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08-03-2012, 08:25 PM
Higher Education’s Gainful Employment and 90/10
Rules: Unintended “Scarlet Letters” for Minority,
Low-Income, and Other At-Risk Students
Anthony J. Guida Jr & David Figuli
INTRODUCTION
Proprietary institutions of higher education,1 sometimes called
“career colleges” since they focus on degrees that are more
vocationally oriented postgraduation, provide a pathway to a
postsecondary credential for approximately 3.2 million students
across the country.2 Due to access to capital and scalable
infrastructures, which allow proprietary institutions to respond
quickly to market needs, their enrollments have grown significantly
faster than their public and nonprofit counterparts over the past
decade.3 Proprietary institutions serve significantly more students
who are at high risk of failing to complete their education,4 with a
substantial portion being low-income and minority students.5 It is
† Senior Vice President, External Affairs, Education Management Corporation.
Mr. Guida is currently a member of the Advisory Committee on Student Financial Assistance.
The Committee does not sanction the views expressed herein.
†† Partner, Figuli Law Group.
We would like to thank Chad Garrett for his excellent assistance with gathering the data
needed for this Article.
1 A “proprietary institution of higher education” is defined as an institution that, among
other things, is not “a public or other nonprofit institution.” 20 USC §§ 1001(a)(4), 1002(b)(1)(C).
Proprietary institutions are also referred to as “private for-profit” institutions.
2 Mary Gotschall and Bob Cohen, Data Reveal Dramatic Increases in Private Sector
College and University Awards; Demand for Higher Level Degrees (Association of Private
Sector Colleges and Universities Nov 8, 2010), online at http://www.career.org/iMISPublic
/AM/Template.cfm?Section=Press_Releases1&TEMPLATE=/CM/ContentDisplay.cfm&CON
TENTID=21646 (visited Oct 19, 2011).
3 Daniel L. Bennett, Adam R. Lucchesi, and Richard K. Vedder, For-Profit Higher
Education: Growth, Innovation and Regulation 10 (Center for College Affordability and
Productivity July 2010), online at http://www.centerforcollegeaffordability.org/uploads
/ForProfit_HigherEd.pdf (visited Oct 16, 2011).
4 Watson Scott Swail, Graduating At-Risk Students: A Cross-Sector Analysis 15 figure 4
(Imagine America Foundation 2009), online at http://www.educationalpolicy.org/pdf
/GraduatingAtRiskStudents.pdf (visited Oct 19, 2011).
5 Laura J. Horn and C. Dennis Carroll, Nontraditional Undergraduates: Trends in
Enrollment from 1986 to 1992 and Persistence and Attainment Among 1989–90 Beginning
Postsecondary Students 10 (National Center for Education Statistics Nov 1996), online at
http://nces.ed.gov/pubs/97578.pdf (visited Oct 19, 2011).
132 The University of Chicago Law Review [79:131
also beyond debate that these students, regardless of type of
institution attended, graduate at lower rates, borrow at higher rates,
and are more likely to default on their student loans than more
affluent students.6
The question, then, is how to provide meaningful access to atrisk
students who want to pursue higher education. Because student
need is the primary determinant of the amount of federal aid and
debt awarded, and because such aid follows the student (and not the
institution),7 there has been significant growth in federal aid that has
gone to proprietary institutions in recent years. Ironically, in a classic
example of the law of unintended consequences, existing legislative
and regulatory policies directed at proprietary institutions, while
pursued ostensibly in response to allegedly disproportionally higher
numbers of student borrowers and defaulters at proprietary
institutions,8 have unwittingly restricted minority and at-risk
students’ access to higher education.
Two rules in particular—the US Department of Education’s
(ED) new “gainful employment” (GE) rule9 and the “90/10” rule10—
through complex regulatory metrics with contradictory implications,
penalize proprietary institutions that serve high minority populations
and discourage them from providing the type of access that federal
student funding initiatives were intended to enable. If, as the data
and analysis suggest, it is the type of student enrolled, as opposed to
the quality of the program offered or the institution offering it, that
is the primary cause of low graduation rates, excessive debt, and
student defaults, then it is pointless to shift these students from
proprietary institutions to nonprofit and public colleges. Both rules
should be eliminated in favor of policies that apply to all types of
institutions, that are designed to ensure student access and success,
that require transparency and comparability, that consider
institutional mission where appropriate, that measure student
outcomes normalized against populations served, and that treat atrisk
students equitably no matter what institution they choose to
attend.
6 See Mark Kantrowitz, Borrowing in Excess of Institutional Charges 2 (FinAid Apr 28,
2011), online at http://www.finaid.org/educators/20110428debtbeyondtuition.pdf (visited Oct 16,
2011).
7 Department of Education, Federal Pell Grant Program, online at http://
www2.ed.gov/programs/fpg/index.html (visited Oct 19, 2011).
8 See, for example, Emerging Risk? An Overview of the Federal Investment in For-Profit
Education, Hearing before the Senate Committee on Health, Education, Labor, and Pensions,
111th Cong, 2d Sess 2 (2010).
9 See 20 USC § 1002(b)(1)(A).
10 See 20 USC § 1094(a)(24).
2012] Higher Education’s Gainful Employment and 90/10 Rules 133
I. TITLE IV OF THE HIGHER EDUCATION ACT OF 1965
The Higher Education Act of 196511 (HEA) was enacted as part
of President Johnson’s “Great Society” social program to augment
the educational resources of American colleges and universities to
provide financial assistance and higher education opportunities for
low- and moderate-income families.12 Most federal student-aid
programs, and programs that provide services and support to less
advantaged students, are authorized under Title IV of the HEA.13
Students may use their Title IV aid at any of approximately
5,400 eligible public, nonprofit, or proprietary institutions.14
Significantly, student eligibility for Title IV aid is mainly a function
of financial need and is not based on the student’s success.15 ED
delivered approximately $134 billion in Title IV student aid to over
fourteen million postsecondary students and their families during the
2009–10 award year.16
Title IV aid comes in two primary forms: grants based on need
that do not have to be repaid and loans that do have to be repaid.
The largest grant program is the Pell Grant Program, which provides
need-based grants to low-income students “to promote access to
postsecondary education.”17 The Pell Grant Program is carefully
targeted based on financial need, with the amount of individual
grants varying according to the financial circumstances of the
students and their families. For the 2009–10 award year, “ED
disbursed approximately $29 billion in Pell Grants that averaged
11 Pub L No 89-329, 79 Stat 1219, codified at 20 USC § 1001 et seq.
12 See Angelica Cervantes, et al, Opening the Doors to Higher Education: Perspectives on
the Higher Education Act 40 Years Later 17 (TG Research and Analytical Services Nov 2005),
online at http://www.tgslc.org/pdf/HEA_History.pdf (visited Oct 19, 2011). See also President
Lyndon B. Johnson, Remarks at Southwest Texas State College upon Signing the Higher
Education Act of 1965, 1965 Pub Papers 1102, 1102.
13 See 20 USC § 1070 et seq. See also 20 USC § 1070(a) (explaining that the purposes of
Title IV programs include providing higher education funding to students with financial need
and funding programs and projects that identify and encourage qualified youths with financial
or cultural need to prepare for and obtain a postsecondary education).
14 Department of Education, Federal Pell Grant Program (cited in note 7).
15 The focus on student need is underscored by the fact that grants and loans provided
under Title IV are entitlements. See, for example, 20 USC § 1070(a)(1) (Pell Grants); 20 USC
§ 1078-8(b) (Stafford Loans).
16 Department of Education, FY 2010 Annual Report for Federal Student Aid 6 (2010),
online at http://www2.ed.gov/about/reports/annual/2010report/fsa-report.pdf (visited Oct 20,
2011).
17 Department of Education, Federal Pell Grant Program (cited in note 7).
134 The University of Chicago Law Review [79:131
approximately $3,591 to approximately eight million students.”18 Pell
funding over the years has not kept pace with demand.19
The largest loan program is the William D. Ford Federal Direct
Loan Program (Direct Loan Program), under which ED makes lowinterest
loans directly to students and parents for use at participating
schools.20 The Direct Loan Program offers several types of loans:
subsidized and unsubsidized Stafford loans for students, PLUS loans
for parents and graduate or professional students, and consolidation
loans for students and parents.21 In 2010, ED made $80.6 billion in
loans to 8.3 million recipients.22 The outstanding balance of loans
under all Title IV programs was $605.6 billion as of fiscal year 2009.23
II. ROLE OF PROPRIETARY INSTITUTIONS IN
EDUCATING STUDENTS
A. Growth in Proprietary Colleges
The case for a more productive US system of higher education
has been succinctly stated:
18 Department of Education, FY 2010 Annual Report at 8 (cited in note 16).
19 An estimated nine million students were eligible to receive Pell grants in the 2010–11
school year, resulting in an $11 billion shortfall that was covered by the Budget Control Act of
2011, Pub L No 112-25, 125 Stat 240, codified at 20 USC § 1070a(b)(7). See Department of
Education, Student Financial Assistance: Fiscal Year 2012 Budget Request P-9, P-16, online at
http://www2.ed.gov/about/overview/budget/budget12/justifications/p-sfa.pdf (visited Oct 20,
2011).
20 See Department of Education, Direct Loans: The William D. Ford Federal Direct Loan
Program, online at http://www2.ed.gov/offices/OSFAP/DirectLoan/index.html (visited Oct 20,
2011). Until July 1, 2010, a parallel loan program through private lenders existed under the
Federal Family Education Loan (FFEL) Program. See Department of Education, Update on
Student Loan Programs, online at http://studentaid.ed.gov/PORTALSWebApp/students
/english/studentloansupdate.jsp (visited Oct 20, 2011) (explaining that the loans would no
longer be made under the FFEL Program beginning July 1, 2010). FFEL loans, also referred to
as “Guaranteed Student Loans” because they were insured by a guaranty agency and reinsured
by the federal government, were discontinued by the Health Care and Education
Reconciliation Act of 2010 § 2201, Pub L No 111-152, 124 Stat 1029, 1074.
21 See Department of Education, Direct Stafford Loans, online at http://
studentaid.ed.gov/PORTALSWebApp/students/english/studentloans.jsp (visited Oct 20, 2011).
Direct PLUS loans have a higher interest rate than Stafford loans, and accrue interest from the
date of disbursal. See Department of Education, Direct PLUS Loans for Parents, online at
http://studentaid.ed.gov/PORTALSWebApp/students/english/parentloans.jsp (visited Oct 20,
2011); Department of Education, Direct PLUS Loans for Graduate and Professional Degree
Students, online at http://studentaid.ed.gov/PORTALSWebApp/students/english/PlusLoans
GradProfstudents.jsp (visited Oct 20, 2011). A consolidated loan allows borrowers to combine
different federal loans into one loan thereby only owing a single monthly payment. See
Department of Education, Loan Consolidation, online at http://studentaid.ed.gov /PORTALS
WebApp/students/english/consolidation.jsp (visited Oct 20, 2011).
22 Department of Education, FY 2010 Annual Report at 9 (cited in note 16).
23 See Mark Kantrowitz, Student Loans (FinAid 2011), online at http://www.finaid.org
/loans/ (visited Oct 15, 2011).
2012] Higher Education’s Gainful Employment and 90/10 Rules 135
Substantial increases in those segments of America’s young
population with the lowest level of education, combined with
the coming retirement of the baby boomers—the most highly
educated generation in U.S. history—are projected to lead to a
drop in the average level of education of the U.S. workforce
over the next two decades . . . . The projected decline in
educational levels coincides with the growth of a knowledgebased
economy that requires most workers to have higher levels
of education. At the same time, the expansion of a global
economy allows industry increased flexibility in hiring workers
overseas. As other developed nations continue to improve the
education of their workforces, the United States and its workers
will increasingly find themselves at a competitive disadvantage.24
In recognition of this bleak reality, President Obama, in his first
formal address to Congress in February 2009, pledged to “provide
the support necessary for all young Americans to complete college
and meet a new goal. By 2020, America will once again have the
highest proportion of college graduates in the world.”25 The United
States was ranked tenth in the proportion of college graduates per
capita at the time of President Obama’s pledge26 and has dropped to
sixteenth since that time.27
Proprietary institutions play an essential role in achieving the
goal of a more educated US populace. ED Secretary Arne Duncan
has recognized that the President’s 2020 goal, which will require
approximately eight million graduates over the next decade,28
“cannot be achieved without a healthy and productive for-profit
sector of higher education.”29
24 National Center for Public Policy and Higher Education, Policy Alert: Income of U.S.
Workforce Projected to Decline If Education Doesn’t Improve, 1 (Nov 2005), online at
http://www.highereducation.org/reports/pa_decline/pa_decline.pdf (visited Oct 20, 2011).
25 President Barack H. Obama, Address before a Joint Session of the Congress, 2009 Pub
Papers 145, 150.
26 Centre for Educational Research and Innovation, Highlights from Education at a
Glance 2008 13 figure 1.2 (Organisation for Economic Co-operation and Development 2008),
online at http://www.oecd-ilibrary.org/education/highlights-from-education-at-a-glance-2008
_9789264040625-en (visited Oct 20, 2011).
27 Organisation for Economic Co-operation and Development, Education at a Glance
2011: Highlights 13 figure 1.2 (2011), online at http://www.oecd-ilibrary.org/education
/education-at-a-glance-2011_eag_highlights-2011-en (visited on Oct 20, 2011).
28 Patrick J. Kelly, Closing the College Attainment Gap between the U.S. and Most
Educated Countries, and the Contributions to be Made by the States 2–4 (National Center for
Higher Education Management Systems Apr 2010), online at http://www.nchems.org/pubs
/docs/Closing%20the%20U%20S%20%20Degree%20Gap%20NCHEMS%2 0Final.pdf
(visited Oct 20, 2011).
29 Program Integrity: Gainful Employment—New Programs, 75 Fed Reg 66665, 66671
(2009) (amending 34 CFR §§ 600.10, 600.20).
