Higher Education Act Reauthorization Loosens Regulations, Enables For-Profit College Explosion

On October 7, 1998, President Bill Clinton signed the Higher Education Amendments of 1998, a reauthorization of the Higher Education Act that loosened regulations on for-profit colleges and set the stage for the industry’s explosive growth over the following decade. The legislation represented a major victory for for-profit education lobbyists who had successfully portrayed regulatory oversight as barriers to “innovation” and “access.”

The 1998 amendments weakened the “85-15 rule”—which required proprietary schools to derive at least 15% of their revenue from sources other than federal student aid—by changing it to a “90-10 rule,” allowing for-profit schools to derive up to 90% of revenue from Title IV federal funds. This seemingly technical change enabled for-profit colleges to become almost entirely dependent on federal student loans and Pell grants while maintaining the fiction of private enterprise. The Veterans Affairs education benefits were later exempted entirely from this calculation, allowing schools to target veterans while maintaining access to federal funds.

The legislation also expanded distance learning provisions that for-profit schools would exploit to scale rapidly through online education. The University of Phoenix, owned by Apollo Group, was already pioneering online degree programs; the 1998 amendments cleared regulatory hurdles for massive expansion. By 2010, for-profit schools would enroll over 2 million students—up from 550,000 in 1998—and consume 25% of all federal student aid while graduating only 10% of students.

For-profit college lobbyists had systematically cultivated bipartisan support. The industry hired former congressional staff, made campaign contributions, and framed deregulation as expanding access to non-traditional students. The Career College Association (now APSCU) coordinated industry lobbying, spending millions annually to maintain the flow of federal funds. Democratic legislators, eager to expand educational opportunity, often supported loosened regulations without recognizing how the profit motive would corrupt the access mission.

The 1998 reauthorization’s consequences became clear only after the 2008 financial crisis, when the Obama administration finally investigated the for-profit sector. The 2012 Harkin Report documented that for-profit colleges spent more on marketing and CEO compensation than on instruction, left students with crushing debt and worthless credentials, and targeted vulnerable populations—veterans, single mothers, minorities—with aggressive and often deceptive recruiting. The regulatory weaknesses created in 1998, combined with the absence of meaningful enforcement, enabled an industry that extracted hundreds of billions in federal funds while leaving millions of students worse off than before they enrolled.