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May 30, 2012

Miller, Attorneys General Urge Congress to ChangeFor-Profit School Funding Rule

AGs: GI Bill funds should count toward 90 percent cap on schools' federal money limit

(DES MOINES, Iowa)  Attorney General Tom Miller and colleagues from 21 other states Tuesday sent a letter to congressional leaders urging them to close a loophole in the Higher Education Act that is harming American veterans and their families.  The attorneys general are asking Congress to require that GI Bill and veterans assistance educational benefits be subject to the 90/10 rule, which prohibits for-profit colleges from deriving more than 90 percent of their revenue from Department of Education (Title IV) funding sources.

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

“Under the current system, taxpayers can ultimately end up being the sole funding source for for-profit colleges,” said Miller.  “That’s just not right for taxpayers, and it’s not right for our veterans.  We know that many vets who gave so much must then put up with relentless high-pressure enrollment pitches from some for-profit colleges.  Let’s get rid of these tactics by getting rid of this federal loophole.”

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

“Allowing Department of Veterans’ Affairs (VA) and Department of Defense (DoD) benefits to not count toward the 90 percent government-funding limit violates the intent of the law and it harms taxpayers,” said Miller.  “The loophole has created a feeding frenzy for for-profit colleges looking to get their hands on veterans’ benefits.  For-profit recruiters who are more interested in getting their hands on these benefits than they are in educating our service members and veterans are targeting them in hopes of cashing in.”

In 2008, Congress enacted the Post 9/11 GI Bill making billions of dollars in educational benefits available for veterans and their families.  According to a February 2011 Government Accountability Office report, $9 billion in educational benefits were provided to service members and veterans in Fiscal Year 2010.   Of 20 for-profit colleges analyzed by the U.S. Senate HELP Committee, chaired by U.S. Senator Tom Harkin (D-IA), total military educational benefits increased from $66.6 million in 2006 to a projected $521.2 million in 2010.  That is an increase of 683 percent.

“I commend Attorney General Miller and his colleagues for taking a close look at the practices some for-profit colleges use to aggressively recruit military families and veterans,” said Harkin.  “I look forward to working together to enact legislation to stop these practices.”

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

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

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

The state attorneys general who joined Miller in asking Congress to close the 90/10 loophole include colleagues from Arizona, Arkansas, California, Connecticut, Delaware, Idaho, Illinois, Kentucky, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Mexico, New York, North Carolina, South Carolina, South Dakota, Tennessee, West Virginia and Hawaii’s Office of Consumer Protection.  The effort was led by Kentucky Attorney General Jack Conway.

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

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