USDE Publishes Final Rule on 90/10 Rule and Change in Ownership Regulations

On October 28, 2022, the U.S. Department of Education (Department) published the Final Rule (FR) that makes significant and wide-ranging changes to the 90/10 Rule and the change in ownership and control (CIO) regulations. In the accompanying Fact Sheet, the Department stated that the FR will “promote accountability…and strengthen protections for veterans, service members, students, and borrowers.”

The FR amends Title IV Revenue and Non-Federal Education Assistance Funds regulations to implement the statutory change in the American Rescue Plan Act of 2021 (ARP) and amends which non-Federal funds can be counted when determining compliance with the 90/10 rule. The FR also amends regulations to clarify the process for consideration of changes in ownership and control (CIO).

Below is a high-level summary of the major revisions to the 90/10 and CIO regulations.

Changes to the 90/10 Rule

The 90/10 regulations will apply to institutional fiscal years beginning on or after January 1, 2023, consistent with the effective date of the statutory changes to the 90/10 calculation. The practical implication is that there are two different effective dates based on an institution’s fiscal year. For institutions whose fiscal year begins on July 1, the FR becomes effective on July 1, 2023. For institutions whose fiscal year begins on January 1, the FR becomes effective on January 1, 2023 – six months earlier.

  • The Department amends the 90/10 regulations to implement a statutory requirement in the ARP. This change amended section 487(a)(24) of the HEA to require that at least 10 percent of a proprietary institution’s revenue be derived from sources other than Federal educational assistance funds (as opposed to non-Title IV funds). The Department will publish a list of the Federal educational assistance programs that are counted in the 90 percent revenue test in the Federal Register and update the list as needed. Important to note: the Department has not yet announced, in the Federal Register, what federal funds will be counted in the “90” portion.
  • The FR also creates a new requirement for when proprietary institutions must request and disburse title IV funds to prevent the delaying of disbursements to the next fiscal year.
  • The Department states that the FR will also more closely align allowable non-Federal revenue with the statutory intent by clarifying:
        1. Allowable non-Federal revenue generated from programs and activities that can count for the purposes of 90/10;
        2. How schools must apply Federal funds to student accounts and determine the funds’ inclusion in the Federal revenue percentage of 90/10;
        3. Which revenue generated from institutional aid can count as non-Federal revenue for purposes of 90/10; and
        4. Funds that institutions must exclude from the 90/10 calculation altogether.
  • The FR also modifies the steps that proprietary institutions must take if they fail to derive at least 10% of their revenue from allowable non-Federal sources, including a requirement to notify students of any failure and of the potential to lose title IV access.
  • Additionally, the FR establish the process that proprietary institutions must follow if they initially determine that they met the 90/10 requirement for the preceding fiscal year, but subsequently determine that an error had been made.
  • Finally, the FR provides that a proprietary institution will be liable for repaying all title IV funds disbursed for the fiscal year after it becomes ineligible to participate in title IV due to a failure.

Changes to the CIO Regulations

The Department made a number of changes to the rules regarding the process and procedures for an institution to undergo a CIO.

First, the FR modifies a number of regulatory definitions, including:

  • Additional location
  • Branch campus
  • Main campus
  • Nonprofit institution
  • Closely-held corporation
  • Ownership or ownership interest
  • Parent
  • Person
  • Other entities

Under additional changes formalized in the FR, the Department will require schools to provide a minimum 90-day notice to the Department when they undergo a change in control.

As a result of the changes, the Department may apply additional conditions to the new Temporary Provisional Program Participation Agreement (TPPPA) after a CIO and impose the conditions under the Department may issue a decision on the pending application for approval of the change.

The Department says that the FR also will “increase transparency” for CIOs that do not constitute a change of control by increasing the reporting requirements to the Department on such transactions at lower percentages of ownership.

The CIO provisions become effective July 1, 2023.

For more information on this topic and others, please contact Kristina Gill, Jonathan Helwink, any of the attorneys in the Higher Education Group or the attorney in the firm with whom you are regularly in contact.

This Post has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm’s full disclaimer.

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