly a third of GI Bill tuition benefits went to for-profit schools in 2017.

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A bipartisan group of congressional lawmakers secured a provision in the 2021 American Rescue Plan to close the loophole, delaying implementation of the change by two years. That gave the Education Department time to negotiate the rules with a panel of higher-education experts.

Under the proposed rules, for-profit schools must include all federal education assistance in their revenue calculation, and they cannot delay the drawdown of federal financial aid funds past the end of the fiscal year to game the calculation.

“Predatory, deceptive practices that target veterans and service members have no place in higher education, period,” Education Secretary Miguel Cardona said Tuesday. “Educating our veterans and service members should be about honoring their contributions to our country, not exploiting them for financial gain.”

For-profit colleges have argued that the revenue rule is not a good measure of the quality of education provided by colleges. Jason Altmire, chief executive of Career Education Colleges and Universities, which represents for-profit colleges, called the rule “misguided” but commended the department’s approach.

“Although we fundamentally disagree with this flawed accountability metric, we commend the Department for adopting the consensus-based language agreed upon during the negotiated rulemaking process,” Altmire said in a statement Tuesday. “We look forward to working with the Department to implement the rule so that it is fair for both students and institutions.”

Another proposed rule aims to curb former for-profit colleges from masquerading as nonprofits to avoid regulations such as the 90/10 rule while still reaping the financial benefits of operating as proprietary institutions.

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It would clarify the definition of a nonprofit to prevent a former owner or other affiliates of a college from making money off the school, as well as lower the threshold for reporting changes in ownership.

Becoming a nonprofit school means relinquishing ownership and placing control in the hands of trustees who operate with no financial benefit and in the interest of the public good. But a 2020 GAO report raised concerns that insiders often remained involved with converted universities.

The GAO identified 59 for-profit college conversions that occurred from January 2011 through August 2020, almost all of which involved the college’s sale to a tax-exempt organization. In about a third of those deals, the former owners had a hand in creating the nonprofit or retaining presidency after the sale. The GAO concluded that insider involvement in a conversion poses a risk that insiders may improperly benefit by influencing the tax-exempt purchaser to pay more for the college than it is worth.

The third proposed regulation released Tuesday would make incarcerated people eligible to use Pell Grants, a form of federal aid for students from lower-income households, to pursue higher education behind bars by clarifying requirements for providers of prison education programs, among other changes.

Department officials are aiming to have the rules in place by November, which means they would take effect in July 2023. People can submit comments on the proposed rules over the next 30 days.

Tuesday’s package of regulations arrives weeks after the Biden administration proposed rules to overhaul loan forgiveness programs. Although student advocates welcomed the arrival of the latest proposals, many were also anticipating the release of a new plan to lower monthly payments for federal student loan borrowers. The Education Department said that an income-driven repayment proposal will be published at a later date, but would still take effect in 2023.