the American Association of Colleges of Osteopathic Medicine

This analysis was prepared by Venable, LLP, on behalf of AACOM.

On October 28, 2022, the U.S. Department of Education (the “Department”) published the final 90/10 Rule to implement the statutory change in the American Rescue Plan Act (“ARP”), which requires for-profit institutions to derive at least 10 percent of revenue from sources other than any federal education aid (including veterans and service member educational aid) or lose access to federal student aid. The final rule incorporates minor changes in response to comments received regarding the proposed rule released in July, but the material provisions of the 90/10 Rule remain the same. The final rule is effective July 1, 2023.

This summary provides high-level background and addresses the material provisions of the 90/10 important to the American Association of Osteopathic Colleges of Medicine (“AACOM”) and its member institutions. For additional history of the 90/10 Rule and a section-by-section analysis, please refer to AACOM’s summary of the proposed rule, available here.

Background

The Higher Education Act (“HEA”) has long required for-profit institutions of higher education to obtain at least 10 percent of their revenue from sources other than Title IV federal student aid, like Pell Grants and federal student loans. A for-profit institution’s Title IV eligibility is placed in provisional status for two years if an institution fails the 90/10 calculation. If an institution fails for two consecutive years, it loses Title IV eligibility for at least the following two years and until it can demonstrate compliance with all other Title IV eligibility and certification requirements for a minimum of two years after it becomes ineligible.

The ARP, enacted in 2021, changed the calculation to require for-profit institutions to include other sources of federal revenue (e.g., veterans and service member educational aid), in addition to Title IV revenue from the Department, in the calculation to determine if an institution complies with the 90/10 Rule. A negotiated rulemaking (“Neg-Reg”) panel reached consensus on draft language to align the 90/10 Rule with the statutory changes mandated by the ARP. The final rule includes only minor deviations from the negotiated language.

Key Points of the Final Rule

The final 90/10 Rule states that:

Proprietary institutions include in their 90/10 calculation all federal education assistance, not just federal financial aid, that goes toward tuition, fees, and other institutional charges, with the exception of funds from a federal source that go directly to a student and are specifically designated to cover expenses other than tuition, fees, and other institutional charges, such as housing. The Department will publish a list of the federal education assistance programs that are counted in the 90 percent revenue test in the Federal Register and update the list as needed. (34 CFR § 668.28(a)(1).)
Institutions with fiscal years beginning on or after January 1, 2023 are prohibited from delaying the draw-down of funds from the financial aid programs (i.e., Title IV programs) past the end of the fiscal year to reduce the amount of federal aid reported in a fiscal year or inflate their nonfederal revenue percentage. (§ 668.28(a)(1).)
Institutions can only count actual revenue from principal payments by the borrowers that are made on loans and alternative-financing arrangements, such as income-share agreements (“ISAs”). Institutions also cannot sell these student obligations and count those proceeds as qualifying payments for tuition and fees for the 90/10 revenue calculation. The final regulations further clarify the terms ISAs must meet in order to be counted and makes other changes to ensure that private loans and ISAs are treated consistently. (§ 668.28(a)(5).)
For-profit institutions may only include funds generated from activities conducted by the institution that are necessary for the education and training of its students and must be related directly to services performed by students. Non-federal revenue may also include revenue generated by programs that do not participate in Title IV programs, as long as they meet certain criteria to ensure value to students. (§ 668.28(a)(3).)
The final rule implements a deadline for Title IV disbursements for a proprietary institution's 90/10 calculation. Specifically, the final regulations require proprietary institutions requesting Title IV, HEA funds using the advanced payment method (§ 668.162(b)(2)) or the heightened cash monitoring method (§ 668.162(d)(1)) to request and disburse any funds to an eligible student before the end of the proprietary institution's fiscal year. Proprietary institutions requesting Title IV funds under the reimbursement or heightened cash monitoring methods in § 668.162(c) or (d)(2) will be required to make timely disbursements pursuant to § 668.164 to student accounts before the end of their fiscal years and report the funds that were disbursed to the student accounts as federal funds in the 90/10 calculations. (§ 668.28(a)(2).)
For-profit colleges that fail the 90/10 rule are required to notify the Department and the institution’s students in a timely manner. Specifically, (1) the institution must notify students that if it fails to meet the 90/10 revenue requires at the end of the current fiscal year, it could potentially lose Title IV eligibility at the end of the current fiscal year if it failed to meet the 90/10 revenue requirements for the prior fiscal year; and (2) the institution will be liable to repay any Title IV funds that it disburses after the fiscal year it becomes ineligible to participate in Title IV due to failing the 90/10 revenue requirements for two fiscal years, excluding funds the institution was entitled to disburse under the regulations. An institution must report if it failed the 90/10 calculation no later than 45 days after the fiscal year or immediately if the failure is determined after the 45-day period. (§ 668.28(c)(3), (5).)

Response to AACOM Comments

AACOM submitted comments expressing concerns with the proposed rule on behalf of its members institutions. However, AACOM’s request to exclude scholarship aid awarded through the Health Professions Scholarship Program (HPSP), the National Health Service Corps (NHSC) Scholarship Program and the Indian Health Service Scholarship (IHSS) Program from the 90 side of the calculation was not incorporated.

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Please contact AACOM Government Relations at aacomgr@aacom.org with questions or for further information.

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