For-Profit Schools: Large Schools and Schools that Specialize in Healthcare Are More Likely to Rely Heavily on Federal Student Aid

GAO-11-4 Published: Oct 04, 2010. Publicly Released: Oct 04, 2010.
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In the 2008-2009 school year, about 2,000 for-profit schools received almost $24 billion in grants and loans provided to students under federal student aid programs. In the early 1990s, Congress was concerned that some for-profit schools receiving federal student aid were recruiting students who were not ready for higher education. Many of these students left school with no new job skills and few employment prospects in their fields of study and many defaulted on their federal student loans. In response, Congress enacted the 85/15 rule in 1992, which required for-profit schools to obtain at least 15 percent of their revenues from sources other than federal student aid. Proponents of the rule believed that for-profit schools offering a quality education should be able to earn a minimum percentage of their revenue from sources other than federal student aid. In 1998, Congress amended this law to create the 90/10 rule, which reduced to 10 percent the proportion of revenues schools must obtain from sources other than federal student aid. These revenues can include cash payments from students, private student loans, state educational grants, and federal education assistance payments for veterans. For-profit schools are required to report in their annual financial statements the percentage of their total revenues obtained from federal student aid funds. This calculation is called a school's "90/10 rate" and it is verified each year by an independent auditor. Schools that do not comply with the 90/10 rule risk losing their eligibility to participate in federal student aid programs. As required by the Higher Education Opportunity Act, we are providing information on for-profit schools' compliance with the 90/10 rule. Specifically, this report addresses the following questions: 1. What percentage of for-profit schools is in compliance with the 90/10 rule and to what extent do schools derive their revenues from federal student aid funds? 2. What school characteristics are associated with higher average 90/10 rates? 3. What school characteristics are associated with an increased likelihood of having a very high 90/10 rate?

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