136 The University of Chicago Law Review [79:131
Proprietary colleges remain integral to delivering the college
graduates needed to meet the President’s 2020 goal. At a time when
other sectors of higher education are struggling to address our
nation’s critical skilled-workforce shortage due to severe cuts in state
funding and shrinking endowments, proprietary colleges are
expanding capacity, investing in infrastructure, and experiencing
significant growth. Presently, there are about 3.2 million students
attending proprietary colleges.30 The growth of proprietary
institutions has significantly outpaced the growth of traditional
institutions, having grown at an average annualized rate of
8.4 percent from 1986 to 2008, while public and nonprofit institutions
grew at 1.6 percent and 1.4 percent per year, respectively, for the
same twenty-two-year period.31
Significantly, this growth in enrollments has also translated into
rapid growth in the number of graduates from proprietary
institutions. According to ED’s Conditions of Education 2011 report,
during the ten-year period ending with academic year 2008–09:
• Two-year associate degrees conferred by proprietary colleges
more than doubled (up 125 percent) compared to an increase
of 33 percent for public institutions and a decline of 1 percent
for nonprofit institutions;
• Four-year bachelor’s degrees awarded by proprietary colleges
grew 418 percent compared to 29 percent for public and
26 percent for nonprofit institutions;
• Master’s degrees awarded by proprietary colleges grew
580 percent compared to 29 percent for public and 48 percent
for nonprofit institutions; and
• Total number of associate, bachelor’s, and master’s degrees
conferred by proprietary colleges per year grew from about
90,000 in 1998–99 (4 percent of all such degrees conferred) to
30 See Gotschall and Cohen, Data Reveal Dramatic Increases (cited in note 2); Michelle
Camacho Liu, Do For-Profit Schools Pass the Test? The Growing Popularity and Criticism of
These Universities Have Caught Lawmakers’ Attention, State Legislatures 15 (June 2011),
online at http://www.ncsl.org/LinkClick.asp?fileticket=r1oYCxoCKzE%3d&tabid=23005
(visited Oct 19, 2011). For the raw data supporting these sources, see National Center for
Education Statistics, Department of Education, 12-Month Unduplicated Headcount: 2004–05
(2005), online at http://nces.ed.gov/ipeds/datacenter/DataFiles.aspx (visited Oct 20, 2011);
National Center for Education Statistics, Department of Education, 12-Month Unduplicated
Headcount: 2009–10 (2010), online at http://nces.ed.gov/ipeds/datacenter/DataFiles.aspx
(visited Oct 20, 2011).
31 Bennett, Lucchesi, and Vedder, For-Profit Higher Education at 10 (cited in note 3).
2012] Higher Education’s Gainful Employment and 90/10 Rules 137
over 290,000 (almost 10 percent of all such degrees conferred)
by 2008–09.32
Proprietary schools are also a cost-effective way to meet the
growing demand for higher education. A recent study concludes that
proprietary institutions train and graduate students more effectively
and at a lower cost to taxpayers than nonprofit and public
institutions.33 The study demonstrates that the total cost per enrollee
for programs leading to associate degrees is over $4,000 higher at
public institutions than at proprietary institutions, once all sources of
support (including taxpayer subsidies and endowments) for these
institutions and offsetting tax payments made by proprietary
institutions are considered.34 From a per-graduate perspective, an
associate degree from a two-year public institution costs almost
$35,000 more per graduate than a comparable degree from a
proprietary institution.35 Because of proprietary institutions’ costefficiencies
and better graduation rates for at-risk students, the study
estimates that the President’s goal of delivering five million associate
and certificate degrees by 2020 would yield $33 billion in savings to
taxpayers if proprietary institutions were used along with community
colleges.36 A similar analysis compared net-taxpayer costs per student
at two- and four-year institutions combined, factoring in the cost of
defaults on student loans, and found the annual cost to be $4,519 per
student at proprietary schools, $11,340 at public institutions, and
$7,051 at nonprofit institutions.37
B. Proprietary Colleges Serve an Underserved At-Risk Population
Most students attending proprietary institutions are from groups
that have been underserved by nonprofit and public colleges and
universities. More than half of the students who enroll in proprietary
colleges are older than twenty-five, compared to less than 40 percent
32 Department of Education, The Condition of Education 2011 § 5 at 119 table 42-1
(National Center for Education Statistics 2011), online at http://nces.ed.gov/pubs2011
/2011033_6.pdf (visited Oct 21, 2011).
33 See Robert J. Shapiro and Nam D. Pham, Taxpayers’ Costs to Support Higher
Education: A Comparison of Public, Private Not-for-Profit, and Private For-Profit Institutions
7–8 (Sonecon 2010), online at http://www.sonecon.com/docs/studies/Report_on_Taxpayer
_Costs_for_Higher _Education-Shapiro-Pham_Sept_2010.pdf (visited Oct 21, 2011).
34 See id at 58.
35 See id at 57.
36 See id at 54–59.
37 See Gregory W. Cappelli, Higher Education at a Crossroads 20–21 & exhibit 14
(Apollo Group Aug 2010), online at http://www.apollogrp.edu/Investor/Reports/Higher
_Education_at_a _Crossroads_FINALv2%5B1%5D.pdf (visited Oct 21, 2011).
138 The University of Chicago Law Review [79:131
of students enrolled in public and nonprofit institutions.38
Approximately 60 percent are women, and 50 percent are
minorities.39 Almost one-third of proprietary students are single
parents.40
Minority enrollments in proprietary institutions have grown
dramatically faster than in public and nonprofit institutions. The
number of African American students at two- and four-year
proprietary undergraduate programs has grown 146 percent from
2004 to 2009, compared to 21 percent at public schools and
11 percent at nonprofit schools.41 Providing access to minority
students is critical to meeting President Obama’s 2020 goal, as the
educational gap between white and minority students continues to
grow.42 As reported by the Education Trust, “The gaps that separate
Latino and African-American students from their white peers
actually are wider [as of December, 2009] than in 1975, and the gap
between low-income and high-income students has doubled. These
degree-attainment gaps are the result of gaps in both enrollment and
graduation rates.”43
Students at proprietary institutions also tend to have lower
incomes, and 76 percent are completing their education without
parental financial support.44 For example, 51 percent of students at
proprietary institutions are financially independent and have annual
incomes under $20,000, compared to 39 percent at public institutions
38 Government Accountability Office, Proprietary Schools: Stronger Department of
Education Oversight Needed to Help Ensure Only Eligible Students Receive Federal Student
Aid 7 & table 1 (Aug 2009), online at http://www.gao.gov/new.items/d09600.pdf (visited Oct 21,
2011).
39 Id at 7 table 1, 8 figure 2 (comparing the gender and racial breakdowns of students at
public, nonprofit, and proprietary schools).
40 National Center for Education Statistics, Computation by DAS-T Online Version 5.0:
Single Parents, online at http://nces.ed.gov/dasolv2/tables/displayTable.asp?sessionID
=4F7852DE-2527-4285-9DF6-0FCCC2026B08&sequenceID=1&returncode=SUCCESS
(visited Oct 21, 2011) (providing, for public, private not-for-profit, and private for-profit
institutions, the percentage of students who are single parents).
41 Compare Laura G. Knapp, Janice E. Kelly-Reid, and Roy W. Whitmore, Enrollment in
Postsecondary Institutions, Fall 2004; Graduation Rates, 1998 & 2001 Cohorts; and Financial
Statistics, Fiscal Year 2004 4–5 table 1 (National Center for Education Statistics Feb 2006), online
at http://nces.ed.gov/pubs2006/2006155.pdf (visited Oct 21, 2011), with Laura G. Knapp, Janice E.
Kelly-Reid, and Scott A. Ginder, Enrollment in Postsecondary Institutions, Fall 2009; Graduation
Rates 2003 & 2006 Cohorts; and Financial Statistics, Fiscal Year 2009: First Look 7–8 table 1
(National Center for Education Statistics Feb 2011), online at http://nces.ed.gov
/pubs2011/2011230.pdf (visited Oct 21, 2011).
42 Jennifer Engle and Mary Lynch, Charting a Necessary Path: The Baseline Report of the
Access to Success Initiative 2 (Education Trust Dec 2009), online at http://www.edtrust.org/sites
/edtrust.org/files/publications/files/A2S_BaselineReport_0.pdf (visited Oct 21, 2011).
43 Id.
44 Cappelli, Higher Education at a Crossroads at 15 & exhibit 9 (cited in note 37).
2012] Higher Education’s Gainful Employment and 90/10 Rules 139
and 36 percent at nonprofit institutions.45 A student’s receipt of Pell
Grants is often used as a proxy for low-income status because, while
it has its limitations, it is the only comparative income measure
available across all types of institutions. For comparison purposes,
63.1 percent of students at proprietary colleges received a Pell Grant,
compared with 26.3 percent at nonprofit colleges and 23.0 percent at
public colleges.46
Students at proprietary institutions also tend to have a number
of risk factors not shared by their traditional-school peers that
increase their chance of not completing their education. Seven risk
factors have been consistently used in ED databases as
characteristics of “nontraditional” or “at-risk” students: delayed
enrollment in postsecondary education, part-time attendance,
financial independence from parents, full-time employment while
enrolled, dependents other than a spouse, single parenthood, and
lack of a standard high school diploma.47 Students with these risk
factors are more likely to be women or to belong to a racial-ethnic
minority group.48 The likelihood of students persisting or graduating
decreases substantially as the number of risk factors increases.49 As
depicted in the chart below, over half the students in two- and fouryear
programs at proprietary institutions have at least three risk
factors and are considered to be “high risk,” compared to
significantly smaller portions of students enrolled at traditional
colleges.
45 Association of Private Sector Colleges and Universities, Cohort Default Rates in
Contest: Key Factors Driving the Difference in Student Defaults in Institutions of Higher
Education; A White Paper 4 (Feb 14, 2011), online at http://www.apscu.org/iMISPublic
/AM/Template.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID
=22702 (visited Oct 21, 2011).
46 Kantrowitz, Borrowing in Excess of Institutional Charges at 10 (cited in note 6).
47 Horn and Carroll, Nontraditional Undergraduates at 26 table 11 (cited in note 5).
Approximately 73 percent of US students are classified as nontraditional students by ED.
Susan Choy, Nontraditional Undergraduates 1 (National Center for Education Statistics 2002).
48 Horn and Carroll, Nontraditional Undergraduates at 10 (cited in note 5).
49 George D. Kuh, et al, What Matters to Student Success: A Review of the Literature 27
(National Postsecondary Education Cooperative July 2006), online at http://nces.ed.gov
/npec/pdf/kuh_team_report.pdf (visited Oct 21, 2011).
140 The University of Chicago Law Review [79:131
FIGURE 1. PROPRIETARY INSTITUTIONS SERVE MORE STUDENTS
WHO HAVE A HIGHER RISK OF NOT COMPLETING PROGRAMS
Source: Swail, Graduating At-Risk Students at 15 figure 4 (cited in note 4).
Finally, students who attend proprietary institutions are more
likely to overborrow when attending college. A recent analysis of
undergraduate students across all of higher education found that
students attending proprietary institutions were more than twice as
likely to borrow “excessively” (more than $2,500 annually in excess
of institutional charges) as students attending public and nonprofit
colleges.50 Not surprisingly, this ratio was found to correlate to the
number of Pell Grant–eligible students that proprietary institutions
enroll.51 This overborrowing likely makes it more difficult for lowincome
students to repay their debt after graduation.
Unfortunately, proprietary institutions (or any institutions for
that matter) have little ability to control a student’s debt. Under
current law, institutions are required to inform students of the
maximum amount of federal loans available.52 Institutions set the
“cost of attendance,” which includes direct educational expenses
such as tuition, fees, books, and supplies, as well as indirect living
expenses such as transportation, room and board, and dependent
child care costs for independent students with dependents.53 Students
are able to borrow up to the maximum loan limits for their cost of
50 See Kantrowitz, Borrowing in Excess of Institutional Charges at 1–2 (cited in note 6).
51 See id at 2–3.
52 See 34 CFR § 674.16(a)(1)(iv).
53 See 20 USC § 1087ll.
0
10
20
30
40
50
60
70
80
4-Year 2-Year < 2-Year
Percent of Student with Three or More
Risk Factors
Type of Institution
Career Colleges
Private, Not-for-Profit
Public
2012] Higher Education’s Gainful Employment and 90/10 Rules 141
attendance less the student’s estimated financial assistance for that
period (including grants and scholarships).54 While the HEA permits
college financial aid administrators to selectively limit student
borrowing in a nondiscriminatory manner, the opportunities for
institutions to limit excessive student debt in the aggregate is
restricted by current law and regulatory guidance: that is, institutions
must let students borrow as much as they can qualify for regardless
of their actual need or ability to repay.55
C. Strong Correlation between Student Demographics
and Outcomes
Interpretations of available data reveal a strong correlation
between the percentage of at-risk students that an institution enrolls
and the outcomes of the students attending the institution. With
respect to student cohort default rates,56 for instance, the US
Government Accountability Office in a 2009 report found that
higher default rates at proprietary schools are linked to the
characteristics of the students who attend these schools.
Specifically, students who come from low income backgrounds
and from families who lack higher education are more likely to
default on their loans, and data show that students from
proprietary schools are more likely to come from low income
families and have parents who do not hold a college degree.57
Other recent studies have found similar correlations between student
demographics and graduation rates and default rates.58
54 See 34 CFR § 682.603(e).
55 See Department of Education, 3 2010–2011 Federal Student Aid Handbook ch 6 at 3-100,
3-144 (Feb 2011), online at http://www.ifap.ed.gov/fsahandbook/attachments
/1011FSAHbkVol3Ch6.pdf (visited Oct 21, 2011).
56 A “cohort default rate” measures the percentage of a school’s borrowers who enter
repayment in one fiscal year and default before the end of the next fiscal year. See Department
of Education, Official Cohort Default Rates for Schools, online at http://www2.ed.gov/offices
/OSFAP/defaultmanagement/cdr.html (visited Oct 21, 2011).
57 Government Accountability Office, Proprietary Schools at Introduction (cited in
note 38).
