Cohen, Jones, Durbin: Congress Should End Loophole that Encourages For-Profit Colleges to Target Veterans & Servicemembers

November 20, 2015
Press Release

[WASHINGTON, D.C.] – Congressman Steve Cohen (D-TN), Congressman Walter B. Jones (R-NC) yesterday introduced bipartisan legislation that would help put an end to the for-profit college industry’s predatory marketing campaigns and aggressive recruiting of veterans, servicemembers and their families. The Protecting Our Students and Taxpayers (POST) Act, which U.S. Senators Dick Durbin (D-IL), Elizabeth Warren (D-MA), Richard Blumenthal (D-CT) and Jack Reed (D-RI) have also introduced in the Senate, would eliminate the loophole that allows these proprietary companies to receive more than 90% of their revenue from the federal government. 

“For-profit colleges can receive overwhelming majorities of their revenue —up to 90%—from federal sources such as student loans,” said Congressman Cohen. “Too often, these schools fail in their duty to adequately prepare graduates for jobs that will allow them to repay those loans, leaving taxpayers to foot the bill. Even worse, a loophole in current law allows unscrupulous colleges to receive even more federal funds by enrolling veterans and servicemembers. This loophole encourages bad behavior that weighs down our nation’s heroes with mountains of debt and few career prospects while lining the pockets of wealthy for-profit investors with taxpayer money. Simply put, this is unacceptable. We are entrusted with spending our monies efficiently and wisely, but too many for-profit colleges do not meet that test. I am glad to be working with Senator Durbin and Congressman Jones to close this loophole, encourage for-profit colleges to provide better educations, and protect American taxpayers.”

“We need to make sure that colleges aren’t exploiting veterans and taking advantage of American taxpayers, which is why I’m pleased to join Congressman Cohen in introducing the POST Act,” said Congressman Jones.

“By law, for-profit college companies are allowed to receive no more than 90% of their revenue from federal financial aid programs.  This high threshold allows far too much federal money to funnel to an industry that often provides a greater return on taxpayer investment to its administrators and investors than it does to its students.  But there’s a catch,” said Senator Durbin.  “Money from the new Post 9/11 GI Bill and from Department of Defense tuition assistance programs isn’t counted which leaves hundreds of millions of taxpayers’ dollars virtually unregulated.  Consequently, these schools aggressively target veterans and servicemembers who too often don’t receive the quality of education they deserve.  We can’t let this invitation to exploit our veterans continue.”

The current federal 90/10 rule is a provision in the law that bars for-profit colleges and universities from deriving more than 90% of their revenue from the U.S. Department of Education’s federal student aid programs.  The other 10% needs to come from sources other than the federal government.  The purpose of this rule is to ensure that schools are not counting on taxpayer dollars to be their sole source of revenue. 

Because of the way the legislation was written, veterans’ and active duty service members’ federal student aid – such as G.I. bill benefits and the Department of Defense’s tuition assistance funds – does not currently count toward the 90%.  As a result, for-profit educational institutions have been aggressively recruiting and enrolling veterans, service members and their families to their programs as a way to comply with the 90/10 rule. 

The POST Act would re-instate the original ratio of 85/15—which was only loosened to 90/10 in 1998—and change the definition of what counts as federal revenue so that it includes all federal funds. This new definition would eliminate the powerful incentive for-profit schools to aggressively recruit service members and veterans and ensure that all schools are complying with the law as it was intended.

Additionally, the Cohen-Jones POST Act would:

  • Increase penalties for noncompliance with the new 85/15 rule – Under the legislation, for-profit colleges would lose eligibility to participate in federal student aid programs after one year of noncompliance with the new rule (currently, for-profit colleges must be noncompliant for two years before they lose eligibility).
  • Eliminate accounting tricks that inflate non-federal funding sources – Currently, for-profit colleges that issue private loans directly to students are allowed to calculate a large portion as revenue for the purposes of 90/10 rule compliance before any of the loan is paid back.  This accounting trick has led to for-profit colleges issuing private loans to students with little expectation of that loan being paid back.  Today’s legislation would only allow actual payments that students make to be counted as revenue.