The 90/10 rule requires private for-profit colleges to get at least 10% of revenue from sources other than federal student aid, based on a “skin in the game” rationale.
This paper demonstrates that colleges that enroll significant numbers of low-income (family AGI < $50,000) students are at greater risk of violating the 90/10 rule.
Other demographic characteristics that hurt compliance with the 90/10 rule include Pell Grant recipients, low EFC (especially zero EFC), underrepresented minority students, female students, independent students, GED recipients, low high school GPA, low admissions test scores, first-generation college students, part-time enrollment, and high unsubsidized Stafford loan amounts.
Colleges that charge under $8,000 in tuition are at greater risk of violating the 90/10 rule.
Counting military student aid in addition to Title IV federal student aid would increase the 90/10 percentage at private for-profit colleges by 2 percentage points on average.
Counting education tax benefits in addition to Title IV federal student aid would increase the 90/10 percentage at private for-profit colleges by 5 percentage points on average.
42% of tuition revenue at private non-profit colleges, 70% at private for-profit colleges and 82% at public colleges (98% at community colleges and 77% at public 4-year colleges) comes from Title IV federal student aid.
The majority of public colleges, including 80% of community colleges, would fail the 90/10 rule if it applied to them. This is due, in part, to the lower tuition at these colleges.
The need to comply with the 90/10 rule may cause some colleges to discriminate against high-risk students, perhaps by adopting more selective admissions policies.
The 90/10 rule measures ability to pay more so than willingness to pay. It is an ineffective proxy for direct measurement of educational quality. This paper proposes several possible solutions.
Repeal the 90/10 rule, replacing it with direct measurement of educational quality (e.g., licensing rates on state licensing exams, pass rates on independent competency tests).
Exclude student loans from the scope of the 90/10 rule if the college has a high loan repayment rate. A loan that is repaid represents skin in the game. Alternately, count only the college’s annual dollar default volume as part of revenue from federal student aid.
Exclude low-income students (e.g., Pell Grant recipients, zero-EFC students) from the 90/10 rule calculation.
Count students only if their EFC exceeds the unsubsidized Stafford loan limits.
Waive the 90/10 rule for colleges that charge below-average tuition and fees and which have below-average tuition inflation rates as compared with public colleges or CPI-U.
Use a weighted measure where the 90/10 percentage associated with an individual student is weighted by the student’s EFC. This would count the contributions from high income students more heavily than the contributions from low-income students.
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