Abstract
In 2008, congress passed the Higher Education Opportunity Act. This act relaxed the 90/10 rule requiring for-profit institutions to earn at least 10 percent of their revenue from non-Title IV funds by revoking eligibility after 2 years of non-compliance instead of 1 year. To comply with the 90/10 rule, for-profit institutions bundle campuses together. Unbundling the campuses doubles the number of 1-year violations though the number of 2-year violations remains the same. For-profit institutions receive almost one billion dollars, or about 4.5 percent, more federal aid under the 2-year violation rule than the 1-year violation rule.
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Notes
Herzing University converted to non-profit status in 2015, likely to avoid new and proposed “gainful employment” regulations on for-profit universities.
See page 138 of the HELP Committee report. EDMC is the Education Management Corporation which ran Argosy University, The Art Institutes, Brown Mackie College, and South University. EDMC filed for bankruptcy in 2017.
It is worth noting that Kane (1995) shows that means tested aid, like Pell grants, may not increase enrollments.
This grant was created in the 2010–2011 academic year.
The VA’s rule was also implemented in 1992, though the 1952 Korean Conflict GI Bill includes similar language.
Or each student is willing to pay fifteen percent of the tuition out of pocket.
See Baird (2021) for more detail about 90/10 violations over this time period.
The American Rescue Plan Act of 2021 revised the language of the Higher Education Amendments so that all federal aid is included in the 90 percent. This language change removes for-profit institutions’ incentive to target veterans but does not go into effect until 2023.
These strategies are discussed in "Endogeneity of the Bundling Decision" section.
The NCES and the OPE are separate organizations within the Department of Education.
See page 138 of the 2012 Senate HELP Committee report.
The least active year was 2012 when just 0.85 percent of campuses were moved to a different bundle.
I limit the number of campuses a university can open to 4 to keep the simulation tractable. Allowing universities to open a fifth campuses increases the possible sets of bundles to 233.
Here, campuses 1 and 2 are in bundle 1 and campus 3 is in bundle 2 since there are only two bundles.
The 2012 Senate HELP committee report relied on many different sources for information including emails written by Herzing University employees.
See Kofoed (2020) for a more detailed discussion of this incentive.
There was also a period from 2008 to 2012 during which 50 percent of the value of institutional loans counted as non-Title IV revenue that were made during that fiscal year, instead of only the cash repayments made during that fiscal year counted as non-Title IV revenue.
For-profit institutions were banned from compensating employees based on recruitment in 1992. This “incentive compensation” ban was effectively removed in 2002 and reinstated in 2010. For a complete list of regulatory changes in 2010, see footnote 605 on page 135 of the 2012 Senate HELP report.
See Fernald et al. (2017) for more detail.
The OPE operates under the supervision of the Office of the Undersecretary of Education. The IES operates under the supervision of the Secretary of Education. The OPE and the IES are separate organizations within the Department of Education and collect data on postsecondary institutions for different purposes.
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Acknowledgements
I would like to thank Kevin Mumford, Jack Barron, Justin Tobias, Brian Roberson, and two anonymous reviewers for their many useful comments and suggestions.
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Davis, Z.G. Unbundling For-Profit Higher Education: Relaxing the 90/10 Revenue Constraint. Eastern Econ J 49, 176–200 (2023). https://doi.org/10.1057/s41302-023-00236-3
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DOI: https://doi.org/10.1057/s41302-023-00236-3