The of military federal aid available to veterans, and


            The Higher Education Amendments (HEA) of 1998
inadvertently crafted what is known as the “90/10 loophole.” Under the HEA,
for-profit colleges are limited in the amount of federal aid they can receive;
specifically, federal funding is capped at 90% of overall revenue—leaving a
mere 10% to the schools to prove their market viability and privately raise the
last 10% on their own accord. Oddly enough, Post 9/11 GI Bill dollars and the
Department of Defense’s (DOD) Tuition Assistance—which are federally funded by
taxpayer dollars—are not considered federal funds under the HEA. In fact, the
only funds considered federal are Title IV funds.1 For this reason,
for-profit schools are aggressively targeting and recruiting our nation’s Armed
Forces since their military financial aid counts toward the private dollar
percentage quota. As a result, schools are—in effect—being 100% federally
funded, the exact opposite of the intention behind the HEA.

            This phenomenon is not a newly
discovered loophole. In fact, just as schools have been profiting off of this
mistake since it was enacted, activists have been calling to amend this rule
ever since the enactment of the Post 9/11 GI Bill, which enormously increased
the amount of military federal aid available to veterans, and consequently,
available to for-profit colleges.

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Senate and House Committees have
done numerous studies into the aggressive recruiting tactics against veterans,
the Government Accountability Office has been tracking for-profit colleges’
input of federal funds, the Department of Education has been documenting these
schools’ complete dependency on VA and DOD funding, President Barack Obama
signed an Executive Order attempting to expel fraudulent aspects of for-profit
lending practices, senators and representatives have introduced countless
number of bills calling for an end to this loophole, advocacy groups for veterans
have added their voice to the growing number of those outraged by this
deceptive double-dealing through online articles and videos, and congressional
testimonies, even for-profit schools themselves have started to pull back on
their own predatory practices as knowledge and exposure of this abuse has come
to light.

The aim of this research is to
document the relentless and unwavering undertakings by individuals and by
groups, of all different backgrounds and varying degrees of power and
interests, to combat the abusive nature of the 90/10 loophole. Although this
research will only add to the log of repeated endeavors, it is imperative that
this pile continue to grow until it is too high to ignore.




To address the significant default
rates by students, the Higher Education Amendments of 1992 introduced an 85%
cap on revenue at for-profit schools for federal student aid funds.2 Thus, schools could only
receive 85% of its revenue from federal government funds; the other 15%, by
law, had to be privately raised, or received. The Higher Education Amendments
of 1998 then raised the cap to 90%, resulting in the so-called 90/10 loophole
Under the new rule, for-profit schools are prohibited from receiving more than
90% of their total revenue from Title IV education funds.

The intention behind this rule is
for colleges to prove their value for the final 10% through the free market;4 “taxpayers should not prop
up low-quality schools that cannot survive the open market.”5  This would, in theory, weed out poorly
performing schools—because if a school isn’t delivering a good education, who
would pay out of pocket for it?6 The intention behind the HEA clearly
aimed to ensure that schools would only survive if they could attract at least
10% from scholarship providers, students willing to pay, or elsewhere. In no
way, however, was the intention behind either Amendments to grant for-profit
schools free passes to circumvent the requirements of this law by counting GI
Bill dollars and Department of Defense Tuition Assistance—which are federal
funds— toward the 10% free market cap, and effectively disregard the necessity
of proving its viability as a successful, worthwhile, high quality institution.

Unfortunately, the law specifically
demands that schools obtain at least 10% of its revenue from a source other
than Title IV education funds, the primary source of federal student aid. 7 Funds from Tuition
Assistance and the G.I. Bill are not defined as Tittle IV funds, so they count
toward the 10% requirement, just like private sources of financing. This
pattern—skirting around the law through the 90/10 loophole—did not happen
intentionally, but as a result of simple oversight.8

Sara Flanagan, the Senate Education
Committee staff person who drafted the law, explained the loophole: “When the
law was enacted, for-profits had not yet moved into the military market, so the
legislation’s sponsors weren’t focused on the Department of Defense’s Tuition
Flanagan tells that the law as intended to ensure that for-profit colleges
offered a good enough education that some were willing to pay for it, however,
“…counting Defense Department funds for serviceman’s education as part of the
money that’s supposed to come out of the consumers’ pockets violates the purpose
of the original legislation.”10  


In 2012 and in 2014, the Education
Department estimated the extend of for-profit schools’ dependence on all three
major sources of federal revenue: Title IV, VA, and DOD educational benefits. 11 The reported findings for
2012 were as follows:

