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COVID-19 relief bill will close loophole that critics say created 'a perverse incentive' for for-profit colleges

By Jillian Berman

Veterans and borrower advocates have called on lawmakers to close the so-called 90/10 loophole for years

The stimulus bill passed by the Senate Saturday, closes a loophole that student-loan borrower and veterans advocates have long argued allowed for-profit colleges to prey on military-affiliated students.

For-profit colleges, or schools where profits go to owners or shareholders, are bound by what's known as the 90/10 rule, which requires that they receive at least 10% of their funding from a source other than the federal student-loan program in order to continue to access federal student aid funds. But that 10% could include funds from another government source -- education benefits provided to service members, veterans and their families.

If the bill passed Saturday is signed into law, military education benefits would no longer be counted as part of the 10% beginning in 2023. That could help get rid of what Dominique Baker, an assistant professor at Southern Methodist University, described as a "perverse incentive for for-profits."

For-profit college critics have worried for years that the treatment of benefits for military-affiliated students has pushed (link) schools to enroll these students as a way to stay in compliance with the 90/10 rule, while still relying on largely government sources of funding to stay afloat.

"We are saying that we have a concern that for-profit institutions are basically being funded almost completely by federal dollars, I don't understand why we wouldn't count veterans' benefits as federal dollars," Baker said.

If the loophole closes and veterans benefits are counted the same way as federal financial aid dollars, 200 for-profit colleges (link) would be considered as receiving at least 90% of their revenue from federal education programs, according to a 2016 analysis by the Department of Education.

Jason Altmire, the president of Career Education Colleges and Universities, a for-profit college lobbying organization, said in a statement (link)that the provision "limits the education options of our brave men and women who have served our country."

"It is unconscionable to exploit the COVID-19 relief bill as a vehicle to deny veterans and active-duty service members the right to use their earned benefits on the career school of their choice," the statement reads.

But advocates have said for years that the loophole encourages for-profit colleges to target veterans, so they could include their benefits as part of the 10% side of the ledger. Research suggests (link) that students who attend for-profit colleges are more likely to default on their student loans and tend to face worse graduation and job outcomes than their peers at public or nonprofit colleges.

'If there was ever a time to close the loophole, now is it'

Enrollment at these institutions surged following the Great Recession, as for-profit colleges targeted students looking to retool.

Tanya Ang, vice president at Veterans Education Success, an advocacy group, said that the economic devastation created by COVID risks a repetition of that history. Others have worried (link) that the proliferation of online schooling during the pandemic could attract students to these schools, which often have online offerings.

"If ever there was a time to close the loophole now is it," she said.

Once veterans and service members use their education benefits, there's no opportunity for them to recoup them. Amid a wave of for-profit college closures that began in 2015 and has continued over the past several years, many military-affiliated students only discovered they had used the benefits on shoddy schools after they shut down (link).

"The schools shutter and they're left with nothing to show for it and all of their GI Bill gone and wasted," Ang said. "We don't want that to happen again. We want to make sure that those benefits are going to give them a strong return on investment for their hard earned time and for their service."

Ang said the hope is that closing the loophole will push the institutions to provide an education that's of high enough quality that students and even employers will be willing to spend their own money on it instead of government funds.

"In essence they're a corporate entity that is now federalized," Ang said of schools that draw the bulk of their funding from government sources. "Typically the good quality schools are going to be able to have a minimum of 10% of their money coming from outside entities."

-Jillian Berman; 415-439-6400;


(END) Dow Jones Newswires

03-08-21 1511ET

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