58 See, for example, Engle and Lynch, Charting a Necessary Path at 2 & figure 1, 3 &
figure 2 (cited in note 42) (finding that low-income and minority students enroll in and
graduate from four-year programs at disproportionately lower rates); Don Hossler, et al, What
Matters in Student Loan Default: A Review of the Literature 3 (Project on Academic Success,
Indiana University 2008), online at http://pas.indiana.edu/pdf/DefaultFull.pdf (visited Oct 21,
2011) (finding that cohort default rates tend to be higher at proprietary institutions because
students who attend those institutions “tend to borrow more, to come from lower income
families, and to belong to a racial or ethnic minority group—characteristics that are all
associated with increased likelihood of default”).
142 The University of Chicago Law Review [79:131
The following charts illustrate the nearly linear relationship
between the percentage of Pell-eligible students an institution enrolls
and the institution’s graduation rates and cohort default rates.
FIGURE 2. GRADUATION RATES (2009) FOR ALL FOUR-YEAR
DEGREE GRANTING INSTITUTIONS WITH VARYING PERCENTAGES
OF STUDENT POPULATION RECEIVING PELL GRANTS
55%
84%
69%
54%
43%
32% 37%
31%
All 4-Year
Degree
Granting
Institutions
0–10% 10–20% 20–30% 30–40% 40–50% 50–60% 60–70%
Percent of Students Receiving Pell Grants
2012] Higher Education’s Gainful Employment and 90/10 Rules 143
FIGURE 3. COHORT DEFAULT RATES (2009 TWO-YEAR) FOR ALL
DEGREE GRANTING INSTITUTIONS WITH VARYING PERCENTAGE
OF STUDENT POPULATION RECEIVING PELL GRANTS
D. Proprietary School Success in Outcomes for At-Risk Students
Despite their level of high-risk enrollees, proprietary institutions
generally provide an educational experience that meets the needs of
their students. This is likely the result of a focus on providing
students with clear pathways to degrees, customized and flexible
scheduling, information systems that track progress, a commitment
to advisement, and active job-placement counseling.59
Proprietary schools are more successful than their two- and fouryear
public and nonprofit counterparts at graduating at-risk students.
At first blush, published graduation rates of proprietary institutions
lag public and nonprofit four-year institutions (35 percent, 54 percent,
and 65 percent, respectively) and are comparable to two-year
nonprofit institutions (60 percent versus 55 percent, respectively).60
59 See David Wakelyn, Increasing College Success: A Road Map for Governors 1
(National Governors Association, Center for Best Practices, Dec 9, 2009), online at
http://www.nga.org/files/live/sites/NGA/files/pdf/0912INCREASINGCOLLEGESUCCESS.P
DF (visited Oct 21, 2011) (pointing out these factors to explain why two-year proprietary
schools have much higher graduation rates than two-year public colleges even though they
enroll similar students).
60 Imagine America Foundation, Fact Book 2011: A Profile of Career Colleges and
Universities 25 figure FF (2011).
9%
3%
4%
6%
8%
14%
13%
16%
All Degree
Granting
Institutions
0–10% 10–20% 20–30% 30–40% 40–50% 50–60% 60–70%
Percent of Students Receiving Pell Grants
144 The University of Chicago Law Review [79:131
Published graduation rates of two-year proprietary institutions are
almost triple that for public two-year institutions (primarily
community colleges)—the sector most comparable demographically
(60 percent versus 22 percent, respectively).61
However, when graduation rates are more closely examined
based on the types of students that an institution enrolls,62 propriety
colleges do much better than their traditional counterparts. The
findings in one study can be summarized as follows:
• Institutions predominantly serving low-income populations (at
least 60 percent Pell-eligible students): Four-year proprietary
colleges graduated 55 percent of their students, as compared
to 31 percent and 39 percent, respectively, at comparable
public and nonprofit institutions. Two-year proprietary
colleges graduated 56 percent of their students, as compared
to 24 percent and 45 percent, respectively, at comparable
public and nonprofit institutions.
• Institutions predominantly serving minorities (less than
25 percent white students): Four-year proprietary colleges
graduated 47 percent of their students, as compared to
33 percent and 40 percent at comparable public and nonprofit
institutions. Two-year proprietary colleges graduated
56 percent of their students, as compared to 16 percent and
44 percent, respectively, at comparable public and nonprofit
institutions.63
61 Id.
62 There is currently “a highly incomplete understanding of graduation rates” due to the
lack of a meaningful standard definition. Kara M. Cheseby, Class Conflict: Gainful
Employment Proposal Penalizes At-Risk Student Populations and Hurts the Economy 8–10
(Competitive Enterprise Institute Mar 2011), online at
http://cei.org/sites/default/files/Kara%20Cheseby%20-%20Class%20Conflict%20Gainful
%20Employment%20Proposal.pdf (visited Oct 21, 2011) (“What is the realistic graduation
rate, especially given differences in programmatic concentrations and student demographics
between post-secondary sectors?”).
63 See Swail, Graduating At-Risk Students at 22–26 & figures 13, 15 (cited in note 4). See
also, Robert Lytle, Private Sector Post-secondary Schools—Do They Deliver Value to Students
and Society? 2–3 & exhibit 1 (Parthenon Group Mar 2010), online at
http://www.parthenon.com/GetFile.aspx?u=%2fLists%2fThoughtLeadership%2fAtta chments
%2f17%2fParthenon%2520Perspectives%2520-%2520Private%2520Post%2520Secondary
%2520Schools%2520Value %2520Proposition%2520-%2520White%2520Paper.pdf (visited
Oct 22, 2011) (using ED data for two-year and less institutions, found students at proprietary
colleges graduate at rates roughly 20 percent higher than public schools even though they
attract more “high risk” students).
2012] Higher Education’s Gainful Employment and 90/10 Rules 145
III. REGULATORY ROADBLOCKS TO COLLEGE ACCESS FOR
LOW-INCOME AND MINORITY STUDENTS
A. The Gainful Employment Rule Improperly Singles Out Low-
Income and Minority Students Attending Proprietary Colleges
In June 2011, ED issued its controversial “gainful employment”
rule,64 which applies to most programs at proprietary institutions and
only nondegree programs at public and nonprofit institutions.65
Under the GE rule, the words “gainful employment”—which sat
dormant in the HEA for forty-six years66—were now embroidered
with minimum debt-to-income standards and loan repayment rates
that programs must meet in order to retain eligibility for student
assistance under Title IV.67 Under the complex rule (which is more
than 5,500 words long and takes 157 pages to explain),68 each
program an institution offers must meet at least one of three metrics
to remain eligible for Title IV funding: (1) a 12 percent debt-serviceto-
total-earning ratio applied to graduates of a program; (2) a
30 percent debt-service-to-discretionary-income ratio applied to
graduates of a program; or (3) a 35 percent loan-repayment-rate test
for any person who attended a program.69 A program that fails all
64 ED received more than ninety-thousand comments to the GE rule during the public
comment period, more than twice its previous record. Goldie Blumenstyk, Education Dept. to
Delay Issuing “Gainful Employment” Rules Opposed by For-Profit Colleges, Chron Higher
Educ (Sept 24, 2010), online at http://chronicle.com/article/Education-Dept-to-Delay/124617/
(visited Oct 21, 2011). Opposition to the GE rule was bipartisan. A House amendment to the
fiscal year 2011 continuing resolution that would have prohibited using federal funds to
implement the GE rule passed 289–136 and garnered 58 Democrat votes, including those of
former Speaker Nancy Pelosi and one-third of the Democrats of the Tri-Caucus. See HR 1,
112th Cong, 1st Sess (Feb 11, 2011), in 157 Cong Rec 789 (Feb 14, 2011); HR 1, 112th Cong 1st
Sess (Feb 11, 2011), in 157 Cong Rec 1234 (Feb 18, 2011). The main trade group representing
proprietary institutions also has filed suit to invalidate the GE rule on the grounds it exceeds
the regulatory authority granted by Congress under the HEA, conflicts with congressional
intent, was developed through a flawed process, and was implemented without adequately
exploring the impact on minorities, women, and jobs. See Complaint, Career College
Association v Duncan, Case No 1:11-cv-01314, *2–5 (DDC filed July 20, 2011), online at
http://www.nacua.org/documents/APSCU_v_Duncan_ComplaintPrayerDeclaratoryInjunctiv e
Relief.pdf (visited Oct 21 2011).
65 Programs at proprietary institutions may participate in Title IV assistance programs
only if they prepare students for “gainful employment in a recognized occupation” or provide a
program at a regionally accredited institution that leads to a baccalaureate degree in liberal
arts or that has been in existence since January 1, 2009. 20 USC § 1002(b)(1)(A).
66 See Jennifer Gonzalez, Federal Proposal Could Jeopardize For-Profit Programs,
Especially Bachelor’s Degrees, Chron Higher Educ (May 17, 2010), online at
http://chronicle.com /article/Federal-Proposal-on-Student/65604/ (visited Oct 21, 2011).
67 Department of Education, Program Integrity: Gainful Employment—Debt Measures,
76 Fed Reg 34386, 34386–90 (2011) (amending 34 CFR § 668 effective July 1, 2012).
68 Id at 34386–34539.
69 See 34 CFR § 668.7.
146 The University of Chicago Law Review [79:131
three tests in three out of four years is ineligible for further Title IV
funding,70 a result that, in most instances, would lead to closure of the
program.
ED’s stated purpose for enacting the GE rule was to address
programs offered by proprietary institutions that leave students with
“unaffordable debts and poor employment prospects.”71 However,
analyses by nationally recognized financial aid expert Mark
Kantrowitz of data released by ED during the GE rulemaking
process support the conclusion that it is the type of student
enrolled—more so than the quality of the program offered or the
institution offering it—that is the primary cause of excessive debt
and student defaults. Kantrowitz found “an almost linear
relationship between the percentage [of] Pell Grant recipients and
the average loan repayment rates,” concluding that colleges that
enroll primarily at-risk students who qualify for Pell Grants are
“extremely unlikely” to have passing loan repayment rates under the
original draft rule.72
In litigation filed by the Association of Private Sector Colleges
and Universities (APSCU) against ED to invalidate the GE rule, ED
Assistant Secretary Eduardo M. Ochoa admits that ED erred in
calculating the effects of race on repayment rates in the final GE
regulation. Ochoa states that ED mistakenly used a variable called
“percent minority,” which, while intended to measure the percentage
of an institution’s student body made up of minorities, did not
include African American students in the data set. This resulted in
ED significantly understating the relationship between race and
repayment rates, such that, while ED originally estimated that race
explained only 1 percent of the overall variance in repayment rates,
it actually explained 20 percent of the variance.73 While ED claims
the GE rule would not have been different had it known of the
mistake before it issued the rule, APSCU has asserted that ED’s
error goes to the heart of the concerns raised in public comments
filed during the rulemaking process that the regulation
70 34 CFR § 668.7(i). Programs failing to meet one or more of these tests are also subject
to certain disclosure requirements and warnings to students. 34 CFR § 668.7(j).
71 76 Fed Reg at 34386 (cited in note 67).
72 Mark Kantrowitz, The Impact of Loan Repayment Rates on Pell Grant Recipients 2–3
(FinAid Sept 1, 2010), online at http://www.finaid.org/educators/20100901gainfulemployment
impactonpell.pdf (visited Oct 21, 2011). But see 76 Fed Reg at 34460–65 (cited in note 67)
(noting that nine sector-wise multiple regression models exploring the relationship between
repayment rates and student- and institution-level factors ran from being wholly nonpredictive
to explaining more than half of the potential variance in repayment rates).
73 See Declaration of Eduardo Ochoa, Association of Private Sector Colleges and
Universities v Duncan, No 1:11-cv-01314, *2–3 (DDC filed Dec 13, 2011).
2012] Higher Education’s Gainful Employment and 90/10 Rules 147
disproportionally impacted minority students and by itself requires
that the GE regulation be vacated.74
Because the GE rule does not adjust for these demographic
correlations, it creates the perverse incentive for proprietary
institutions to avoid enrolling low-income and minority students
altogether. The GE rule also incorrectly focuses on the financial
success of students as the main criterion for eligibility when the core
metric of the Title IV program, as clearly stated in the statute and
legislative history, is financial need. By predetermining program
choices for students primarily based on their ability to pay for their
schooling without borrowing, the GE rule will almost certainly have
a disproportionate impact on low-income, minority, and other
underserved students. Instead of helping disadvantaged students
achieve their highest potential, the GE rule will reduce access to
education for disadvantaged students based on the very factors that
caused them to be disadvantaged in the first place.
B. The 90/10 Rule Creates Structural Incentives for Tuition
Inflation and Barriers to Access for Low-Income and Minority
Students
The 90/10 rule applies only to proprietary institutions and
requires that at least 10 percent of an institution’s revenues for
tuition, fees, and other institutional charges be received from sources
other than federal Title IV student aid.75 The rule was enacted to
stem fraudulent and abusive practices that had been identified at
proprietary institutions. An oft-stated rationale for the rule is that a
proprietary institution providing a high-quality education should be
able to derive a specific percentage of its revenue from non–Title IV
programs.76 Stated slightly differently, students would be willing to
pay at least 10 percent out of their own pockets toward their
education if it were worthwhile.77
While the 90/10 formula may seem fairly straightforward, the
underlying details of the regulation are numerous, subjective, and
74 See Memorandum of Law in Opposition to Defendant’s Cross-Motion for Summary
Judgment and Reply Memorandum of Law in Support of Plaintiff’s Motion for Summary
Judgment, Association of Private Sector Colleges and Universities v Duncan, No 1:11-cv-01314,
*2–5 (DDC filed Jan 12, 2012).
75 20 USC § 1094(a)(24).
76 Rebecca R. Skinner, Institutional Eligibility and the Higher Education Act: Legislative
History of the 90/10 Rule and Its Current Status 3 (Congressional Research Service Jan 19,
2005), online at http://www.policyarchive.org/handle/10207/bitstreams/1904.pdf (visited Oct 16,
2011). There is no known research that establishes a relationship between the amount of
institutional charges a student pays and quality.
