Blog: American Rescue Plan Act’s 90/10 Provisions of 2021 Bring Major Change | Cooley LLP

For owner institutions subject to the 90/10 rule, President Joe Biden’s signing of the American Rescue Plan Act of 2021[1] March 11 reflects a major change in this income test that allows for-profit institutions and their students to access federal student aid programs.

Under the higher education law currently in force and its implementing regulations[2], an owner establishment participating in Title IV must draw at least 10% of its income annually “from sources other than Title IV, HEA program funds” in order to maintain its eligibility. If an institution does not pass this test for two consecutive fiscal years, it loses its eligibility to participate in Title IV programs for at least two fiscal years, and if an institution does not pass the measurement during one fiscal year, it becomes provisionally accredited. for both fiscal years, require the institution to meet a number of additional requirements.

This long-standing provision of the law governing access to higher education for proprietary institutions has evolved many times over the years; however, the rule remained consistent with the basic premise that revenue was split into two groups: Title IV funds and everything in between. While the calculation itself is complex, at least institutions could easily figure out which funds fell on either side of the ratio. Not so now.

The 90/10 debate

Over the years, this rule has been the subject of heated debate. On the one hand, the affected schools argue that this income measure does not reflect the quality of the program, but rather the socio-economic status of the students enrolled. Students eligible for Title IV have the right to withdraw as much of federal student aid (loans and grants) as they qualify, and although an institution may advise students on loans and debts, it cannot not prevent a student from borrowing within available limits. . For many students, especially underserved minorities and working adults, Title IV programs are the only route to education, as they have no disposable income or savings to cover costs. tuition fees and tuition fees. Institutions have long argued that the 90/10 rule only serves to inflate program costs, as balancing available aid and formula often results in tuition fees being kept above limits to cover costs. 10% of revenue required.

On the other hand, student advocates, especially those who advocate for ex-combatants attending higher education programs, have argued that to maintain a passing score of 90/10, institutions have targeted the population of d ‘veterans because GI Bill and other VA program funds are not “Title IV, HEA program funds” and therefore fall into “side 10” of the formula. Over the years, this limitation has been cited as a ‘loophole’ and advocates have argued that a proprietary institution that must rely on government funding programs for more than 90% of its revenue, regardless of government source , should not be allowed to participate in Title IV programs.

This issue had become such a hot button that attempts to change the 90/10 formula were made in numerous proposals in Congress over the past few years, with often mixed bipartisan support, but until the signing of ARPA. , no other proposal had done so. law. In fact, the last wording that authorized the Senate by voice vote was a significant departure from what was in the ARPA passed by the House, and its inclusion was not guaranteed. Even though the wording had erased “Byrd Bath” and was relevant to the reconciliation bill, proponents of closing the “loophole” understood that the delay in implementation was essential to cross the line of legislative goals.

What changed?

Under ARPA, the HEA would be amended to change the formula of counting only Title IV program funds on the “90” side to instead include all “federal funds disbursed or delivered to or on behalf of a student. ‘a student to be used to attend such an institution’ or collectively ‘federal educational assistance funds’. This is a substantial change and its impact is not entirely clear. While the argument in support of this change was to protect veterans, the choice of wording is wide enough to raise questions about the full scope. The unlimited nature of the term “federal education aid” sounded alarm bells for owner schools and many members of Congress, and the initial plan to make the provision immediately effective increased the volume of these alarms.

As noted above, the 90/10 calculation is done annually, based on the institution’s fiscal year cycle. Changing revenue recognition in the middle of a fiscal year would have been extremely complex and difficult to verify. Additionally, for schools that serve a large veteran population, this new rule may require them to cease, or at least limit, the number of veteran students they serve in order to avoid a 90 / failure failure. 10. Without a period of ramp-up, schools could have been forced to withdraw veteran students in the middle of training to avoid unintentional failure.

What is also unclear is whether other federal funds, such as the Department of Defense’s Military Tuition Assistance Program, the Innovation and Labor Opportunities Act and aid for trade adjustment, will be included in the new definition, although they were not discussed as an impetus for change. If this law had entered into force without further details, it would have led institutions to go blind while trying to implement it.

Due to these pressing concerns about timing and scope, a compromise was eventually reached. As a general rule, any new legislation affecting federal student aid programs must go through a negotiated regulatory process and align with the “master schedule,” which provides for constituency participation and will align the timing of the change. on the year of the award of the Ministry of Education. . In the final ARPA language, the new 90/10 provision will be subject to negotiated regulation after October 2021, with an earliest effective date in fiscal years beginning on or after January 1, 2023.

What should institutions do now?

If your institution is subject to this rule, the first step is to assess how your income ratio would behave if all GI Bill and TAP funds were moved to the “90 side” of the ratio. Since the scope of the definition is currently unclear, schools should also test the ratio with all federal funds transferred to the other side, including WIOA and TAA. Conducting this assessment now is the best way to start preparing to adjust education levels.

We expect the Department of Education to put in place negotiated regulations as soon as possible under ARPA. This process will be critical in defining which funds will count as “educational assistance” as well as any reporting or enforcement mechanisms. During this process, constituents are encouraged to review the proposed rules and provide comments. We encourage all affected institutions to engage in the rule-making process and closely monitor the procedures so that they are ready to make any necessary adjustments before a new rule is implemented.

[1] HR1319 – American Rescue Plan Act of 2021, Public Law No: 117-2 [2] 34 CFR § 668.28

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