Biden sets new limits on for-profit colleges

Administration nears completion of regulatory overhaul with new rules on student aid, non-profit conversions and prison recruiting

July 27, 2022
Workers are seen  outside of the Brady Briefing Room as the White House undergoes renovations  to illustrate Biden sets stricter limits on colleges making a profit
Source: Getty

The Biden administration has outlined new regulations to crack down on for-profit colleges by limiting their access to federal aid and restricting their ability to claim a conversion to non-profit status.

The new rules also set out details for imprisoned students to receive federal student aid, as approved by Congress, albeit with conditions designed to limit eligibility to high-quality providers.

The changes would take effect next summer, in time for the 2023-24 academic year.

The revisions address “some of the most significant and pervasive problems in higher education, including unscrupulous recruiting of veterans and abuses of the change of ownership process”, James Kvaal, the US undersecretary of education in charge of higher education, said in outlining the plan.

The new general aid eligibility restriction on for-profit colleges concerns the 90/10 rule, a federal prohibition against institutions deriving more than 90 per cent of their revenue from federal student aid programmes.

The 90/10 rule is meant to fight fraud and abuse by requiring a minimum demonstrated financial commitment from students willing to attend. The regulatory change – excluding federal aid for military personnel and veterans when calculating the 10 per cent threshold – was described by the administration as an attempt to better protect the service community from aggressive for-profit college recruitment practices.

The new regulatory language concerning conversions, Biden officials explained, stems from numerous instances in which for-profit institutions have legally switched to a non-profit status while retaining their underlying profit-making powers, often through close ties to a partner entity.

The changes include clarifying the definition of a non-profit institution and establishing new procedures and safeguards when such conversions are attempted.

In announcing the plan, Miguel Cardona, the US secretary of education, said his goal was to “ensure that efforts by for-profit colleges to convert to non-profit status are genuine changes, not mere ploys to evade accountability to students and taxpayers”.

The new language concerning inmates is designed to implement the authority created by Congress for incarcerated individuals to receive Pell Grants, the main federal subsidy for low-income college students. The action by Congress had already excluded for-profit institutions from participation. The Biden regulations would go beyond that to require that prison officials at both the federal and state level take various steps to “fairly assess institutions’ eligibility to offer prison education programmes based on the best interests of the students”.

The Biden changes are part of a series of regulatory revisions that new administrations typically pursue in their areas of policy concern. Administrations have wide latitude to set regulatory language for defining and implementing laws passed by Congress, although the process can take a couple of years because of statutory requirements for public comments and formal negotiating processes.

Other ongoing regulatory overhauls by the Biden administration cover topics that include ensuring accountability among colleges and programmes that receive federal financial aid, and expanding the ability and rights of students to use income-based loan repayment options.

The main lobby group for US colleges and universities, the American Council on Education, said it had no immediate comment on the new regulatory language.

The chief association of for-profit institutions, Career Education Colleges and Universities, said it regarded the 90/10 rule as “a misguided policy” but credited the Biden administration with not pursuing some even harsher expansions of the rule put forward during the public negotiating sessions.

Those suggested terms – that the Biden team agreed not to accept – would have counted towards the federal portion of the 90/10 ratio items that include federal money sent directly to students for such expenses as books and housing, and state grant money for students that is subject to a federal match.

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