77 See id at Summary.
148 The University of Chicago Law Review [79:131
extremely burdensome to implement.78 Further, the rule generally
presumes that Title IV funds received by an institution are applied to
institutional charges first (90 percent element).79 Institutions whose
students overborrow are at a disadvantage because the Title IV aid
these students receive often covers most, if not all, of the
institutional charges, leaving little or no balance owed against which
to apply non-Title IV (10 percent element) funds. For example, if
institutional charges are $7,500 and a student has $2,500 in cash and
receives $7,500 in Title IV aid, the revenue presumption deems the
$7,500 in institutional charges to be fully paid by Title IV aid,
resulting in a 90/10 ratio of 100 percent.
The 90/10 rule is fundamentally in conflict with the goal of
educating low-income students. The rule presupposes financial
resources that are not available to low-income students. This lack of
personal financial resources devolves into the 10 percent element
being sourced according to the rule from private student loans,
military student aid, and employer tuition assistance.80 Because
proprietary institutions have no authority to limit student use of
Title IV federal student aid, their main tool for 90/10 compliance is
increasing institutional charges beyond the maximum amount of
federal aid to force students to fill the “gap” thus created with non–
Title IV funds.81 The GE rule further complicates matters because a
main tool for compliance with the debt restrictions of that rule is
tuition reductions that will hurt their 90/10 scores, thus putting the
requirements of the GE and 90/10 rules in conflict with each other
and institutions in a catch-22.82
House Speaker John Boehner (who was then chairman of the
House Committee on Education and the Workforce) recognized the
fundamental problems with the 90/10 rule in 2004:
[T]he 90/10 Rule . . . was put into place as part of the larger
effort to reduce fraud and abuse that plagued the proprietary
sector in the 1970s and 1980s. While I don’t disagree that this
rule was well intentioned years ago, today it seems not only
78 See Advisory Committee on Student Financial Assistance, Preliminary List of
Burdensome Regulations *1 (May 2011), online at http://www2.ed.gov/about/bdscomm/list
/acsfa/prelimlistofburdenregsmay11.pdf (visited Oct 22, 2011).
79 See 20 USC § 1094(a)(24), (d)(1).
80 See Kantrowitz, Borrowing in Excess of Institutional Charges at 1 & nn 1–2 (cited in
note 6).
81 See id.
82 See Mark Kantrowitz, What Is Gainful Employment? What Is Affordable Debt? 22
(FinAid Mar 11, 2010), online at http://www.finaid.org/educators/20100301gainful
employment.pdf (visited Oct 22, 2011).
2012] Higher Education’s Gainful Employment and 90/10 Rules 149
unnecessary and ineffective, but also potentially harmful to
students.
The rule requires proprietary institutions to show at least
10 percent of funds are derived from sources outside of Title IV
student aid funding. While this may not seem like too much to
ask, looking closely at this rule shows just how burdensome it
may be.
Statistics show proprietary schools tend to serve larger
populations of needy, high-risk minority and nontraditional
students. In other words, the students most in need of federal
assistance.
Yet when a proprietary schools serves a large share of needy
students, many of whom rely on federal aid, the school’s
compliance with the 90/10 Rule is put in jeopardy. . . . Worse
still, this rule creates an incentive for proprietary schools to
raise tuition or move away from urban areas where students are
more likely to depend on Federal aid.83
In recent years, 90/10 rates at proprietary institutions have been
increasing based on a host of factors that are outside their control.
These changes include rapid and substantial increases in available
federal Title IV aid,84 the collapse of the private credit markets and
the associated end of private student lending for all but the best
credit risks,85 and a deteriorating economy with considerable job
83 The College Access & Opportunity Act: Are Students at Proprietary Institutes Treated
Equitably under Current Law?, Hearing on HR 4283 before the Committee on Education and
the Workforce, 108th Cong, 2d Sess 2–3 (2004) (statement of Rep John Boehner), online at
http://www.gpo.gov/fdsys/pkg/CHRG-108hhrg94285/pdf/CHRG-108hhrg94285.pdf (visited Oct
21, 2011).
84 The increase in the Title IV growth rate has been significantly impacted by (1) a
13 percent annual increase in the maximum Pell Grant amount effective July 1, 2009, see Mark
Kantrowitz, Pell Grant Historical Figures (FinAid 2011), online at http://www.finaid.org
/educators/pellgrant.phtml (visited Oct 21, 2011); (2) the introduction of year-round Pell
Grants, see 34 CFR § 690.67(a); (3) Pell Grant formula changes for undergraduate students,
see Jason Delisle, The Real Cause of Pell Grant Cost Increases (New America Foundation Mar
8, 2011), online at http://higheredwatch.newamerica.net/blogposts/2011/the_real_cause
_of_pell_grant_cost_increases-46147 (visited Oct 22, 2011); (4) a $2,000-per-academic-year
increase in the unsubsidized Stafford loan limits effective July 1, 2008, see Continued Access to
Student Loans Act of 2008, Pub L 110-227, 122 Stat 740, codified at 20 USC § 1078-8(d)(3)(A)
(adding an additional $2,000 to the amount of aid per year a student may borrow); (5) an
increase of 20 percent per academic year in Stafford loan limits for graduate students, see
Mark Kantrowitz, Historical Loan Limits (FinAid 2011), online at http://www.finaid.org
/loans/historicallimits.phtml (visited Oct 22, 2011); and (6) the introduction of Grad PLUS
loans, see Mark Kantrowitz, Private Student Loans (FinAid 2011), online at http://
www.finaid.org/loans /privatestudentloans.phtml (visited Oct 22, 2011).
85 See Mark Kantrowitz, Impact of the Credit Crisis on Student Loans (FinAid 2008),
online at http://www.education.com/reference/article/impact-credit-crisis-student-loans/
150 The University of Chicago Law Review [79:131
losses. The result is that substantially more students are eligible for
Pell Grants;86 substantially more students have an “expected family
contribution” of $0, which makes them “fully” Pell eligible;87 students
have cut back on their credit hour load, meaning that federal
Title IV aid covers most, if not all, of their tuition instead of a
portion of it;88 and fewer students are able to make even small cash
payments towards their education.89 Exacerbating the situation are
widespread reductions in grant aid in a number of states,90 which
worsens the 90/10 ratio because state grants generally count toward
the 10 percent and are presumed to be applied first to tuition and
fees.91 Not surprisingly, institutions enrolling greater numbers of lowincome
students tend to have higher 90/10 scores.92
The GE rule and the 90/10 rule do not measure educational
quality. Instead, their standards are based on financial metrics that
are highly influenced by student need. As outlined previously, the
purpose of the HEA is to help disadvantaged students achieve their
highest potential. The GE and 90/10 rules do just the opposite—
limiting access to education for disadvantaged students based on the
very factors that caused them to be disadvantaged.
(visited Oct 16, 2011) (“Three-quarters of the lenders offering private student loans,
representing about a third of the private student loan volume, have suspended their private
student loan programs. The remaining lenders are still liquidity constrained, and have reacted
by tightening their credit underwriting standards and increasing interest rates.”); Mark
Kantrowitz, Impact of the Subprime Mortgage Credit Crisis on Student Loan Costs and
Availability (FinAid 2008), online at http://www.finaid.org/loans/creditcrisis.phtml (visited Oct
22, 2011).
86 Shannon M. Mahan, Federal Pell Grant Program of the Higher Education Act:
Background, Recent Changes, and Current Legislative Issues at Summary, 4 (Congressional
Research Service May 12, 2011), online at http://www.nasfaa.org/EntrancePDF.aspx?id=5410
(visited Oct 22, 2011).
87 Id at 14 & nn 25–27.
88 See id at 3 & nn 13–14, 4.
89 See id at 15 & table 3.
90 See, for example, Annamaria Andriotis, Last-Minute Tuition Hikes Hit Students:
Almost 20 States Have Cut Funding for Colleges, Raising Costs for Students—Starting Now,
Smart Money (July 11, 2011), online at http://www.smartmoney.com/plan/careers/lastminutetuition-
hikes-hit-college-students-1310165302807/ (visited Oct 22, 2011); Nicholas Johnson,
Phil Oliff, and Erica Williams, An Update on State Budget Cuts: At Least 46 States Have
Imposed Cuts That Hurt Vulnerable Residents and the Economy 5 (Center on Budget and
Policy Priorities Feb 9, 2011), online at http://www.cbpp.org/files/3-13-08sfp.pdf (visited Oct 21,
2011); Kelly Heyboer, Neediest Students Getting Pinched: Tuition Aid Grant Funds Spread
Thin as More Are Eligible, NJ Star-Ledger 1 (Aug 30, 2010); Janet Okoben, State Budget Cuts
Slice Up College Grant, Cleveland Plain Dealer B2 (July 29, 2009).
91 34 CFR § 668.28(a)(4)(i).
92 Government Accountability Office, For-Profit Schools: Large Schools and Schools
That Specialize in Healthcare Are More Likely to Rely Heavily on Federal Student Aid 20 (Oct
2010), online at http://www.gao.gov/new.items/d114.pdf (visited Oct 22, 2011).
2012] Higher Education’s Gainful Employment and 90/10 Rules 151
The GE rule (for the most part) and the 90/10 rule do not apply
to public and nonprofit colleges. At-risk students, however, will tend
to have lower graduation rates, higher debt, and higher defaults
regardless of which college they attend. Denying these students
access to proprietary institutions will not solve their problem; it will
only serve to exacerbate it and significantly reduce their chances of
obtaining a degree. As demonstrated previously, public and
nonprofit institutions are less successful in graduating at-risk
students. Combined with the limited capacity at traditional colleges,93
the GE and 90/10 rules will serve only to further disadvantage the
disadvantaged, in stark conflict with the HEA’s statutory purpose to
provide aid to students in need who otherwise may not be able to
attend college.
Both rules should be eliminated in favor of polices that apply
equally across all of higher education and that are designed to
provide equal access and measures of success for at-risk students.
IV. AN ACROSS-THE-BOARD APPROACH TO THE AT-RISK
STUDENT DILEMMA
Given the widening degree attainment gap for blacks and
Hispanics, our country must implement policies to increase access to
higher education for minorities and other at-risk students. Policy
makers should be mindful that while continuous improvement in
student outcomes must always be the goal, at-risk students simply
will not always use Title IV funds as efficiently as their peers.
Kantrowitz observed the public policy conflicts that this creates as
follows:
There is a fundamental conflict between public policy goals of
safeguarding taxpayer dollars (e.g., minimizing student loan
defaults) and increasing the number of low income, first
generation and nontraditional students who graduate from
college. Students from at-risk populations are more likely to
default on their education loans because they are less likely to
graduate and because jobs are less available in their home
towns. Basing for-profit institutional eligibility for Title IV
funds solely on purely financial metrics might be painting the
institutions with a very broad brush, effectively throwing the
baby out with the bathwater. Instead, there needs to be a more
93 See, for example, Josh Keller, Cal State May Cut Enrollment by 40,000, Chancellor
Says, Chron Higher Educ (June 5, 2009), online at http://chronicle.com/article/Cal-State-May-
Cut-Enrollmen/47297/ (visited Oct 22, 2011) (reporting that Cal State probably will be cutting
enrollment by forty thousand in response to state appropriations cuts).
152 The University of Chicago Law Review [79:131
direct measurement of differences in institutional quality, to
permit the separation of the wheat from the chaff.94
When “bad actors” in higher education break the rules—
regardless of their form of ownership or tax structure—they should
be punished. Conversely, proprietary institutions should not be
unfairly singled out merely because they are the schools of choice for
minorities and other at-risk students. Ensuring that students have
access to a quality education and are not saddled with excessive debt
is a worthy goal that can be accomplished without harming students
who need assistance or high-quality institutions that provide such
access.
The divide on the best ways to address competing public policy
goals of providing educational opportunities to at-risk students and
safeguarding taxpayer money has fallen along the traditional lines of
conservative and progressive policy makers, which has been
described in the recent public debate regarding proprietary schools:
In a sense, this war [“between for-profit institutions of higher
education and U.S. government forces determined to control
them”] is symptomatic of the great divide in the U.S. society
between conservative and progressive thought. Conservatives
are willing to give people a chance to succeed, though they seem
less sympathetic to the plight of those who fail. In the language
of this war, they support for-profits and their mission of
providing a chance of success for lower-income, less-prepared
students. However, they lack suggestions for how to address the
debt load borne by those who do not succeed.
However, progressives trust government and nonprofit entities
much more than private for-profits of any kind—including and
especially higher-education institutions. In the language of this
war, they desire to protect low-performing students from forprofit
predators at any and all costs. But they lack perspectives
on enabling students to make their own choices about where
and whether to pursue college education.95
94 Email from Mark Kantrowitz, Publisher of FinAid.org, to Anthony Guida (Dec 22,
2009) (on file with author).
95 Tim Gramling, All-Out War: A Case Study in Media Coverage of For-Profit Higher
Education 8 (SAGE Open June 29, 2011), online at http://sgo.sagepub.com/content/early
/2011/07/08/2158244011414732.full.pdf (visited on Oct 21, 2011). See also Andrew P. Kelly,
Private Enterprise in American Education: More Than Meets the Eye; The Politics of For-
Profits in Education 2 (American Enterprise Institute July 2011), online at http://www.aei.org
/docLib /Private-Enterprise-No-2.pdf (visited Oct 22, 2011).
2012] Higher Education’s Gainful Employment and 90/10 Rules 153
In building a bridge across the chasm that currently exists
between conservative and progressive policy makers, a good place to
start is separating the “symptoms” from the “causes.” Different
demographic groups often have different academic needs that must
be considered. Though many students attending proprietary schools
are similar to those attending traditional schools, proprietary schools
educate a significant proportion of minority, low-income, and other
at-risk students. Most of these students will necessarily borrow more
and perform differently than dependent students from financially
stable backgrounds who are academically well-prepared, attend
highly selective universities, and obtain a college degree within
prescribed timeframes. Policies that ignore these differences will fail
to meet the needs of at-risk students.
