Blumenthal, Durbin, Reed, Warren: Congress Should End Loophole That Encourages For-Profit Colleges to Target Veterans & Servicemembers

(Washington, DC) –  U.S. Senators Richard Blumenthal (D-CT),  Dick Durbin (D-IL), Jack Reed (D-RI), and Elizabeth Warren (D-MA) today introduced legislation in the Senate that would help put an end to the for-profit industry’s predatory marketing campaigns and aggressive recruiting of veterans, servicemembers and their families.  The Protecting Our Students and Taxpayers (POST) Act would prohibit for-profit colleges and universities from receiving more than 85% of their revenue from the federal government and change the calculation of federal revenue to include all federal funds.  

In 2014, an estimated $2 billion in Department of Veterans Affairs (VA) GI Bill funding and $248 million in Department of Defense Tuition Assistance and MyCAA funding went unaccounted for in the federal revenue calculation for for-profit colleges and universities.

“With mounting evidence of pernicious practices that prey upon servicemembers and veterans, it is past time to close the glaring 90-10 loophole and stop for-profit schools from conducting shameful recruiting campaigns that target the men and women who have dedicated their lives to serving our country,” said Blumenthal. “This unacceptable loophole has allowed for-profit schools to rake in over two billion dollars in VA education benefits last year, including Post-9/11 GI Bill benefits. The POST Act would cut off bad actors in the for-profit industry and protect taxpayers, servicemembers, and veterans.”

“By law, for-profit college companies are allowed to receive no more than 90% of their revenue from federal financial aid programs.  This high threshold allows far too much federal money to funnel to an industry that often provides a greater return on taxpayer investment to its administrators and investors than it does to its students.  But there’s a catch,” said Durbin.  “Money from the new Post 9/11 GI Bill and from Department of Defense tuition assistance programs isn’t counted which leaves hundreds of millions of taxpayers’ dollars virtually unregulated.  Consequently, these schools aggressively target veterans and servicemembers who too often don’t receive the quality of education they deserve.  We can’t let this invitation to exploit our veterans continue.”

“Reinstating the 85/15 rule will help hold for-profit colleges accountable and prevent them from preying on veterans and servicemembers,” said Reed.  “Too much federal funding has poured into these for profit-college companies without adequate results for veterans or taxpayers.  We need to ensure veterans and taxpayers alike are getting better value for their investment and we can start by closing the 90/10 loophole.”

“Too many servicemembers and veterans have been targeted by predatory for-profit colleges, and our men and women in uniform deserve better,” said Warren. “The POST Act will tighten the rules and help protect veterans by closing the loophole that permits for-profit schools to prey on our servicemembers.”

The current federal 90/10 rule is a provision in the law that bars for-profit colleges and universities from deriving more than 90% of their revenue from the U.S. Department of Education’s federal student aid programs.  The other 10% needs to come from sources other than the federal government.  The purpose of this rule is to ensure that schools are not counting on taxpayer dollars to be their sole source of revenue.

Because of the way the legislation was written, veterans’ and active duty service members’ federal student aid – such as G.I. bill benefits and the Department of Defense’s tuition assistance funds – does not currently count toward the 90%.  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.

The POST Act would re-instate the original ratio of 85/15 (it was loosened to 90/10 in 1998) and change the definition of what counts as federal revenue so that it includes all federal funds.  This new definition would eliminate the powerful incentive for-profit schools to aggressively recruit service members and veterans and ensure that all schools are complying with the law as it was intended.

Additionally, the Durbin-Reed-Blumenthal-Warren POST Act would:

•        Increase penalties for noncompliance with the new 85/15 rule – Under the legislation, for-profit colleges would lose eligibility to participate in federal student aid programs after one year of noncompliance with the new rule (currently, for-profit colleges must be noncompliant for two years before they lose eligibility).

•        Eliminate accounting tricks that inflate non-federal funding sources –Currently, for-profit colleges that issue private loans directly to students are allowed to calculate a large portion as revenue for the purposes of 90/10 rule compliance before any of the loan is paid back.  This accounting trick has led to for-profit colleges issuing private loans to students with little expectation of that loan being paid back.  Today’s legislation would only allow actual payments that students make to be counted as revenue.

For-Profit College Industry

For-profit institutions of higher education enroll about 10% of all college students, but take in 20% of the Department of Education’s federal student aid funds and account for 40% of student loan defaults.  Since the collapse of Corinthian Colleges, Incorporated, the for-profit college industry is experiencing a long overdue reckoning as state and federal investigations and lawsuits against the largest companies continue to accumulate.

•        ITT Tech is under investigation by at least 18 state Attorneys General and the U.S. Department of Justice and is being sued by the New Mexico Attorney General, the Consumer Financial Protection Bureau, the Securities and Exchange Commission. 

•        Education Management Corporation is under investigation by at least 14 state Attorneys General and is being sued by the Colorado Attorney General and the U.S. Department of Justice. 

•        Career Education Corporation is under investigation by 21 state Attorneys General. 

•        Other major for-profit college chains such as DeVry, Westwood, and Kaplan are also facing additional regulatory scrutiny.