Who Loves Ya, Baby?

The Education Department moves swiftly, following the signing of the OBBBA, to begin easing the regulatory burden on for-profit colleges.

Yesterday in the Federal Register, the Department of Education rescinded a policy imposed by the Biden Administration limiting revenue from non-Title IV programs offered online from being counted as “10 revenue” to comply with the “90/10 Rule.” The 90/10 Rule is a federal regulation that applies to proprietary (for-profit) colleges. It requires these institutions to earn at least 10% of their revenue from non-federal sources, including Title IV grants and loans and GI Bill dollars. This action by the Department comes only after a failed attempt in the initial House version of the “One Big Beautiful Bill Act” (OBBBA) to rescind the 90/10 rule completely.

The rationale for this change was that since this policy was initially provided in a “preamble” to the rule and not adopted through formal rulemaking, it did not have the force of a rule itself. While the change does not prevent a future Democratic administration from attempting to recreate such a rule, the language in the notice, which explicitly observes that nothing in the law itself requires this nonsensical exclusion, should make any reimposition of this requirement difficult to defend in court following the Supreme Court’s Loper Bright decision limiting executive latitude in administrative rulemaking.

The change means that these schools will have a much easier time satisfying the 90/10 requirement, as they are now free to sell non-accredited training to individuals and even corporations online for non-Federal dollars. The practical considerations of this change are significant given the near-complete obsolescence of in-person training following the COVID-19 pandemic. But more meaningfully, the action signals a deliberate strategy by the Trump Administration and Congressional Republicans to relieve the proprietary school sector of the burdens imposed by many of the more punitive rules it has battled since the Obama Administration’s re-regulation of the sector.

In another example, the final version of the OBBBA introduces new requirements that all institutions, including public and not-for-profit schools, demonstrate positive earnings outcomes for students. Many higher education advocates criticize this requirement as unfairly burdening schools with the obligation to guarantee something over which they have limited control. However, the new rule, ironically, is much less burdensome than the “Gainful Employment Rule,” implemented under Obama and significantly tightened under Biden, which applied only to for-profit schools and has now been replaced by this less onerous, more universal requirement.

Other provisions in the Senate version of OBBBA to soften rules sharpened by the Biden Administration, including Defense to Repayment and Closed School Discharge, failed to pass the Senate Parliamentarian’s test for a Budget Reconciliation. Nevertheless, the signals sent by these efforts are clear: the White House and Congressional Republicans are friends to proprietary schools and will likely use tactics like the one employed yesterday, which leans heavily, though not entirely, on the precedent set by Loper Bright, to secure other types of regulatory relief for the proprietary sector.

Remaining areas for relief include the Defense to Repayment and Closed School Discharge rules mentioned earlier, which were leveraged aggressively by the Biden Administration to forgive nearly 20% of the $189 billion of student loans voided by the government. If the Trump Education Department were to ease these measures, at least partly, it could save some of the largest for-profit school providers tens of millions of dollars in ongoing regulatory defense.

However, an even more impactful development for the sector would be a successful effort to eliminate a requirement created under Biden, mandating that private owners of for-profit schools directly sign the Program Participation Agreement (PPA). This legal document obliges schools to follow various Title IV program regulations or face severe financial penalties. Requiring owners to sign the PPA directly means liability cannot be limited through a corporate entity like an LLC but extends to the owners’ full holdings. The requirement has greatly increased the financial risks associated with school ownership, lowered valuations, and generally hindered transactions within the sector. While critics might see these effects as positive, their overall effect has been to suppress investment in the sector.

Now that legislative remedies appear to be exhausted for the immediate future, the Education Department will likely become more proactive in outlining a plan to address many of these rules, which Republicans have long perceived as partisan, punitive, and counterproductive.