Rules: Unintended “Scarlet Letters” for Minority,
Low-Income, and Other At-Risk Students
Anthony J. Guida Jr & David Figuli
INTRODUCTION
Proprietary institutions of higher education,1 sometimes called
“career colleges” since they focus on degrees that are more
vocationally oriented postgraduation, provide a pathway to a
postsecondary credential for approximately 3.2 million students
across the country.2 Due to access to capital and scalable
infrastructures, which allow proprietary institutions to respond
quickly to market needs, their enrollments have grown significantly
faster than their public and nonprofit counterparts over the past
decade.3 Proprietary institutions serve significantly more students
who are at high risk of failing to complete their education,4 with a
substantial portion being low-income and minority students.5 It is
† Senior Vice President, External Affairs, Education Management Corporation.
Mr. Guida is currently a member of the Advisory Committee on Student Financial Assistance.
The Committee does not sanction the views expressed herein.
†† Partner, Figuli Law Group.
We would like to thank Chad Garrett for his excellent assistance with gathering the data
needed for this Article.
1 A “proprietary institution of higher education” is defined as an institution that, among
other things, is not “a public or other nonprofit institution.” 20 USC §§ 1001(a)(4), 1002(b)(1)(C).
Proprietary institutions are also referred to as “private for-profit” institutions.
2 Mary Gotschall and Bob Cohen, Data Reveal Dramatic Increases in Private Sector
College and University Awards; Demand for Higher Level Degrees (Association of Private
Sector Colleges and Universities Nov 8, 2010), online at http://www.career.org/iMISPublic
/AM/Template.cfm?Section=Press_Releases1&TEMPLATE=/CM/ContentDisplay.cfm&CON
TENTID=21646 (visited Oct 19, 2011).
3 Daniel L. Bennett, Adam R. Lucchesi, and Richard K. Vedder, For-Profit Higher
Education: Growth, Innovation and Regulation 10 (Center for College Affordability and
Productivity July 2010), online at http://www.centerforcollegeaffordability.org/uploads
/ForProfit_HigherEd.pdf (visited Oct 16, 2011).
4 Watson Scott Swail, Graduating At-Risk Students: A Cross-Sector Analysis 15 figure 4
(Imagine America Foundation 2009), online at http://www.educationalpolicy.org/pdf
/GraduatingAtRiskStudents.pdf (visited Oct 19, 2011).
5 Laura J. Horn and C. Dennis Carroll, Nontraditional Undergraduates: Trends in
Enrollment from 1986 to 1992 and Persistence and Attainment Among 1989–90 Beginning
Postsecondary Students 10 (National Center for Education Statistics Nov 1996), online at
http://nces.ed.gov/pubs/97578.pdf (visited Oct 19, 2011).
132 The University of Chicago Law Review [79:131
also beyond debate that these students, regardless of type of
institution attended, graduate at lower rates, borrow at higher rates,
and are more likely to default on their student loans than more
affluent students.6
The question, then, is how to provide meaningful access to atrisk
students who want to pursue higher education. Because student
need is the primary determinant of the amount of federal aid and
debt awarded, and because such aid follows the student (and not the
institution),7 there has been significant growth in federal aid that has
gone to proprietary institutions in recent years. Ironically, in a classic
example of the law of unintended consequences, existing legislative
and regulatory policies directed at proprietary institutions, while
pursued ostensibly in response to allegedly disproportionally higher
numbers of student borrowers and defaulters at proprietary
institutions,8 have unwittingly restricted minority and at-risk
students’ access to higher education.
Two rules in particular—the US Department of Education’s
(ED) new “gainful employment” (GE) rule9 and the “90/10” rule10—
through complex regulatory metrics with contradictory implications,
penalize proprietary institutions that serve high minority populations
and discourage them from providing the type of access that federal
student funding initiatives were intended to enable. If, as the data
and analysis suggest, it is the type of student enrolled, as opposed to
the quality of the program offered or the institution offering it, that
is the primary cause of low graduation rates, excessive debt, and
student defaults, then it is pointless to shift these students from
proprietary institutions to nonprofit and public colleges. Both rules
should be eliminated in favor of policies that apply to all types of
institutions, that are designed to ensure student access and success,
that require transparency and comparability, that consider
institutional mission where appropriate, that measure student
outcomes normalized against populations served, and that treat atrisk
students equitably no matter what institution they choose to
attend.
6 See Mark Kantrowitz, Borrowing in Excess of Institutional Charges 2 (FinAid Apr 28,
2011), online at http://www.finaid.org/educators/20110428debtbeyondtuition.pdf (visited Oct 16,
2011).
7 Department of Education, Federal Pell Grant Program, online at http://
www2.ed.gov/programs/fpg/index.html (visited Oct 19, 2011).
8 See, for example, Emerging Risk? An Overview of the Federal Investment in For-Profit
Education, Hearing before the Senate Committee on Health, Education, Labor, and Pensions,
111th Cong, 2d Sess 2 (2010).
9 See 20 USC § 1002(b)(1)(A).
10 See 20 USC § 1094(a)(24).
2012] Higher Education’s Gainful Employment and 90/10 Rules 133
I. TITLE IV OF THE HIGHER EDUCATION ACT OF 1965
The Higher Education Act of 196511 (HEA) was enacted as part
of President Johnson’s “Great Society” social program to augment
the educational resources of American colleges and universities to
provide financial assistance and higher education opportunities for
low- and moderate-income families.12 Most federal student-aid
programs, and programs that provide services and support to less
advantaged students, are authorized under Title IV of the HEA.13
Students may use their Title IV aid at any of approximately
5,400 eligible public, nonprofit, or proprietary institutions.14
Significantly, student eligibility for Title IV aid is mainly a function
of financial need and is not based on the student’s success.15 ED
delivered approximately $134 billion in Title IV student aid to over
fourteen million postsecondary students and their families during the
2009–10 award year.16
Title IV aid comes in two primary forms: grants based on need
that do not have to be repaid and loans that do have to be repaid.
The largest grant program is the Pell Grant Program, which provides
need-based grants to low-income students “to promote access to
postsecondary education.”17 The Pell Grant Program is carefully
targeted based on financial need, with the amount of individual
grants varying according to the financial circumstances of the
students and their families. For the 2009–10 award year, “ED
disbursed approximately $29 billion in Pell Grants that averaged
11 Pub L No 89-329, 79 Stat 1219, codified at 20 USC § 1001 et seq.
12 See Angelica Cervantes, et al, Opening the Doors to Higher Education: Perspectives on
the Higher Education Act 40 Years Later 17 (TG Research and Analytical Services Nov 2005),
online at http://www.tgslc.org/pdf/HEA_History.pdf (visited Oct 19, 2011). See also President
Lyndon B. Johnson, Remarks at Southwest Texas State College upon Signing the Higher
Education Act of 1965, 1965 Pub Papers 1102, 1102.
13 See 20 USC § 1070 et seq. See also 20 USC § 1070(a) (explaining that the purposes of
Title IV programs include providing higher education funding to students with financial need
and funding programs and projects that identify and encourage qualified youths with financial
or cultural need to prepare for and obtain a postsecondary education).
14 Department of Education, Federal Pell Grant Program (cited in note 7).
15 The focus on student need is underscored by the fact that grants and loans provided
under Title IV are entitlements. See, for example, 20 USC § 1070(a)(1) (Pell Grants); 20 USC
§ 1078-8(b) (Stafford Loans).
16 Department of Education, FY 2010 Annual Report for Federal Student Aid 6 (2010),
online at http://www2.ed.gov/about/reports/annual/2010report/fsa-report.pdf (visited Oct 20,
2011).
17 Department of Education, Federal Pell Grant Program (cited in note 7).
134 The University of Chicago Law Review [79:131
approximately $3,591 to approximately eight million students.”18 Pell
funding over the years has not kept pace with demand.19
The largest loan program is the William D. Ford Federal Direct
Loan Program (Direct Loan Program), under which ED makes lowinterest
loans directly to students and parents for use at participating
schools.20 The Direct Loan Program offers several types of loans:
subsidized and unsubsidized Stafford loans for students, PLUS loans
for parents and graduate or professional students, and consolidation
loans for students and parents.21 In 2010, ED made $80.6 billion in
loans to 8.3 million recipients.22 The outstanding balance of loans
under all Title IV programs was $605.6 billion as of fiscal year 2009.23
II. ROLE OF PROPRIETARY INSTITUTIONS IN
EDUCATING STUDENTS
A. Growth in Proprietary Colleges
The case for a more productive US system of higher education
has been succinctly stated:
18 Department of Education, FY 2010 Annual Report at 8 (cited in note 16).
19 An estimated nine million students were eligible to receive Pell grants in the 2010–11
school year, resulting in an $11 billion shortfall that was covered by the Budget Control Act of
2011, Pub L No 112-25, 125 Stat 240, codified at 20 USC § 1070a(b)(7). See Department of
Education, Student Financial Assistance: Fiscal Year 2012 Budget Request P-9, P-16, online at
http://www2.ed.gov/about/overview/budget/budget12/justifications/p-sfa.pdf (visited Oct 20,
2011).
20 See Department of Education, Direct Loans: The William D. Ford Federal Direct Loan
Program, online at http://www2.ed.gov/offices/OSFAP/DirectLoan/index.html (visited Oct 20,
2011). Until July 1, 2010, a parallel loan program through private lenders existed under the
Federal Family Education Loan (FFEL) Program. See Department of Education, Update on
Student Loan Programs, online at http://studentaid.ed.gov/PORTALSWebApp/students
/english/studentloansupdate.jsp (visited Oct 20, 2011) (explaining that the loans would no
longer be made under the FFEL Program beginning July 1, 2010). FFEL loans, also referred to
as “Guaranteed Student Loans” because they were insured by a guaranty agency and reinsured
by the federal government, were discontinued by the Health Care and Education
Reconciliation Act of 2010 § 2201, Pub L No 111-152, 124 Stat 1029, 1074.
21 See Department of Education, Direct Stafford Loans, online at http://
studentaid.ed.gov/PORTALSWebApp/students/english/studentloans.jsp (visited Oct 20, 2011).
Direct PLUS loans have a higher interest rate than Stafford loans, and accrue interest from the
date of disbursal. See Department of Education, Direct PLUS Loans for Parents, online at
http://studentaid.ed.gov/PORTALSWebApp/students/english/parentloans.jsp (visited Oct 20,
2011); Department of Education, Direct PLUS Loans for Graduate and Professional Degree
Students, online at http://studentaid.ed.gov/PORTALSWebApp/students/english/PlusLoans
GradProfstudents.jsp (visited Oct 20, 2011). A consolidated loan allows borrowers to combine
different federal loans into one loan thereby only owing a single monthly payment. See
Department of Education, Loan Consolidation, online at http://studentaid.ed.gov /PORTALS
WebApp/students/english/consolidation.jsp (visited Oct 20, 2011).
22 Department of Education, FY 2010 Annual Report at 9 (cited in note 16).
23 See Mark Kantrowitz, Student Loans (FinAid 2011), online at http://www.finaid.org
/loans/ (visited Oct 15, 2011).
2012] Higher Education’s Gainful Employment and 90/10 Rules 135
Substantial increases in those segments of America’s young
population with the lowest level of education, combined with
the coming retirement of the baby boomers—the most highly
educated generation in U.S. history—are projected to lead to a
drop in the average level of education of the U.S. workforce
over the next two decades . . . . The projected decline in
educational levels coincides with the growth of a knowledgebased
economy that requires most workers to have higher levels
of education. At the same time, the expansion of a global
economy allows industry increased flexibility in hiring workers
overseas. As other developed nations continue to improve the
education of their workforces, the United States and its workers
will increasingly find themselves at a competitive disadvantage.24
In recognition of this bleak reality, President Obama, in his first
formal address to Congress in February 2009, pledged to “provide
the support necessary for all young Americans to complete college
and meet a new goal. By 2020, America will once again have the
highest proportion of college graduates in the world.”25 The United
States was ranked tenth in the proportion of college graduates per
capita at the time of President Obama’s pledge26 and has dropped to
sixteenth since that time.27
Proprietary institutions play an essential role in achieving the
goal of a more educated US populace. ED Secretary Arne Duncan
has recognized that the President’s 2020 goal, which will require
approximately eight million graduates over the next decade,28
“cannot be achieved without a healthy and productive for-profit
sector of higher education.”29
24 National Center for Public Policy and Higher Education, Policy Alert: Income of U.S.
Workforce Projected to Decline If Education Doesn’t Improve, 1 (Nov 2005), online at
http://www.highereducation.org/reports/pa_decline/pa_decline.pdf (visited Oct 20, 2011).
25 President Barack H. Obama, Address before a Joint Session of the Congress, 2009 Pub
Papers 145, 150.
26 Centre for Educational Research and Innovation, Highlights from Education at a
Glance 2008 13 figure 1.2 (Organisation for Economic Co-operation and Development 2008),
online at http://www.oecd-ilibrary.org/education/highlights-from-education-at-a-glance-2008
_9789264040625-en (visited Oct 20, 2011).
27 Organisation for Economic Co-operation and Development, Education at a Glance
2011: Highlights 13 figure 1.2 (2011), online at http://www.oecd-ilibrary.org/education
/education-at-a-glance-2011_eag_highlights-2011-en (visited on Oct 20, 2011).
28 Patrick J. Kelly, Closing the College Attainment Gap between the U.S. and Most
Educated Countries, and the Contributions to be Made by the States 2–4 (National Center for
Higher Education Management Systems Apr 2010), online at http://www.nchems.org/pubs
/docs/Closing%20the%20U%20S%20%20Degree%20Gap%20NCHEMS%2 0Final.pdf
(visited Oct 20, 2011).
29 Program Integrity: Gainful Employment—New Programs, 75 Fed Reg 66665, 66671
(2009) (amending 34 CFR §§ 600.10, 600.20).
