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Nevada AG urges change to for-profit school funding
by Tribune Staff
May 30, 2012 | 512 views | 0 0 comments | 3 3 recommendations | email to a friend | print


CARSON CITY — Nevada Attorney General Catherine Cortez Masto and 21 of her colleagues from other states sent a letter to Congressional leaders on Tuesday urging them to close a loophole in the Higher Education Act that they say is harming American veterans and their families. The attorneys general are asking Congress to require that GI Bill and Veteran’s Assistance educational benefits be subject to the 90/10 rule, which prohibits for-profit colleges from deriving more than 90 percent of their revenue from Department of Education (Title IV) funding sources.

Currently, for-profit schools can derive 90 percent of their funding from public sources and then the remaining 10 percent from government veterans’ programs, rather than obtaining at least 10 percent of their revenue from private sources as the law intended.

“I am working to close this loophole to end predatory recruitment of our service members by certain colleges,” Masto said. “This loophole has created a feeding frenzy for proprietary colleges looking to access veterans’ benefits. During my recent visit to Nellis Air Force Base, I was informed that many bases are being overrun with for-profit recruiters who are more interested in getting their hands on these benefits than they are in educating our service members. This is unacceptable.”

Federal lawmakers enacted the original 90/10 rule in 1998 following congressional investigations of for-profit colleges. Congress designed the rule to instill more accountability in the industry. At the time, veterans’ benefits were not a substantial source of potential income for proprietary colleges.

In 2008, Congress enacted the Post 9/11 GI Bill making billions of dollars in educational benefits available for veterans and their families. According to a February 2011 Government Accountability Office report, $9 billion in educational benefits were provided to service members and veterans in fiscal year 2010. Of 20 for-profit colleges analyzed by the U.S. Senate HELP Committee, total military educational benefits increased from $66.6 million in 2006 to a projected $521.2 million in 2010.

That is an increase of 683 percent.

The economic downturn resulted in an exodus of private lenders from the subprime student loan market, which was also suffering from very high student-loan default rates. For-profit colleges largely depended on these private loans to obtain their 10 percent in non-federal funds. This exodus of lenders and the veterans’ loophole created a strong incentive to recruit military members. Schools are also using the military benefits to leverage even more Title IV funds, since each dollar they obtain from Department of Defense or Veterans Administration sources allows them to obtain an additional nine dollars in Title IV funds.

The effort was led by Kentucky Attorney General Jack Conway.
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