ED found that 133 of the
approximately 2,000 for-profit schools that participated in Title IV received
more than 90% of their revenue—$9.5 billion— from federal sources, including VA
and DOD educational benefits. If VA and DOD funds had been counted, these
schools would have violated the 90/10 rule and could have faced loss of Title
IV funds had they failed to come into compliance. Because of the loophole, only
about 30 schools exceeded the 90 percent threshold when military benefits are
excluded from the calculation.12

The 2014 analysis shows that this
dependency on federal revenue has grown, despite the federal revenue having
In a similar tone:

192 of approximately 2,000 for-profit
schools that participate in Title IV received more than 90 percent of their revenue
totaling $7.9 billion from Title IV+VA+DOD programs, representing a decline of
about $1.5 billion from 2011-2012. These 192 schools would have been in
violation of the 90/10 rule if the loophole has been closed and all federal
funds had been counted when assessing compliance with the 90 percent cap.
However, because the revenue cap only applied to Title IV revenue, only about
17 schools exceeded the 90 percent threshold.14 

first glance it may seem that all federal revenue, including VA and DOD aid,
declined. However, Title IV accounted for most of the decline and it was
“offset by an increased revenue from
the VA and DOD.”15
In effect, for-profit schools substituted the deficiencies in Title IV with
more federal revenue from the VA and DOD education benefits. 

is not what you will read in news outlets and online media sources. Instead,
such organizations report on the decline of for-profit enrollment. The Veterans
Education Success advocacy grounds explains that “missing from these articles
are data on the key subset of students who are specifically targeted by
for-profits: military connected students using their VA and DOD benefits. Data
suggests that enrollment decreases among all students have been offset by
enrollment increases among service members and veterans.”16


Since for-profit schools figured
out that they did not have to count veterans’ financial assistance—GI Bill
dollars or DOD Tuition Assistance—as federal funds, these schools aggressively target
veterans and service members to reach the 10% “private” funding quota. The
loophole encourages for-profit schools to engage in this behavior because for
every dollar it receives from the G.I. Bill or DOD, the school can receive $9
more from the Education Department’s student financial aid, or as Kate O’Gorman
puts it, for each veteran it enrolls, a for-profit school can enroll 9 more
students through financial aid.18 The loophole has created
countless problems for veterans, long-term issues for for-profit institutions, and
only contributes to the wasteful use of taxpayer dollars.

Effect on
Schools: Adopting the Faulty Business Model

With the assistance of the
loophole, for-profit schools focus on gaining the most revenue in the quickest
way, instead of focusing on the quality of their institutions. This business
plan is similar to that of investment banks’ business model prior to the
mortgage collapse—issuing high risk loans to maximize short profit and selling
these overvalued loans to investor, shifting the risk of default to third
parties.19 The targeted behavior of these
banks, using massive high risk lending to undermine the free market, “is the
dominant feature of the business model currently used by these for-profit
schools.” 20

 These schools have perfected this strategy
that “relies on high-risk loans,
immediate profits, and shifting risk to third parties, and have done so by
exploiting lax regulations and gaps in the laws intended to prevent the precise
behaviors in which they are engaging.”21  “Under the for-profit school business model,
schools (1) enroll enormous numbers of students through federal grants and
loans, thereby maximizing short-term profits and (2) rely on students and their
taxpayer guarantors to pay off these loans, thereby shifting the risk of
default to third parties.”22 Without 9/11 GI Bill
included in Title IV, nor accounted for in the Higher Education Amendment of
1998, these schools have created a legal
business model in which 100% of their funds come risk free from the government.

Because of the enormous focus on
revenue and short pay outs, “these schools have been accused of ‘not focusing
on the educational outcomes for students they enroll, but rather a bulk of
one-time payouts of federal benefits to maintain their bottom line.'”23 In fact, “an astonishing
100% of schools recently investigated by the GAO are making ‘deceptive or
otherwise questionable statements’ when recruiting students to take out loans
for which they have a high likelihood of defaulting.” 24


Effects on

By using mostly veterans’ and
service members’ financial assistance, schools no longer have to fight to stay
afloat the free market. With this in mind, schools began their endless crusade
to enroll our country’s armed forces.