136 The University of Chicago Law Review [79:131
Proprietary colleges remain integral to delivering the college
graduates needed to meet the President’s 2020 goal. At a time when
other sectors of higher education are struggling to address our
nation’s critical skilled-workforce shortage due to severe cuts in state
funding and shrinking endowments, proprietary colleges are
expanding capacity, investing in infrastructure, and experiencing
significant growth. Presently, there are about 3.2 million students
attending proprietary colleges.30 The growth of proprietary
institutions has significantly outpaced the growth of traditional
institutions, having grown at an average annualized rate of
8.4 percent from 1986 to 2008, while public and nonprofit institutions
grew at 1.6 percent and 1.4 percent per year, respectively, for the
same twenty-two-year period.31
Significantly, this growth in enrollments has also translated into
rapid growth in the number of graduates from proprietary
institutions. According to ED’s Conditions of Education 2011 report,
during the ten-year period ending with academic year 2008–09:
• Two-year associate degrees conferred by proprietary colleges
more than doubled (up 125 percent) compared to an increase
of 33 percent for public institutions and a decline of 1 percent
for nonprofit institutions;
• Four-year bachelor’s degrees awarded by proprietary colleges
grew 418 percent compared to 29 percent for public and
26 percent for nonprofit institutions;
• Master’s degrees awarded by proprietary colleges grew
580 percent compared to 29 percent for public and 48 percent
for nonprofit institutions; and
• Total number of associate, bachelor’s, and master’s degrees
conferred by proprietary colleges per year grew from about
90,000 in 1998–99 (4 percent of all such degrees conferred) to
30 See Gotschall and Cohen, Data Reveal Dramatic Increases (cited in note 2); Michelle
Camacho Liu, Do For-Profit Schools Pass the Test? The Growing Popularity and Criticism of
These Universities Have Caught Lawmakers’ Attention, State Legislatures 15 (June 2011),
online at http://www.ncsl.org/LinkClick.asp?fileticket=r1oYCxoCKzE%3d&tabid=23005
(visited Oct 19, 2011). For the raw data supporting these sources, see National Center for
Education Statistics, Department of Education, 12-Month Unduplicated Headcount: 2004–05
(2005), online at http://nces.ed.gov/ipeds/datacenter/DataFiles.aspx (visited Oct 20, 2011);
National Center for Education Statistics, Department of Education, 12-Month Unduplicated
Headcount: 2009–10 (2010), online at http://nces.ed.gov/ipeds/datacenter/DataFiles.aspx
(visited Oct 20, 2011).
31 Bennett, Lucchesi, and Vedder, For-Profit Higher Education at 10 (cited in note 3).
2012] Higher Education’s Gainful Employment and 90/10 Rules 137
over 290,000 (almost 10 percent of all such degrees conferred)
by 2008–09.32
Proprietary schools are also a cost-effective way to meet the
growing demand for higher education. A recent study concludes that
proprietary institutions train and graduate students more effectively
and at a lower cost to taxpayers than nonprofit and public
institutions.33 The study demonstrates that the total cost per enrollee
for programs leading to associate degrees is over $4,000 higher at
public institutions than at proprietary institutions, once all sources of
support (including taxpayer subsidies and endowments) for these
institutions and offsetting tax payments made by proprietary
institutions are considered.34 From a per-graduate perspective, an
associate degree from a two-year public institution costs almost
$35,000 more per graduate than a comparable degree from a
proprietary institution.35 Because of proprietary institutions’ costefficiencies
and better graduation rates for at-risk students, the study
estimates that the President’s goal of delivering five million associate
and certificate degrees by 2020 would yield $33 billion in savings to
taxpayers if proprietary institutions were used along with community
colleges.36 A similar analysis compared net-taxpayer costs per student
at two- and four-year institutions combined, factoring in the cost of
defaults on student loans, and found the annual cost to be $4,519 per
student at proprietary schools, $11,340 at public institutions, and
$7,051 at nonprofit institutions.37
B. Proprietary Colleges Serve an Underserved At-Risk Population
Most students attending proprietary institutions are from groups
that have been underserved by nonprofit and public colleges and
universities. More than half of the students who enroll in proprietary
colleges are older than twenty-five, compared to less than 40 percent
32 Department of Education, The Condition of Education 2011 § 5 at 119 table 42-1
(National Center for Education Statistics 2011), online at http://nces.ed.gov/pubs2011
/2011033_6.pdf (visited Oct 21, 2011).
33 See Robert J. Shapiro and Nam D. Pham, Taxpayers’ Costs to Support Higher
Education: A Comparison of Public, Private Not-for-Profit, and Private For-Profit Institutions
7–8 (Sonecon 2010), online at http://www.sonecon.com/docs/studies/Report_on_Taxpayer
_Costs_for_Higher _Education-Shapiro-Pham_Sept_2010.pdf (visited Oct 21, 2011).
34 See id at 58.
35 See id at 57.
36 See id at 54–59.
37 See Gregory W. Cappelli, Higher Education at a Crossroads 20–21 & exhibit 14
(Apollo Group Aug 2010), online at http://www.apollogrp.edu/Investor/Reports/Higher
_Education_at_a _Crossroads_FINALv2%5B1%5D.pdf (visited Oct 21, 2011).
138 The University of Chicago Law Review [79:131
of students enrolled in public and nonprofit institutions.38
Approximately 60 percent are women, and 50 percent are
minorities.39 Almost one-third of proprietary students are single
parents.40
Minority enrollments in proprietary institutions have grown
dramatically faster than in public and nonprofit institutions. The
number of African American students at two- and four-year
proprietary undergraduate programs has grown 146 percent from
2004 to 2009, compared to 21 percent at public schools and
11 percent at nonprofit schools.41 Providing access to minority
students is critical to meeting President Obama’s 2020 goal, as the
educational gap between white and minority students continues to
grow.42 As reported by the Education Trust, “The gaps that separate
Latino and African-American students from their white peers
actually are wider [as of December, 2009] than in 1975, and the gap
between low-income and high-income students has doubled. These
degree-attainment gaps are the result of gaps in both enrollment and
graduation rates.”43
Students at proprietary institutions also tend to have lower
incomes, and 76 percent are completing their education without
parental financial support.44 For example, 51 percent of students at
proprietary institutions are financially independent and have annual
incomes under $20,000, compared to 39 percent at public institutions
38 Government Accountability Office, Proprietary Schools: Stronger Department of
Education Oversight Needed to Help Ensure Only Eligible Students Receive Federal Student
Aid 7 & table 1 (Aug 2009), online at http://www.gao.gov/new.items/d09600.pdf (visited Oct 21,
2011).
39 Id at 7 table 1, 8 figure 2 (comparing the gender and racial breakdowns of students at
public, nonprofit, and proprietary schools).
40 National Center for Education Statistics, Computation by DAS-T Online Version 5.0:
Single Parents, online at http://nces.ed.gov/dasolv2/tables/displayTable.asp?sessionID
=4F7852DE-2527-4285-9DF6-0FCCC2026B08&sequenceID=1&returncode=SUCCESS
(visited Oct 21, 2011) (providing, for public, private not-for-profit, and private for-profit
institutions, the percentage of students who are single parents).
41 Compare Laura G. Knapp, Janice E. Kelly-Reid, and Roy W. Whitmore, Enrollment in
Postsecondary Institutions, Fall 2004; Graduation Rates, 1998 & 2001 Cohorts; and Financial
Statistics, Fiscal Year 2004 4–5 table 1 (National Center for Education Statistics Feb 2006), online
at http://nces.ed.gov/pubs2006/2006155.pdf (visited Oct 21, 2011), with Laura G. Knapp, Janice E.
Kelly-Reid, and Scott A. Ginder, Enrollment in Postsecondary Institutions, Fall 2009; Graduation
Rates 2003 & 2006 Cohorts; and Financial Statistics, Fiscal Year 2009: First Look 7–8 table 1
(National Center for Education Statistics Feb 2011), online at http://nces.ed.gov
/pubs2011/2011230.pdf (visited Oct 21, 2011).
42 Jennifer Engle and Mary Lynch, Charting a Necessary Path: The Baseline Report of the
Access to Success Initiative 2 (Education Trust Dec 2009), online at http://www.edtrust.org/sites
/edtrust.org/files/publications/files/A2S_BaselineReport_0.pdf (visited Oct 21, 2011).
43 Id.
44 Cappelli, Higher Education at a Crossroads at 15 & exhibit 9 (cited in note 37).
2012] Higher Education’s Gainful Employment and 90/10 Rules 139
and 36 percent at nonprofit institutions.45 A student’s receipt of Pell
Grants is often used as a proxy for low-income status because, while
it has its limitations, it is the only comparative income measure
available across all types of institutions. For comparison purposes,
63.1 percent of students at proprietary colleges received a Pell Grant,
compared with 26.3 percent at nonprofit colleges and 23.0 percent at
public colleges.46
Students at proprietary institutions also tend to have a number
of risk factors not shared by their traditional-school peers that
increase their chance of not completing their education. Seven risk
factors have been consistently used in ED databases as
characteristics of “nontraditional” or “at-risk” students: delayed
enrollment in postsecondary education, part-time attendance,
financial independence from parents, full-time employment while
enrolled, dependents other than a spouse, single parenthood, and
lack of a standard high school diploma.47 Students with these risk
factors are more likely to be women or to belong to a racial-ethnic
minority group.48 The likelihood of students persisting or graduating
decreases substantially as the number of risk factors increases.49 As
depicted in the chart below, over half the students in two- and fouryear
programs at proprietary institutions have at least three risk
factors and are considered to be “high risk,” compared to
significantly smaller portions of students enrolled at traditional
colleges.
45 Association of Private Sector Colleges and Universities, Cohort Default Rates in
Contest: Key Factors Driving the Difference in Student Defaults in Institutions of Higher
Education; A White Paper 4 (Feb 14, 2011), online at http://www.apscu.org/iMISPublic
/AM/Template.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID
=22702 (visited Oct 21, 2011).
46 Kantrowitz, Borrowing in Excess of Institutional Charges at 10 (cited in note 6).
47 Horn and Carroll, Nontraditional Undergraduates at 26 table 11 (cited in note 5).
Approximately 73 percent of US students are classified as nontraditional students by ED.
Susan Choy, Nontraditional Undergraduates 1 (National Center for Education Statistics 2002).
48 Horn and Carroll, Nontraditional Undergraduates at 10 (cited in note 5).
49 George D. Kuh, et al, What Matters to Student Success: A Review of the Literature 27
(National Postsecondary Education Cooperative July 2006), online at http://nces.ed.gov
/npec/pdf/kuh_team_report.pdf (visited Oct 21, 2011).
140 The University of Chicago Law Review [79:131
FIGURE 1. PROPRIETARY INSTITUTIONS SERVE MORE STUDENTS
WHO HAVE A HIGHER RISK OF NOT COMPLETING PROGRAMS
Source: Swail, Graduating At-Risk Students at 15 figure 4 (cited in note 4).
Finally, students who attend proprietary institutions are more
likely to overborrow when attending college. A recent analysis of
undergraduate students across all of higher education found that
students attending proprietary institutions were more than twice as
likely to borrow “excessively” (more than $2,500 annually in excess
of institutional charges) as students attending public and nonprofit
colleges.50 Not surprisingly, this ratio was found to correlate to the
number of Pell Grant–eligible students that proprietary institutions
enroll.51 This overborrowing likely makes it more difficult for lowincome
students to repay their debt after graduation.
Unfortunately, proprietary institutions (or any institutions for
that matter) have little ability to control a student’s debt. Under
current law, institutions are required to inform students of the
maximum amount of federal loans available.52 Institutions set the
“cost of attendance,” which includes direct educational expenses
such as tuition, fees, books, and supplies, as well as indirect living
expenses such as transportation, room and board, and dependent
child care costs for independent students with dependents.53 Students
are able to borrow up to the maximum loan limits for their cost of
50 See Kantrowitz, Borrowing in Excess of Institutional Charges at 1–2 (cited in note 6).
51 See id at 2–3.
52 See 34 CFR § 674.16(a)(1)(iv).
53 See 20 USC § 1087ll.
0
10
20
30
40
50
60
70
80
4-Year 2-Year < 2-Year
Percent of Student with Three or More
Risk Factors
Type of Institution
Career Colleges
Private, Not-for-Profit
Public
2012] Higher Education’s Gainful Employment and 90/10 Rules 141
attendance less the student’s estimated financial assistance for that
period (including grants and scholarships).54 While the HEA permits
college financial aid administrators to selectively limit student
borrowing in a nondiscriminatory manner, the opportunities for
institutions to limit excessive student debt in the aggregate is
restricted by current law and regulatory guidance: that is, institutions
must let students borrow as much as they can qualify for regardless
of their actual need or ability to repay.55
C. Strong Correlation between Student Demographics
and Outcomes
Interpretations of available data reveal a strong correlation
between the percentage of at-risk students that an institution enrolls
and the outcomes of the students attending the institution. With
respect to student cohort default rates,56 for instance, the US
Government Accountability Office in a 2009 report found that
higher default rates at proprietary schools are linked to the
characteristics of the students who attend these schools.
Specifically, students who come from low income backgrounds
and from families who lack higher education are more likely to
default on their loans, and data show that students from
proprietary schools are more likely to come from low income
families and have parents who do not hold a college degree.57
Other recent studies have found similar correlations between student
demographics and graduation rates and default rates.58
54 See 34 CFR § 682.603(e).
55 See Department of Education, 3 2010–2011 Federal Student Aid Handbook ch 6 at 3-100,
3-144 (Feb 2011), online at http://www.ifap.ed.gov/fsahandbook/attachments
/1011FSAHbkVol3Ch6.pdf (visited Oct 21, 2011).
56 A “cohort default rate” measures the percentage of a school’s borrowers who enter
repayment in one fiscal year and default before the end of the next fiscal year. See Department
of Education, Official Cohort Default Rates for Schools, online at http://www2.ed.gov/offices
/OSFAP/defaultmanagement/cdr.html (visited Oct 21, 2011).
57 Government Accountability Office, Proprietary Schools at Introduction (cited in
note 38).
