Our Education Team studies how a change to the 90/10 Rule will affect how for-profit institutions will count federal funding in the 90/10 calculation.

• The Moran–Carper Amendment to the American Rescue Plan significantly revised the rule
• Military benefits will now be included as a federal source and not part of a student’s funds
• New guidance makes it clear that all federal funds must be counted on the 90 side of the 90/10 calculation

Under the Higher Education Act of 1965 (HEA), for-profit institutions must show that they earn at least 10 percent of revenue from sources other than Title IV of the HEA (known as the “90/10 Rule”) to remain eligible to participate in federal student aid programs. The Moran–Carper Amendment to the American Rescue Plan made significant revisions to the 90/10 Rule that will be effective on July 1, 2023 and apply to fiscal years on or after January 1, 2023. The Department of Education recently provided new guidance in its 90/10 – Questions and Answers regarding the upcoming changes.

The most notable change to the 90/10 Rule – found at 34 CFR § 668.28 – is the sources of funds a proprietary institution may rely upon to satisfy the 10 percent of revenue required by the rule. The current version of the 90/10 Rule requires proprietary institutions to obtain at least 10 percent of their revenue from sources other than Title IV of the HEA. Under the current version of the 90/10 Rule, military benefits, such as the G.I. Bill and Department of Defense benefits, count toward satisfying the 10 percent of revenue institutions must receive from non-Title IV sources. This is because, for the purposes of the 90/10 Rule, these military benefits are characterized as the student’s funds rather than as federal student aid.

However, starting July 1, 2023, under the revised version of the 90/10 Rule, proprietary institutions must obtain at least 10 percent of their revenue from sources other than federal funds. Indeed, pursuant to the new 90/10 Rule, education assistance funds provided by any federal agency, including military benefits, must be included as part of the 90 percent of federal funds in the 90/10 calculation. Stated differently, military benefits will no longer be applied toward the 10 percent of revenue. The Department of Education has provided a list of federal education assistance funds that must be counted as federal funds in the “90” side of the 90/10 calculation in the Federal Register at 87 FR 78096.

The new 90/10 Rule incudes many other changes. The Questions and Answers divides the department’s guidance into eight categories:

• 90/10 General Questions
• Ineligible Programs
• Comingled Federal and State Funds
• Income Share Agreements
• Enrollment Limitations
• Exiting Title IV Programs
• Disbursement Rule
• Subsequent Fiscal Years

Among other guidance, the general questions section makes clear that an institution must include all federal funds ― even those that are not specifically listed in the Federal Register ― in its 90/10 calculation unless those funds are specifically awarded directly to students to cover charges other than tuition, fees, or other institutional charges. The general questions section also notes the institution may not include revenue from non-institutional charges, such as charges for additional materials or a replacement of a student ID, in its 90/10 calculation.

The new guidance states that revenue generated from programs that are ineligible for Title IV may only count as “10” revenue if several specific qualifications are met in addition to the existing requirements. The new 90/10 Rule requires that:

• The program does not include courses offered in a program eligible for Title IV.
• The courses are taught by the institution’s instructors.
• The program is located on the institution’s main campus or another approved location.

The department also clarified that institutions must request and make disbursements of Title IV funds before the end of the fiscal year and calculate them for purposes of the 90/10 rule using cash basis accounting. This clarifies that schools may not hold or delay disbursement of funds.

Under the subsequent fiscal years guidance, the department explained that for 90/10 calculations, federal funds must be counted at the time the funds are applied to students’ accounts for tuition, fees, or other institutional charges. If a grant is given in a prior fiscal year but applied to a student’s account in a subsequent year, it would count toward the 90/10 calculation for the year in which it was actually applied.

Proprietary schools should carefully review these changes to the 90/10 Rule when making their calculations for the 2023 fiscal year. Alston & Bird’s Education Team is able to assist with any questions institutions may have on the 90/10 Rule.

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