Final Rules: Institutional Eligibility & 90/10

The road ahead: percentage calculations, a disbursement deadline, modified criteria for non-federal revenue and other provisional changes.

By Rick Cox

Final rules on Institutional Eligibility and Oversight include regulatory changes for the 90/10 rule, affecting everything from terminology to the calculation of percentages.

Below is a summary of 90/10 provisions in the final rules. However, institutions should read the entire federal register to determine its impact on your operations. You can access the federal register here.

The 90/10 Rule

  • The regulations change terminology from non-Title IV revenue to non-federal revenue and Title IV funds to federal funds. This is because of the statutory language change for 90/10. The 90 portion consists of all federal education funds instead of just Title IV funds.
  • The final rules would add language to detail how percentages are calculated. The regulations would provide that proprietary institutions with fiscal years beginning on or after January 1, 2023, must count as revenue Title IV funds and any other education assistance funds provided by a federal agency during that fiscal year. Title IV and other education assistance include the federal portion of any grant funds provided or administered by a non-federal agency to cover tuition, fees and other institutional charges. The regulations would also exclude the following from the revenue percentage calculation: federal funds for that fiscal year that are non-Title IV federal funds going directly to a student and specifically designated by the federal agency to cover expenses other than tuition, fees and other institutional charges.
  • The Secretary will identify the agency and federal assistance funds that may be included in the revenue calculation in a Federal Register notice.
  • The final rules maintain existing regulations on proprietary institutions’ use of cash basis accounting to calculate their revenue percentage and would specify that proprietary institutions must include federal funds used to pay tuition, fees and other institutional charges provided either directly to the institution or paid by a student who received federal funds.
  • The final rules create a disbursement rule that would create a deadline for Title IV disbursements for a proprietary institution’s 90/10 calculation. Specifically, the final rules will require proprietary institutions requesting Title IV funds using the advanced payment method or the HCM 1 method to request and disburse any funds to an eligible student before the end of the proprietary institution’s fiscal year. Proprietary institutions under HCM 2 or reimbursement would be required to make timely disbursements to student accounts before the end of their fiscal year and report the funds that were disbursed to the students’ accounts as federal funds in the 90/10 calculation.
  • Current rules allow institutions to count, as non-federal revenue, activities conducted by the institution necessary for the education and training of its students. The final rules add a requirement that activities conducted by the institution necessary for the education and training of its students must be related directly to services performed by students for the revenue to be counted in 90/10.
  • The final rules modify criteria for revenue generated from programs ineligible for Title IV funds required to be included as non-federal revenue. The final rules add a requirement that these funds be paid by a student, or on behalf of a student by a party unrelated to the institution, an institution’s owners or affiliates. Additionally, for a proprietary institution to count revenue generated from an ineligible program, the final regulations will require the ineligible program:
    ۰ Not include any courses offered in a program eligible for Title IV funds.
    ۰ Be provided by the institution and taught by one of its instructors of an eligible program.
    ۰ Be located at its main campus, one of its approved additional locations, a location approved by the appropriate state agency or accrediting agency, or an employer facility.
  • The final rules provide that a proprietary institution may not count revenue generated from an ineligible program where it only provides facilities or test preparation courses, acts as a proctor or oversees a course of self-study.
  • The final rules will no longer include funds generated from an ineligible program that simply prepares students to take an examination for an industry-recognized credential or certificate issued by an independent third party as allowable non-federal revenue. The program must provide the industry-recognized credential or certificate to be included as revenue.
  • The final rules modify the treatment of other federal and non-federal funds used to pay a student’s tuition, fees or other charges to: (1) clarify that grant funds from non-federal public agencies can be counted as satisfying a student’s tuition, fees or other institutional charges, as long as those grant funds do not include federal or institutional funds; (2) clarify that private sources must be unrelated to the institution, its owner or affiliates; and (3) clarify that any contractual arrangement to provide job training must be between the proprietary institution and a federal, state or local government agency.
  • Final rule 668.25(a)(5) will:
    ۰ Change “must” to “may” to include institutional aid as allowable
    non-federal revenue.
    ۰ Consolidate, simplify and codify accounting practices in the regulations to provide that allowable revenues from institutional loans be treated as the amount of principal payments made on these loans, as long as those loans meet the same criteria as the current regulations.
    ۰ Create clear guidelines for allowing proprietary institutions to count
    payments representing principal payments on ISAs or other alternative
    financing agreements as non-federal revenue.
    ۰Prohibit the sale of ISAs or other financing agreements owned by an
    institution from being included as non-federal revenue.
    ۰ Maintain current regulations allowing certain qualifying scholarships for
    academic achievement or other financial need to be counted as
    non-federal revenue but clarifying what the term “outside sources” means
    in the regulation.
  • The final rules add two new sources of revenue that must be excluded from the 90/10 calculation: (1) any amount from the proceeds of the factoring or sale of accounts receivable or institutional loans, regardless of whether the loans were sold with or without recourse; and (2) any funds, including loans, provided by a third party related to the institution owners or affiliates to a student in any form.
  • The final rules add two requirements for a proprietary institution that fails the 90/10 revenue requirement: (1) The institution must notify students that if it fails to meet the 90/10 revenue requirements at the end of the current fiscal year, it could potentially lose Title IV HEA Program eligibility at the end of the current fiscal year, if it failed to meet the 90/10 revenue requirement for the prior fiscal year; and (2) The institution would be liable to repay any Title IV HEA Program funds that it disburses, after the fiscal year it becomes ineligible to participate in the Title IV program due to failing the 90/10 revenue requirements for two consecutive fiscal years. This excludes the funds the institution was entitled to disburse under the regulations.
  • The regulations will continue to require a proprietary institution report if it failed 90/10 for the prior year no later than 45 days after the end of the fiscal year. A proprietary institution would be required to immediately report a 90/10 failure if it determines after the 45-day reporting period that it failed the 90/10 requirement for the prior fiscal year.
  • The Department of Education will also revise Appendix C to subpart B of 34 CFR 668. The appendix will provide a revised sample student ledger and steps on how to report the institution’s 90/10 calculation to the department.

Rick Cox is Global’s Executive Director of Regulatory Affairs and Compliance