In 2011 Holly Petraeus, the then
Assistant Director for Service Member Affairs at the Consumer Financial
Protection Bureau (CFPB), wrote that this loophole “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.”25

The 2012 Senate HELP Committee
found that the number of veterans using the new, more generous Post 9-11 G.I.
Bill presented an appealing target for proprietary schools, whose aggressive
and misleading recruiting tactics were thoroughly documented in the report. The
report explained the different ways that schools aggressively recruit members
of the armed forces: (1) use of lead-generation websites designed to resemble
official military pages to identify potential students; (2) relentless calls
and emails; (3) reliance on “pain-points” (student’s emotional vulnerabilities-
unhappiness at a job or with family); (4) leaving out key facts about the
school and financial factors; (5) misleading information; (6) creation of a
false sense of urgency; and (7) looking for potential recruits at both
veterans’ hospitals and wounded warrior programs.26 Such targeted fraudulent behavior
has culminated into seventeen instances of settlements from allegations of
misleading advertising and recruiting with federal agencies or state Attorneys
General, paying fines totaling $411 million. 27

After such aggressive marketing and
targeting tactics take place, schools lock veterans into a payment plan, and shift
the focus back to the next round of 9:1 incoming students. In fact, colleges
typically “spend more money on marketing and recruiting than actual
Christopher Nieweem, Iraq war veteran and legislative associate with IAVA,
explains that DeVry was “a little more than a ‘business operation’ —’a school
in name only.’ We were in an office of cubicles all day… It was a business
center, phones ringing all day, jovial elation whenever a sale happened.” 29

Student Loan Debt and Unemployment

Without an incentive to improve
these colleges, the quality, resourcefulness, and educational value of the
schools are on the backburner. Democratic Senator, Tom Carper, a veteran
himself who attended college thanks to the GI Bill explains that these colleges
are “… more interested in that than they are in making sure a GI—man or woman—
gets the kind of education that will allow them to provide for themselves and
their families for the rest of their lives.”30

As these for-profit institutions
slowly become schools “in name only,” there are “too many examples of veterans
with a for-profit degree on their wall and an unemployment check on their
table.” 31
In fact, “sixteen of the largest schools enrolled 959,000 students in
2008-2009, and 547,000 of those, or 57%, withdrew by August 2010. Over a
three-year period, an estimated 1.9 million students left these poorly
performing schools, most with ‘nothing to show for their time in a for-profit
school but student loan debt.'”32Amongst those that do make
it to graduation, “many students cannot find work because employers don’t value
their degrees and may for-profit schools don’t have good career services to
help vets find jobs.”33

As if going through a few
semesters, or a few years, of college and not being able to get a job is not
bad enough after serving one’s country, these veterans are also left with
student loan debt—as a result of the fraudulent practices these for-profit
schools are engaging in. So much so that the Borrow Defense Regulations were
implemented in 2016 to provide student loan forgiveness to defrauded students. A
letter, to Chairmen and women on Senate Committee on Health, Education, Labor
& Pensions and the House Committee on Education & the Workforce)
explains that “…predatory college recruiters not only defraud veterans but also
load them up with student loans, sometimes without their knowledge.”34 In fact, the Education
Department has already committed to granting relief to veterans who were
defrauded by Corinthians and ITT Tech; however, such applications for veterans
remain stalled. In an effort to push these applications through, veterans wrote
to Congress urging them to assist with these loans. All of the testimonials
include variations of the same story—Vets were recruited, told all credits
would transfer to any college, that GI Bill would cover tuition, promised
employment post graduation, mislead about the actual cost, and told such
schools were accredited when they were not. In the end, almost all Veterans
wrote that they were forced to take out private loans, have not been able to
secure employment, and were unable to transfer any credits to another school.

Congress was aware of the
fraudulent actions taking place as a result of the 90/10 loophole, and
implemented steps to assist veterans in getting loan forgiveness for such
practices. However, it has not successfully implemented anything to prevent the
problem from reoccurring. That is not to say that the legislative and executive
offices, advocacy groups, lobbyists, Attorneys General, other colleges aware of
the abuse of this loophole, and veterans and service members themselves have
not tried.

Attempts to Close

There have been repeated attempts
to dismantle this loophole, and close the pathway for for-profits to defraud
our country’s service men and women. These attempts began in 2010 and stretch
to November, 2017. Such efforts have been put forth by the House of
Representatives, Senate Committees, Attorneys General, advocacy groups,
veterans themselves, and even other institutions of higher learning who have
implemented their own policies. 