58 See, for example, Engle and Lynch, Charting a Necessary Path at 2 & figure 1, 3 &
figure 2 (cited in note 42) (finding that low-income and minority students enroll in and
graduate from four-year programs at disproportionately lower rates); Don Hossler, et al, What
Matters in Student Loan Default: A Review of the Literature 3 (Project on Academic Success,
Indiana University 2008), online at http://pas.indiana.edu/pdf/DefaultFull.pdf (visited Oct 21,
2011) (finding that cohort default rates tend to be higher at proprietary institutions because
students who attend those institutions “tend to borrow more, to come from lower income
families, and to belong to a racial or ethnic minority group—characteristics that are all
associated with increased likelihood of default”).
142 The University of Chicago Law Review [79:131
The following charts illustrate the nearly linear relationship
between the percentage of Pell-eligible students an institution enrolls
and the institution’s graduation rates and cohort default rates.
FIGURE 2. GRADUATION RATES (2009) FOR ALL FOUR-YEAR
DEGREE GRANTING INSTITUTIONS WITH VARYING PERCENTAGES
OF STUDENT POPULATION RECEIVING PELL GRANTS
55%
84%
69%
54%
43%
32% 37%
31%
All 4-Year
Degree
Granting
Institutions
0–10% 10–20% 20–30% 30–40% 40–50% 50–60% 60–70%
Percent of Students Receiving Pell Grants
2012] Higher Education’s Gainful Employment and 90/10 Rules 143
FIGURE 3. COHORT DEFAULT RATES (2009 TWO-YEAR) FOR ALL
DEGREE GRANTING INSTITUTIONS WITH VARYING PERCENTAGE
OF STUDENT POPULATION RECEIVING PELL GRANTS
D. Proprietary School Success in Outcomes for At-Risk Students
Despite their level of high-risk enrollees, proprietary institutions
generally provide an educational experience that meets the needs of
their students. This is likely the result of a focus on providing
students with clear pathways to degrees, customized and flexible
scheduling, information systems that track progress, a commitment
to advisement, and active job-placement counseling.59
Proprietary schools are more successful than their two- and fouryear
public and nonprofit counterparts at graduating at-risk students.
At first blush, published graduation rates of proprietary institutions
lag public and nonprofit four-year institutions (35 percent, 54 percent,
and 65 percent, respectively) and are comparable to two-year
nonprofit institutions (60 percent versus 55 percent, respectively).60
59 See David Wakelyn, Increasing College Success: A Road Map for Governors 1
(National Governors Association, Center for Best Practices, Dec 9, 2009), online at
http://www.nga.org/files/live/sites/NGA/files/pdf/0912INCREASINGCOLLEGESUCCESS.P
DF (visited Oct 21, 2011) (pointing out these factors to explain why two-year proprietary
schools have much higher graduation rates than two-year public colleges even though they
enroll similar students).
60 Imagine America Foundation, Fact Book 2011: A Profile of Career Colleges and
Universities 25 figure FF (2011).
9%
3%
4%
6%
8%
14%
13%
16%
All Degree
Granting
Institutions
0–10% 10–20% 20–30% 30–40% 40–50% 50–60% 60–70%
Percent of Students Receiving Pell Grants
144 The University of Chicago Law Review [79:131
Published graduation rates of two-year proprietary institutions are
almost triple that for public two-year institutions (primarily
community colleges)—the sector most comparable demographically
(60 percent versus 22 percent, respectively).61
However, when graduation rates are more closely examined
based on the types of students that an institution enrolls,62 propriety
colleges do much better than their traditional counterparts. The
findings in one study can be summarized as follows:
• Institutions predominantly serving low-income populations (at
least 60 percent Pell-eligible students): Four-year proprietary
colleges graduated 55 percent of their students, as compared
to 31 percent and 39 percent, respectively, at comparable
public and nonprofit institutions. Two-year proprietary
colleges graduated 56 percent of their students, as compared
to 24 percent and 45 percent, respectively, at comparable
public and nonprofit institutions.
• Institutions predominantly serving minorities (less than
25 percent white students): Four-year proprietary colleges
graduated 47 percent of their students, as compared to
33 percent and 40 percent at comparable public and nonprofit
institutions. Two-year proprietary colleges graduated
56 percent of their students, as compared to 16 percent and
44 percent, respectively, at comparable public and nonprofit
institutions.63
61 Id.
62 There is currently “a highly incomplete understanding of graduation rates” due to the
lack of a meaningful standard definition. Kara M. Cheseby, Class Conflict: Gainful
Employment Proposal Penalizes At-Risk Student Populations and Hurts the Economy 8–10
(Competitive Enterprise Institute Mar 2011), online at
http://cei.org/sites/default/files/Kara%20Cheseby%20-%20Class%20Conflict%20Gainful
%20Employment%20Proposal.pdf (visited Oct 21, 2011) (“What is the realistic graduation
rate, especially given differences in programmatic concentrations and student demographics
between post-secondary sectors?”).
63 See Swail, Graduating At-Risk Students at 22–26 & figures 13, 15 (cited in note 4). See
also, Robert Lytle, Private Sector Post-secondary Schools—Do They Deliver Value to Students
and Society? 2–3 & exhibit 1 (Parthenon Group Mar 2010), online at
http://www.parthenon.com/GetFile.aspx?u=%2fLists%2fThoughtLeadership%2fAtta chments
%2f17%2fParthenon%2520Perspectives%2520-%2520Private%2520Post%2520Secondary
%2520Schools%2520Value %2520Proposition%2520-%2520White%2520Paper.pdf (visited
Oct 22, 2011) (using ED data for two-year and less institutions, found students at proprietary
colleges graduate at rates roughly 20 percent higher than public schools even though they
attract more “high risk” students).
2012] Higher Education’s Gainful Employment and 90/10 Rules 145
III. REGULATORY ROADBLOCKS TO COLLEGE ACCESS FOR
LOW-INCOME AND MINORITY STUDENTS
A. The Gainful Employment Rule Improperly Singles Out Low-
Income and Minority Students Attending Proprietary Colleges
In June 2011, ED issued its controversial “gainful employment”
rule,64 which applies to most programs at proprietary institutions and
only nondegree programs at public and nonprofit institutions.65
Under the GE rule, the words “gainful employment”—which sat
dormant in the HEA for forty-six years66—were now embroidered
with minimum debt-to-income standards and loan repayment rates
that programs must meet in order to retain eligibility for student
assistance under Title IV.67 Under the complex rule (which is more
than 5,500 words long and takes 157 pages to explain),68 each
program an institution offers must meet at least one of three metrics
to remain eligible for Title IV funding: (1) a 12 percent debt-serviceto-
total-earning ratio applied to graduates of a program; (2) a
30 percent debt-service-to-discretionary-income ratio applied to
graduates of a program; or (3) a 35 percent loan-repayment-rate test
for any person who attended a program.69 A program that fails all
64 ED received more than ninety-thousand comments to the GE rule during the public
comment period, more than twice its previous record. Goldie Blumenstyk, Education Dept. to
Delay Issuing “Gainful Employment” Rules Opposed by For-Profit Colleges, Chron Higher
Educ (Sept 24, 2010), online at http://chronicle.com/article/Education-Dept-to-Delay/124617/
(visited Oct 21, 2011). Opposition to the GE rule was bipartisan. A House amendment to the
fiscal year 2011 continuing resolution that would have prohibited using federal funds to
implement the GE rule passed 289–136 and garnered 58 Democrat votes, including those of
former Speaker Nancy Pelosi and one-third of the Democrats of the Tri-Caucus. See HR 1,
112th Cong, 1st Sess (Feb 11, 2011), in 157 Cong Rec 789 (Feb 14, 2011); HR 1, 112th Cong 1st
Sess (Feb 11, 2011), in 157 Cong Rec 1234 (Feb 18, 2011). The main trade group representing
proprietary institutions also has filed suit to invalidate the GE rule on the grounds it exceeds
the regulatory authority granted by Congress under the HEA, conflicts with congressional
intent, was developed through a flawed process, and was implemented without adequately
exploring the impact on minorities, women, and jobs. See Complaint, Career College
Association v Duncan, Case No 1:11-cv-01314, *2–5 (DDC filed July 20, 2011), online at
http://www.nacua.org/documents/APSCU_v_Duncan_ComplaintPrayerDeclaratoryInjunctiv e
Relief.pdf (visited Oct 21 2011).
65 Programs at proprietary institutions may participate in Title IV assistance programs
only if they prepare students for “gainful employment in a recognized occupation” or provide a
program at a regionally accredited institution that leads to a baccalaureate degree in liberal
arts or that has been in existence since January 1, 2009. 20 USC § 1002(b)(1)(A).
66 See Jennifer Gonzalez, Federal Proposal Could Jeopardize For-Profit Programs,
Especially Bachelor’s Degrees, Chron Higher Educ (May 17, 2010), online at
http://chronicle.com /article/Federal-Proposal-on-Student/65604/ (visited Oct 21, 2011).
67 Department of Education, Program Integrity: Gainful Employment—Debt Measures,
76 Fed Reg 34386, 34386–90 (2011) (amending 34 CFR § 668 effective July 1, 2012).
68 Id at 34386–34539.
69 See 34 CFR § 668.7.
146 The University of Chicago Law Review [79:131
three tests in three out of four years is ineligible for further Title IV
funding,70 a result that, in most instances, would lead to closure of the
program.
ED’s stated purpose for enacting the GE rule was to address
programs offered by proprietary institutions that leave students with
“unaffordable debts and poor employment prospects.”71 However,
analyses by nationally recognized financial aid expert Mark
Kantrowitz of data released by ED during the GE rulemaking
process support the conclusion that it is the type of student
enrolled—more so than the quality of the program offered or the
institution offering it—that is the primary cause of excessive debt
and student defaults. Kantrowitz found “an almost linear
relationship between the percentage [of] Pell Grant recipients and
the average loan repayment rates,” concluding that colleges that
enroll primarily at-risk students who qualify for Pell Grants are
“extremely unlikely” to have passing loan repayment rates under the
original draft rule.72
In litigation filed by the Association of Private Sector Colleges
and Universities (APSCU) against ED to invalidate the GE rule, ED
Assistant Secretary Eduardo M. Ochoa admits that ED erred in
calculating the effects of race on repayment rates in the final GE
regulation. Ochoa states that ED mistakenly used a variable called
“percent minority,” which, while intended to measure the percentage
of an institution’s student body made up of minorities, did not
include African American students in the data set. This resulted in
ED significantly understating the relationship between race and
repayment rates, such that, while ED originally estimated that race
explained only 1 percent of the overall variance in repayment rates,
it actually explained 20 percent of the variance.73 While ED claims
the GE rule would not have been different had it known of the
mistake before it issued the rule, APSCU has asserted that ED’s
error goes to the heart of the concerns raised in public comments
filed during the rulemaking process that the regulation
70 34 CFR § 668.7(i). Programs failing to meet one or more of these tests are also subject
to certain disclosure requirements and warnings to students. 34 CFR § 668.7(j).
71 76 Fed Reg at 34386 (cited in note 67).
72 Mark Kantrowitz, The Impact of Loan Repayment Rates on Pell Grant Recipients 2–3
(FinAid Sept 1, 2010), online at http://www.finaid.org/educators/20100901gainfulemployment
impactonpell.pdf (visited Oct 21, 2011). But see 76 Fed Reg at 34460–65 (cited in note 67)
(noting that nine sector-wise multiple regression models exploring the relationship between
repayment rates and student- and institution-level factors ran from being wholly nonpredictive
to explaining more than half of the potential variance in repayment rates).
73 See Declaration of Eduardo Ochoa, Association of Private Sector Colleges and
Universities v Duncan, No 1:11-cv-01314, *2–3 (DDC filed Dec 13, 2011).
2012] Higher Education’s Gainful Employment and 90/10 Rules 147
disproportionally impacted minority students and by itself requires
that the GE regulation be vacated.74
Because the GE rule does not adjust for these demographic
correlations, it creates the perverse incentive for proprietary
institutions to avoid enrolling low-income and minority students
altogether. The GE rule also incorrectly focuses on the financial
success of students as the main criterion for eligibility when the core
metric of the Title IV program, as clearly stated in the statute and
legislative history, is financial need. By predetermining program
choices for students primarily based on their ability to pay for their
schooling without borrowing, the GE rule will almost certainly have
a disproportionate impact on low-income, minority, and other
underserved students. Instead of helping disadvantaged students
achieve their highest potential, the GE rule will reduce access to
education for disadvantaged students based on the very factors that
caused them to be disadvantaged in the first place.
B. The 90/10 Rule Creates Structural Incentives for Tuition
Inflation and Barriers to Access for Low-Income and Minority
Students
The 90/10 rule applies only to proprietary institutions and
requires that at least 10 percent of an institution’s revenues for
tuition, fees, and other institutional charges be received from sources
other than federal Title IV student aid.75 The rule was enacted to
stem fraudulent and abusive practices that had been identified at
proprietary institutions. An oft-stated rationale for the rule is that a
proprietary institution providing a high-quality education should be
able to derive a specific percentage of its revenue from non–Title IV
programs.76 Stated slightly differently, students would be willing to
pay at least 10 percent out of their own pockets toward their
education if it were worthwhile.77
While the 90/10 formula may seem fairly straightforward, the
underlying details of the regulation are numerous, subjective, and
74 See Memorandum of Law in Opposition to Defendant’s Cross-Motion for Summary
Judgment and Reply Memorandum of Law in Support of Plaintiff’s Motion for Summary
Judgment, Association of Private Sector Colleges and Universities v Duncan, No 1:11-cv-01314,
*2–5 (DDC filed Jan 12, 2012).
75 20 USC § 1094(a)(24).
76 Rebecca R. Skinner, Institutional Eligibility and the Higher Education Act: Legislative
History of the 90/10 Rule and Its Current Status 3 (Congressional Research Service Jan 19,
2005), online at http://www.policyarchive.org/handle/10207/bitstreams/1904.pdf (visited Oct 16,
2011). There is no known research that establishes a relationship between the amount of
institutional charges a student pays and quality.
