Institutional Eligibility and the Higher Education Act: Legislative History of the 90/10 Rule and Its Current Status

Publication Date: January 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Education

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Abstract:

Title IV of the Higher Education Act (HEA; P.L. 89-329, as amended by P.L. 105-244) authorizes programs that provide federal student financial aid to support student attendance at institutions of higher education meeting Title IV eligibility requirements. To participate in these programs, proprietary (for-profit) institutions must meet requirements included in Section 102 of the HEA, including requirements that proprietary institutions have been in existence for at least two years and derive at least 10% of school revenue from non-Title IV funds. This latter requirement forms the basis for the 90/10 rule.

The 90/10 rule was put into effect by the 1998 HEA Amendments (P.L. 105244), replacing its predecessor, the 85/15 rule, which was authorized by the 1992 HEA Amendments (P.L. 102-235). The 85/15 rule was similar to a requirement that had been placed on the veterans' assistance programs administered by the then Veterans' Administration to prevent institutions from being established solely to profit from the payments received by veterans.

Supporters of the 85/15 rule argued that the rule was necessary to stem fraudulent and abusive practices that had been identified at proprietary institutions. It also was argued that implementing the rule might restore some market incentive to education as proprietary institutions would be unable to charge more than what students not receiving enough federal financial aid to pay all their institutional charges were willing to pay. Detractors of the new rule argued that requiring proprietary institutions to obtain at least 15% of their revenue from non-Title IV sources could limit access to low-income students if proprietary institutions were forced to deny admission to students receiving Title IV funds to meet the required percentage of non-Title IV revenues.

During the 1998 reauthorization process, Congress reduced the percentage of revenue that proprietary institutions had to obtain from non-Title IV sources to at least 10%. Congress declined to make changes to the formula for calculating revenue that had generated controversy since its inception following the 1992 reauthorization. The U.S. Department of Education, however, opted to modify the definition of revenue and calculation of eligibility through regulations following the 1998 reauthorization.

As Congress considers the reauthorization of the Higher Education Act, the 90/10 rule may be targeted for elimination or modification. Other possible issues for reauthorization may include modifying the percentage of funds that must be derived from non-Title IV sources, changing the formula to calculate revenue, and changing the order in which funds are applied to institutional charges.

This report will be updated as needed.