Office of the Attorney General
Attorney General Conway and Colleagues Urge Congress to Change For-Profit School Funding Rule

Press Release Date:  Tuesday, May 29, 2012  
Contact Information:  Allison Gardner Martin
Communications Director
502-696-5651 (office)

Attorney General Jack Conway and 21 of his colleagues from other states today sent a letter to Congressional leaders urging them to close a loophole in the Higher Education Act that 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 (Title IV funds) and then the remaining 10 percent from government veterans' programs, rather than obtaining at least 10% of their revenue from private sources as the law intended.

"In essence, this creates a system where for-profit colleges can derive 100 percent of their funding from the federal government and taxpayers," General Conway said. "The loophole is creating high-pressured enrollment tactics that are directly targeting our veterans who are returning from battle and their families. This is unacceptable and unconscionable."

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.

"Allowing Department of Veterans' Affairs (VA) and Department of Defense (DoD) benefits to not count toward the 90 percent government-funding limit violates the intent of the law and harms taxpayers," said General Conway. "The loophole has created a feeding frenzy for proprietary colleges looking to get their hands on veterans' benefits. Many of our 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."

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 General Accounting 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.

"This gives for-profit colleges an incentive to see service members as nothing more than dollar signs in uniform, and to use aggressive marketing to draw them in and take out private loans, which students often need because the federal grants are insufficient to cover the full cost of tuition and related expenses," said Holly Petraeus, assistant director for service member affairs at the Consumer Financial Protection Bureau, in a September 2011 New York Times oped. "As long as military education funds are on the 10 percent side of the 90-10 rule, service members will be a lucrative target for exploitation."

It is well-documented that 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 one dollar they obtain from DoD or VA sources allows them to obtain an additional nine dollars in Title IV funds.

"It's no longer a secret that the worst actors in the for-profit college industry are aggressively targeting veterans in order to pad their company's bottom line," said U.S. Senator Dick Durbin (D-IL). "Senator Harkin and I have a bill - Protecting Our Students and Taxpayers (POST) Act – that would close the outrageous loophole that allows this to happen. We need Congress to act on it to protect students and veterans from aggressive recruiting practices and help ensure taxpayers are getting a return on their investment. The Attorneys General that signed on to today's letter will be important partners in that effort."

"I believe we have a moral imperative to ensure that those who have sacrificed for our country obtain the best education possible, one that will equip them with the skills they need to find a good job, repay their college loans, and go on to live productive lives," said Sen. Tom Carper (D-DE). "That's why we must focus on how we can fix problems within the higher education system and encourage all schools to deliver a higher quality education to our military and veteran populations. We must also demand more from the schools that serve our service members and veterans so we can get better results from this taxpayer funded program. I thank this coalition of Attorneys General for its support in our efforts."

The attorneys general who joined General Conway in asking Congress to close the 90/10 loophole include Arizona Attorney General Tom Horne, Arkansas Attorney General Dustin McDaniel, California Attorney General Kamala Harris, Connecticut Attorney General George Jepsen, Delaware Attorney General Beau Biden, Idaho Attorney General Lawrence Wasden, Illinois Attorney General Lisa Madigan, Iowa Attorney General Tom Miller, Maryland Attorney General Doug Gansler, Massachusetts Attorney General Martha Coakley, Michigan Attorney General Bill Schuette, Mississippi Attorney General Jim Hood, Nevada Attorney General Catherine Cortez Masto, New Mexico Attorney General Gary King, New York Attorney General Eric Schneiderman, North Carolina Attorney General Roy Cooper. South Carolina Attorney General Alan Wilson, South Dakota Attorney General Marty Jackley, Tennessee Attorney General Bob Cooper, West Virginia Attorney General Darrell McGraw, and the state of Hawaii's Office of Consumer Protection.

General Conway is leading a group of 26 state attorneys general who are investigating the student-loan default rates, job-placement claims and deceptive marketing practices at some for-profit colleges.

General Conway also testified in front of Congress about the disproportionate number of students at for-profit schools who have private student loans and that those loans do not have the same consumer protections as federally backed loans and are almost impossible to discharge in personal bankruptcy.

Letter to Congressional leaders (300k PDF)