77 See id at Summary.
148 The University of Chicago Law Review [79:131
extremely burdensome to implement.78 Further, the rule generally
presumes that Title IV funds received by an institution are applied to
institutional charges first (90 percent element).79 Institutions whose
students overborrow are at a disadvantage because the Title IV aid
these students receive often covers most, if not all, of the
institutional charges, leaving little or no balance owed against which
to apply non-Title IV (10 percent element) funds. For example, if
institutional charges are $7,500 and a student has $2,500 in cash and
receives $7,500 in Title IV aid, the revenue presumption deems the
$7,500 in institutional charges to be fully paid by Title IV aid,
resulting in a 90/10 ratio of 100 percent.
The 90/10 rule is fundamentally in conflict with the goal of
educating low-income students. The rule presupposes financial
resources that are not available to low-income students. This lack of
personal financial resources devolves into the 10 percent element
being sourced according to the rule from private student loans,
military student aid, and employer tuition assistance.80 Because
proprietary institutions have no authority to limit student use of
Title IV federal student aid, their main tool for 90/10 compliance is
increasing institutional charges beyond the maximum amount of
federal aid to force students to fill the “gap” thus created with non–
Title IV funds.81 The GE rule further complicates matters because a
main tool for compliance with the debt restrictions of that rule is
tuition reductions that will hurt their 90/10 scores, thus putting the
requirements of the GE and 90/10 rules in conflict with each other
and institutions in a catch-22.82
House Speaker John Boehner (who was then chairman of the
House Committee on Education and the Workforce) recognized the
fundamental problems with the 90/10 rule in 2004:
[T]he 90/10 Rule . . . was put into place as part of the larger
effort to reduce fraud and abuse that plagued the proprietary
sector in the 1970s and 1980s. While I don’t disagree that this
rule was well intentioned years ago, today it seems not only
78 See Advisory Committee on Student Financial Assistance, Preliminary List of
Burdensome Regulations *1 (May 2011), online at http://www2.ed.gov/about/bdscomm/list
/acsfa/prelimlistofburdenregsmay11.pdf (visited Oct 22, 2011).
79 See 20 USC § 1094(a)(24), (d)(1).
80 See Kantrowitz, Borrowing in Excess of Institutional Charges at 1 & nn 1–2 (cited in
note 6).
81 See id.
82 See Mark Kantrowitz, What Is Gainful Employment? What Is Affordable Debt? 22
(FinAid Mar 11, 2010), online at http://www.finaid.org/educators/20100301gainful
employment.pdf (visited Oct 22, 2011).
2012] Higher Education’s Gainful Employment and 90/10 Rules 149
unnecessary and ineffective, but also potentially harmful to
students.
The rule requires proprietary institutions to show at least
10 percent of funds are derived from sources outside of Title IV
student aid funding. While this may not seem like too much to
ask, looking closely at this rule shows just how burdensome it
may be.
Statistics show proprietary schools tend to serve larger
populations of needy, high-risk minority and nontraditional
students. In other words, the students most in need of federal
assistance.
Yet when a proprietary schools serves a large share of needy
students, many of whom rely on federal aid, the school’s
compliance with the 90/10 Rule is put in jeopardy. . . . Worse
still, this rule creates an incentive for proprietary schools to
raise tuition or move away from urban areas where students are
more likely to depend on Federal aid.83
In recent years, 90/10 rates at proprietary institutions have been
increasing based on a host of factors that are outside their control.
These changes include rapid and substantial increases in available
federal Title IV aid,84 the collapse of the private credit markets and
the associated end of private student lending for all but the best
credit risks,85 and a deteriorating economy with considerable job
83 The College Access & Opportunity Act: Are Students at Proprietary Institutes Treated
Equitably under Current Law?, Hearing on HR 4283 before the Committee on Education and
the Workforce, 108th Cong, 2d Sess 2–3 (2004) (statement of Rep John Boehner), online at
http://www.gpo.gov/fdsys/pkg/CHRG-108hhrg94285/pdf/CHRG-108hhrg94285.pdf (visited Oct
21, 2011).
84 The increase in the Title IV growth rate has been significantly impacted by (1) a
13 percent annual increase in the maximum Pell Grant amount effective July 1, 2009, see Mark
Kantrowitz, Pell Grant Historical Figures (FinAid 2011), online at http://www.finaid.org
/educators/pellgrant.phtml (visited Oct 21, 2011); (2) the introduction of year-round Pell
Grants, see 34 CFR § 690.67(a); (3) Pell Grant formula changes for undergraduate students,
see Jason Delisle, The Real Cause of Pell Grant Cost Increases (New America Foundation Mar
8, 2011), online at http://higheredwatch.newamerica.net/blogposts/2011/the_real_cause
_of_pell_grant_cost_increases-46147 (visited Oct 22, 2011); (4) a $2,000-per-academic-year
increase in the unsubsidized Stafford loan limits effective July 1, 2008, see Continued Access to
Student Loans Act of 2008, Pub L 110-227, 122 Stat 740, codified at 20 USC § 1078-8(d)(3)(A)
(adding an additional $2,000 to the amount of aid per year a student may borrow); (5) an
increase of 20 percent per academic year in Stafford loan limits for graduate students, see
Mark Kantrowitz, Historical Loan Limits (FinAid 2011), online at http://www.finaid.org
/loans/historicallimits.phtml (visited Oct 22, 2011); and (6) the introduction of Grad PLUS
loans, see Mark Kantrowitz, Private Student Loans (FinAid 2011), online at http://
www.finaid.org/loans /privatestudentloans.phtml (visited Oct 22, 2011).
85 See Mark Kantrowitz, Impact of the Credit Crisis on Student Loans (FinAid 2008),
online at http://www.education.com/reference/article/impact-credit-crisis-student-loans/
150 The University of Chicago Law Review [79:131
losses. The result is that substantially more students are eligible for
Pell Grants;86 substantially more students have an “expected family
contribution” of $0, which makes them “fully” Pell eligible;87 students
have cut back on their credit hour load, meaning that federal
Title IV aid covers most, if not all, of their tuition instead of a
portion of it;88 and fewer students are able to make even small cash
payments towards their education.89 Exacerbating the situation are
widespread reductions in grant aid in a number of states,90 which
worsens the 90/10 ratio because state grants generally count toward
the 10 percent and are presumed to be applied first to tuition and
fees.91 Not surprisingly, institutions enrolling greater numbers of lowincome
students tend to have higher 90/10 scores.92
The GE rule and the 90/10 rule do not measure educational
quality. Instead, their standards are based on financial metrics that
are highly influenced by student need. As outlined previously, the
purpose of the HEA is to help disadvantaged students achieve their
highest potential. The GE and 90/10 rules do just the opposite—
limiting access to education for disadvantaged students based on the
very factors that caused them to be disadvantaged.
(visited Oct 16, 2011) (“Three-quarters of the lenders offering private student loans,
representing about a third of the private student loan volume, have suspended their private
student loan programs. The remaining lenders are still liquidity constrained, and have reacted
by tightening their credit underwriting standards and increasing interest rates.”); Mark
Kantrowitz, Impact of the Subprime Mortgage Credit Crisis on Student Loan Costs and
Availability (FinAid 2008), online at http://www.finaid.org/loans/creditcrisis.phtml (visited Oct
22, 2011).
86 Shannon M. Mahan, Federal Pell Grant Program of the Higher Education Act:
Background, Recent Changes, and Current Legislative Issues at Summary, 4 (Congressional
Research Service May 12, 2011), online at http://www.nasfaa.org/EntrancePDF.aspx?id=5410
(visited Oct 22, 2011).
87 Id at 14 & nn 25–27.
88 See id at 3 & nn 13–14, 4.
89 See id at 15 & table 3.
90 See, for example, Annamaria Andriotis, Last-Minute Tuition Hikes Hit Students:
Almost 20 States Have Cut Funding for Colleges, Raising Costs for Students—Starting Now,
Smart Money (July 11, 2011), online at http://www.smartmoney.com/plan/careers/lastminutetuition-
hikes-hit-college-students-1310165302807/ (visited Oct 22, 2011); Nicholas Johnson,
Phil Oliff, and Erica Williams, An Update on State Budget Cuts: At Least 46 States Have
Imposed Cuts That Hurt Vulnerable Residents and the Economy 5 (Center on Budget and
Policy Priorities Feb 9, 2011), online at http://www.cbpp.org/files/3-13-08sfp.pdf (visited Oct 21,
2011); Kelly Heyboer, Neediest Students Getting Pinched: Tuition Aid Grant Funds Spread
Thin as More Are Eligible, NJ Star-Ledger 1 (Aug 30, 2010); Janet Okoben, State Budget Cuts
Slice Up College Grant, Cleveland Plain Dealer B2 (July 29, 2009).
91 34 CFR § 668.28(a)(4)(i).
92 Government Accountability Office, For-Profit Schools: Large Schools and Schools
That Specialize in Healthcare Are More Likely to Rely Heavily on Federal Student Aid 20 (Oct
2010), online at http://www.gao.gov/new.items/d114.pdf (visited Oct 22, 2011).
2012] Higher Education’s Gainful Employment and 90/10 Rules 151
The GE rule (for the most part) and the 90/10 rule do not apply
to public and nonprofit colleges. At-risk students, however, will tend
to have lower graduation rates, higher debt, and higher defaults
regardless of which college they attend. Denying these students
access to proprietary institutions will not solve their problem; it will
only serve to exacerbate it and significantly reduce their chances of
obtaining a degree. As demonstrated previously, public and
nonprofit institutions are less successful in graduating at-risk
students. Combined with the limited capacity at traditional colleges,93
the GE and 90/10 rules will serve only to further disadvantage the
disadvantaged, in stark conflict with the HEA’s statutory purpose to
provide aid to students in need who otherwise may not be able to
attend college.
Both rules should be eliminated in favor of polices that apply
equally across all of higher education and that are designed to
provide equal access and measures of success for at-risk students.
IV. AN ACROSS-THE-BOARD APPROACH TO THE AT-RISK
STUDENT DILEMMA
Given the widening degree attainment gap for blacks and
Hispanics, our country must implement policies to increase access to
higher education for minorities and other at-risk students. Policy
makers should be mindful that while continuous improvement in
student outcomes must always be the goal, at-risk students simply
will not always use Title IV funds as efficiently as their peers.
Kantrowitz observed the public policy conflicts that this creates as
follows:
There is a fundamental conflict between public policy goals of
safeguarding taxpayer dollars (e.g., minimizing student loan
defaults) and increasing the number of low income, first
generation and nontraditional students who graduate from
college. Students from at-risk populations are more likely to
default on their education loans because they are less likely to
graduate and because jobs are less available in their home
towns. Basing for-profit institutional eligibility for Title IV
funds solely on purely financial metrics might be painting the
institutions with a very broad brush, effectively throwing the
baby out with the bathwater. Instead, there needs to be a more
93 See, for example, Josh Keller, Cal State May Cut Enrollment by 40,000, Chancellor
Says, Chron Higher Educ (June 5, 2009), online at http://chronicle.com/article/Cal-State-May-
Cut-Enrollmen/47297/ (visited Oct 22, 2011) (reporting that Cal State probably will be cutting
enrollment by forty thousand in response to state appropriations cuts).
152 The University of Chicago Law Review [79:131
direct measurement of differences in institutional quality, to
permit the separation of the wheat from the chaff.94
When “bad actors” in higher education break the rules—
regardless of their form of ownership or tax structure—they should
be punished. Conversely, proprietary institutions should not be
unfairly singled out merely because they are the schools of choice for
minorities and other at-risk students. Ensuring that students have
access to a quality education and are not saddled with excessive debt
is a worthy goal that can be accomplished without harming students
who need assistance or high-quality institutions that provide such
access.
The divide on the best ways to address competing public policy
goals of providing educational opportunities to at-risk students and
safeguarding taxpayer money has fallen along the traditional lines of
conservative and progressive policy makers, which has been
described in the recent public debate regarding proprietary schools:
In a sense, this war [“between for-profit institutions of higher
education and U.S. government forces determined to control
them”] is symptomatic of the great divide in the U.S. society
between conservative and progressive thought. Conservatives
are willing to give people a chance to succeed, though they seem
less sympathetic to the plight of those who fail. In the language
of this war, they support for-profits and their mission of
providing a chance of success for lower-income, less-prepared
students. However, they lack suggestions for how to address the
debt load borne by those who do not succeed.
However, progressives trust government and nonprofit entities
much more than private for-profits of any kind—including and
especially higher-education institutions. In the language of this
war, they desire to protect low-performing students from forprofit
predators at any and all costs. But they lack perspectives
on enabling students to make their own choices about where
and whether to pursue college education.95
94 Email from Mark Kantrowitz, Publisher of FinAid.org, to Anthony Guida (Dec 22,
2009) (on file with author).
95 Tim Gramling, All-Out War: A Case Study in Media Coverage of For-Profit Higher
Education 8 (SAGE Open June 29, 2011), online at http://sgo.sagepub.com/content/early
/2011/07/08/2158244011414732.full.pdf (visited on Oct 21, 2011). See also Andrew P. Kelly,
Private Enterprise in American Education: More Than Meets the Eye; The Politics of For-
Profits in Education 2 (American Enterprise Institute July 2011), online at http://www.aei.org
/docLib /Private-Enterprise-No-2.pdf (visited Oct 22, 2011).
2012] Higher Education’s Gainful Employment and 90/10 Rules 153
In building a bridge across the chasm that currently exists
between conservative and progressive policy makers, a good place to
start is separating the “symptoms” from the “causes.” Different
demographic groups often have different academic needs that must
be considered. Though many students attending proprietary schools
are similar to those attending traditional schools, proprietary schools
educate a significant proportion of minority, low-income, and other
at-risk students. Most of these students will necessarily borrow more
and perform differently than dependent students from financially
stable backgrounds who are academically well-prepared, attend
highly selective universities, and obtain a college degree within
prescribed timeframes. Policies that ignore these differences will fail
to meet the needs of at-risk students.