Multiple attempts by senators and
representatives trying to bring awareness to the loophole have been
continuously struck down for one reason or another. Among reform efforts that
have died are “a bill that would have blocked schools with no academic
accreditation from receiving GI Bill money. Another, which would have barred
for-profit schools from spending GI Bill funds on advertising, marketing and
recruiting, never made it out of the committee.”35

More recently introduced —July 2014—
was “legislation designed to prevent for-profit colleges from gaming the
federal aid system and exploiting veterans died within 15 minutes of being
Representative Susan Davis and Representative Mark Takano introduced the bill
at the House Education Committee hearing. Specifically, Davis and Takano
pointed to a recent story from the Center of Investigative Reporting, which
revealed that “more than $600 million in GI Bill funding earmarked for Iraq and
Afghanistan veterans had gone to California for-profit schools that failed the
minimum standards for the state’s own financial aid.”37

Representative John Kline of
Minnesota quashed the bill by riling it “nongermane” to the topic of financial
aid being discussed. Interestingly enough, John Kline raised $138,350 in 2013
from the for-profit college industry; “like many love affairs, money is
In fact, some of the biggest donors were ITT Institute, Apollo Group, and
University of  Phoenix.39

            No other Congressional actors have
been more involved with closing this loophole than Delaware Senator Thomas
Carper, and Senior Senator from Illinois Richard Durbin. Beginning in 2012 and
stringing along until today, Carper has wholeheartedly stood behind the bills
aiming to dismantle the abuse of our service members’ education and well
deserved military aid. Carper’s unwavering support and steadfast determination
is demonstrated by his involvement in the endless battle to seal up the 90/10
window. Beginning in 2012, Senator Carper introduced the Military
and Veterans Education Protection Act to close the loophole.



1Including Direct
Subsidized/Unsubsidized Loan, Direct Graduate PLUS Loan, Direct PLUS Loan,
Federal Pell Grant, Federal Supplemental Educational Opportunity Grant (SEOG),
and Federal Perkins Loan.

2 See Higher Education Amendments of 1992;
Pub. L. No. 102- 325, 106 Stat. 448, (1992).

3 See Higher Education Amendments of 1998,
Pub. L. No. 105-244, 112 Stat. 1581, 1998 (1)(1998).

4 Statement of
Melissa Bryant on behalf of IAVA, before the Department of Education Public
Hearing on Regulatory Reform (Oct. 4, 2017).

5 Department of
Education Data Shows Increased Targeting of Veterans and Servicemembers,
Highlighting Urgency of Closing 90/10 Loophole,
Veterans Education Success, 3

6 Kate O’Gorman, Why Predatory Schools Target Veterans, IAVA (May 7, 2012) available at

7 What is the 90/10 loophole, Veterans Education Success,
(Interestingly enough, “G.I. Bill funds and Tuition Assistance is not defined
in the statutory provision as private funds; it is not named in the statute at
all because the statute refers only to Education Department funds.”)

8 Daniel Golden, For Profit Colleges Target the Military,
Bloomberg News, available at

9 What is the 90/10 loophole, Veterans Education Success,

10 Id.

11 See supra note 5, at 6; see also Robert Kelchen, How Much Do
ForProfit Colleges Rely on Federal Funds?

12 See supra note 5, at 7.

13 Id.

14 Id.

15 Id.

16 Id. at 14.

17 Hollsiter
Petraeus, For-Profit Colleges, Vulnerable
G.I.’s, New York Times (2011)
available at

18 See O’Gorman,  supra note 6.

19 Daniel J. Riegel,
Closing the 90/10 Loophole in the Higher
Education Act: How to Stop Exploitation of Veterans, Protect American
Taxpayers, and Restore Market Incentives to the For-Profit College Industry,
81 GEO. WASH. L. REV. 259, 272 (2013).

20 Id. at 273.

21 Id.

22 Id.

23 Id. at 271.

24 See supra
note 19, 274

25 Jacob Davidson, How For-Profit Colleges Target Military
Veterans you’re your Tax Dollars), Money,
available at

26 U.S. Senate
Health, Education, Labor, and Pensions Committee, For-Profit Education: The
Failure to Safeguard the Federal Investment and Ensure Student Success, July
2012, 54-71.

27 See supra 5, at 5.

28  Alia Wang, “Dollar
Signs in Uniform”: Why For-Profit Colleges Target Veterans, The Atlantic, available at
(“According to Senate research, in the past five years, 40% of post 9/11 GI
Bill tuition benefits have gone to the for-profit sector.”)

29 Id.

30 Id.

31 Id.

32 See supra note 19, at 275.

33 See supra note 6.

34 Letter to Senate
Committee on Health, Education, Labor & Pensions and House Committee on
Education & the Workforce and U.S Secretary of Education, Examples of
Veterans with Borrower Defense Applications Currently Pending at the Department
of Education, (June 9, 2017).

35 Aaron Glantz, Legislation to Close Loophole in GI Bill
college aid dies in minutes, REVEAL:
from the Center of Investigative Reporting (2014), available at

36 Id.

37 Id.

38David Halperin, Charged with Protecting Students,
Congressman Kline Instead Servces For-Profit Colleges, The Huffington Post (2013), available at

39 Id.


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