Congress Closes Loophole That Made Veterans a Target of For-Profit Schools

Military veterans have long been prized recruits at for-profit schools. The $1.9 trillion stimulus bill signed by President Biden on Thursday may change that.

For more than a decade, former service members who were defrauded by predatory institutions have pushed to close a loophole that gave an incentive to for-profit schools to enroll veterans. After a bipartisan deal last week, Congress included that change in the stimulus bill, handing veterans’ groups a major legislative victory.

“This is amazing,” said Tasha Berkhalter, an Army veteran who met with lawmakers last year. “They heard our voices, for once, and they righted the wrong. It felt like we mattered.”

The change involved revising just a few critical words in the text of the Higher Education Act. A longstanding mandate, the so-called 90/10 rule, requires for-profit schools to take in at least 10 percent of their revenue from funding other than federal student loans. The intention was to force schools to prove that they could attract other sources of support.

But the law’s text allowed schools to count student aid from the Defense Department and Department of Veterans Affairs, including G.I. Bill funds, toward their 10 percent threshold. That turned veterans into “dollar signs in uniform,” in the words of Hollister Petraeus, the former head of service member affairs at the Consumer Financial Protection Bureau.

Chains like ITT Technical Institute and Corinthian Colleges — which both collapsed in recent years after a crackdown on schools that acted fraudulently — hounded veterans with recruiting pitches so aggressive that former students said they bordered on harassment. Those who enrolled often received subpar educations that left them with dim career prospects and mountains of debt.

The bill signed on Thursday changed the Higher Education Act’s wording to specify that for-profit schools must take in at least 10 percent of their funding from “nonfederal” sources — a tiny tweak that permanently closes the loophole.

Schools will no longer be able to “cheat veterans and service members out of their education benefits while providing them with a low-quality education, useless degrees, and burdening them with student loan debt,” said Representative Mark Takano, a California Democrat and chairman of the House Veterans Affairs Committee, who pushed for the new rule to be included in the pandemic relief package.

The change won’t be effective until 2023, a delay that Carrie Wofford, the president of Veterans Education Success, an advocacy group, called “a bitter pill to swallow.” But the delay was necessary to reach a bipartisan deal. “It was the right decision,” she said.

Career Education Colleges and Universities, the trade group of for-profit schools, said it supported the change.

“We are thrilled to finally see a bipartisan consensus develop around the controversial 90/10 rule,” said Jason Altmire, the group’s chief executive. The delay, he said, “will allow time for a fair, rational and permanent solution for an issue that has been driven by partisan politics for far too long.”

For-profit schools are already preparing. This week, American Public Education, which operates a collection of schools and training programs explicitly marketed to former service members, told investors on an earnings call that it would have enough time to adjust its business model in various ways, including through acquisitions, to stay compliant.

Although for-profit schools have long been criticized for skirting federal rules, the revision takes a target off service members’ backs. “Schools might find ways to get around the rule, but at least they won’t be financially incentivized to pursue veterans,” Ms. Wofford said. “That’s a big win.”

Ms. Berkhalter said she was delighted that future veterans would be protected from the kind of financial harm she suffered. After leaving the Army in 2005, she enrolled at ITT and earned a bachelor’s degree in criminal justice. She came close to landing her dream position — a case management role at a mental health treatment center — but when the employer discovered that her degree was from ITT, the offer vanished.

ITT consumed her $75,000 in G.I. Bill funds and still left her with nearly $100,000 in student loan debt. Ms. Berkhalter hopes to have her federal loans eliminated through an Education Department program that is intended to wipe out the debt of students who were victims of fraud. Her application languished during the Trump administration, as Education Secretary Betsy DeVos strongly opposed the program and resisted approving applicants’ claims.

Ms. Berkhalter hopes the Biden administration will be more forgiving. “I’m excited for all those service members ahead who will be helped by this,” she said. “But they still need to do something about those of us who have been going through this for so long.”

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