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Today, the U.S. Department of Education (Department) announced final rules that will better protect veterans and service members from predatory recruitment practices, implement access to Pell Grants for incarcerated students in high-quality prison education programs, and increase accountability when colleges and universities change ownership.
“Today, we’re raising the bar for oversight and accountability for colleges and career schools that prioritize profiting off federal financial aid programs over preparing students for success in the workforce,” said U.S. Secretary of Education Miguel Cardona. “These new rules crack down on some of the most deceptive practices we see in higher education, such as predatory marketing tactics that target U.S. service members and veterans, and changes in ownership designed to evade accountability to taxpayers. I’m also proud that starting July 1, 2023, incarcerated students will have access to federal Pell Grants to enroll in high-quality prison education programs that we know reduce their risk of returning to prison and prepare these individuals to lead productive and meaningful lives in their communities.”
“Veterans and their families deserve the very best education America has to offer,” said U.S. Department of Veterans Affairs (VA) Secretary Denis McDonough. “It’s our job at VA and across the federal government to deliver on that promise, making sure that veterans and their families not only have access to affordable education through the GI Bill – but also that they are protected from education fraud and abuse. Even though this final rule has no direct impact on GI Bill eligibility, our continued collaboration with ED to implement this critical change is paramount to our efforts to serve veterans and protect the integrity of the GI Bill.”
The final regulations include:
- A strengthened 90/10 rule that increases protections for veterans and service members from aggressive recruiting by proprietary schools.
- Prison education program rules that set standards for public and private, non-profit institutions to implement effective prison education programs that can provide incarcerated individuals with the education they need to pursue a second chance at life inside and outside of prison.
- New accountability rules for colleges and universities undergoing changes in ownership to reduce risks to students and taxpayers often generated by complex changes in ownership transactions.
90/10 Rule
These regulations implement an important change made by the American Rescue Plan, which was signed into law by President Biden in 2021. That law closed a longstanding loophole in the Higher Education Act that allowed for-profit colleges to aggressively recruit veterans and service members. The statute requires for-profit colleges to prove their value in the private market. These colleges must obtain 10 percent of their revenue from non-federal sources, but the statute allowed these colleges to count federal dollars outside of the student aid system—such as G.I. Bill benefits—toward their private market test.
The American Rescue Plan closed this loophole. The revised definition means institutions will no longer be able to count money from veteran and service member benefits toward that 10 percent revenue requirement. This is particularly critical because the loophole generated incentives for some for-profit colleges to aggressively target their marketing to veterans and service members. Every $1 brought in from those students meant they could receive $9 more in Department of Education aid without needing to secure any private investment.
The new regulation implements this statutory change and explains how the Department will identify which federal funds can no longer be counted toward the 10 percent revenue requirement. It also addresses other loopholes used by colleges to manipulate the timing of when they received revenue and counting funds from unrelated programs. These regulations will apply to institutional fiscal years beginning on or after January 1, 2023, consistent with the effective date of the statutory changes to the 90/10 calculation.
Prison Education Programs
Enrollment in postsecondary education programs is proven to reduce incarcerated individuals’ risk of returning to prison by 28%, and reductions in recidivism also imply improvements in public safety. Congress recently established eligibility for Pell Grants for incarcerated individuals enrolled in qualifying prison education programs, effective July 1, 2023. In the interim, the Department has expanded its Second Chance Pell Experimental Sites Initiative to serve incarcerated individuals in nearly every state. The Department has also announced that incarcerated individuals are eligible for FSA’s “Fresh Start” initiative, which will help borrowers with defaulted loans access low monthly payments based on their income and allow them to access Pell Grants to help them resume their educational journey.
Change in Ownership
A growing number of colleges and universities undergo often-complex changes in ownership transactions. In fact, the U.S. Government Accountability Office raised warnings that change in ownership may include “insider involvement,” presenting risks to students and taxpayers.
To expand protections for students and taxpayers, the Department is clarifying the requirements and processes institutions must follow for changes in ownership. The new regulations update the definition of a nonprofit institution to prevent improper financial benefits to a former owner or other affiliate of a college. Additionally, institutions undergoing a change in ownership will be required to notify both the Department and the institution’s students at least 90 days prior to the change to ensure advance notice is provided. Institutions undergoing a change in ownership may also be required to provide additional financial protection or to comply with additional conditions to protect against the risk of the transaction.
This regulatory package is the latest step in the Biden-Harris Administration’s continued commitment to ensure that colleges and universities are held accountable and that all students have access to a valuable postsecondary education. The proposed regulations released in July were negotiated by two committees of stakeholders in 2021 and reflected significant input from the community, as well as consensus agreements among negotiators for the regulations covering the 90/10 Rule and prison education programs. Following the federal Notice of Proposed Rulemaking process, the draft regulations were announced and posted to the Federal Register in July. The final rules, bolstered by input from dozens of public comments by a range of stakeholders during the 30-day public comment process that followed, will take effect July 1, 2023.
Building on an Unparalleled Record of Debt Relief
Today’s announcement is part of the Biden-Harris Administration’s broader efforts to get students and borrowers the benefits to which they are entitled. These efforts include enacting lasting policies to make college more affordable and preventing a future debt crisis by holding schools accountable for leaving students with mountains of debt and without the skills and preparation to find good jobs.
On August 24, President Biden announced his plan to provide up to $20,000 in debt relief to more than 40 million eligible borrowers. Approximately 22 million people have already given the Department the information it needs to consider this relief.
In addition, more than $38 billion in targeted student loan relief has been approved for 1.75 million borrowers. This includes:
- More than $14 billion for 1 million borrowers whose institutions took advantage of them through discharges related to borrower defense and school closures;
- More than $14 billion for over 236,000 borrowers through the PSLF Program; and
- More than $9 billion in total and permanent disability discharges for more than 425,000 borrowers.
View a fact sheet with further information on the rules here. An unofficial copy of the regulations can be found here.
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