90/10 Rule Loophole Closes, Ending For-Profit Colleges' Predatory Targeting of Veterans by Counting GI Bill and Military Tuition Assistance as Federal Aid

On January 1, 2023, a critical reform to the “90/10 rule” governing for-profit college federal aid eligibility took effect, finally closing a decades-old loophole that had incentivized predatory targeting of military veterans and active-duty service members by for-profit colleges seeking to circumvent restrictions on federal student aid dependence. Under the revised rule, GI Bill education benefits and Department of Defense Tuition Assistance are now counted as federal revenue for purposes of the 90/10 calculation, eliminating the regulatory arbitrage that had previously allowed for-profit colleges to obtain more than 90 percent of revenue from federal sources by recruiting veterans whose military education benefits had not counted toward the cap. The loophole closure, enacted through the American Rescue Plan of 2021 and implemented through final regulations in 2022, ended a predatory recruitment system documented by Consumer Financial Protection Bureau official Holly Petraeus and veterans’ advocates showing that for-profit colleges operated recruiting offices on military bases, employed military veterans specifically to target other veterans, and used aggressive and often deceptive tactics to steer service members toward expensive for-profit programs rather than toward the free or low-cost public college options available under military education benefits—all motivated by the perverse regulatory incentive to use veterans to satisfy the 90/10 rule’s requirement for non-Title IV revenue.

The 90/10 rule, codified in the Higher Education Act, requires that for-profit colleges participating in federal student aid programs derive no more than 90 percent of their revenue from Title IV federal student aid sources including Pell Grants and federal student loans. The rule is intended to serve as a basic market test: if a for-profit college cannot attract at least 10 percent of revenue from students paying with private funds, veterans’ benefits, employer tuition assistance, or other non-federal sources, the school is deemed to be excessively dependent on federal aid and loses eligibility to participate in Title IV programs. The theory behind the rule is that schools charging tuition so high that no one will pay with private funds, or delivering education so poor that no one values it enough to pay without federal aid, should not receive taxpayer subsidies through the student aid system.

However, the 90/10 rule as originally structured contained a critical loophole: GI Bill benefits and Department of Defense Tuition Assistance were not classified as Title IV federal student aid for purposes of the 90/10 calculation, meaning they counted as “non-federal” revenue even though they were entirely federally funded. This classification created a perverse incentive structure where for-profit colleges could meet the 90/10 requirement not by attracting private-pay students or demonstrating educational value, but by recruiting veterans whose federal military education benefits would count as the required 10 percent “non-federal” revenue. In practice, this meant that a for-profit college could receive 100 percent of its revenue from federal sources—90 percent from Title IV student aid and 10 percent from military education benefits—while technically complying with the 90/10 rule designed to limit federal aid dependence.

The consequences of this loophole were exactly what economic incentives would predict: for-profit colleges engaged in systematic, aggressive, and often predatory targeting of military veterans and active-duty service members specifically to satisfy 90/10 requirements rather than because the institutions believed they could serve veterans well. Veterans Education Success and other advocacy organizations documented that for-profit colleges operated recruiting offices directly on military bases, employed military veterans and former service members as recruiters specifically to exploit bonds of trust with prospective students, used high-pressure sales tactics designed to rush service members into enrollment before they could research alternatives, misrepresented the quality and reputation of for-profit credentials compared to degrees from public universities, and in many cases explicitly targeted military personnel not because the for-profit programs were appropriate for veterans’ educational needs but because recruiting veterans helped the institutions satisfy regulatory requirements.

Holly Petraeus, who served as head of the Consumer Financial Protection Bureau’s Office of Servicemember Affairs under Director Richard Cordray, became one of the most visible advocates for closing the 90/10 loophole. Petraeus, wife of former CIA Director and General David Petraeus, used her position to document predatory for-profit college recruitment of military families and to advocate for regulatory reforms. In testimony, reports, and public statements, Petraeus explained how the loophole worked: “The rule says that a for-profit college must obtain at least 10 percent of its revenue from a source other than Title IV education funds, the primary source of federal student aid. Funds from Tuition Assistance and the G.I. Bill are not defined as Title IV funds, so they count toward the 10 percent requirement, just like private sources of financing.” This regulatory classification meant that from the for-profit college’s perspective, a veteran using GI Bill benefits was more valuable than a comparable non-veteran student, since the veteran helped satisfy 90/10 while the non-veteran did not.

The targeting of veterans was not subtle. Multiple investigations found that for-profit college recruiters received specific training on how to identify and recruit military personnel, how to emphasize military-friendly messaging in recruitment pitches, how to navigate military base access and recruiting protocols, and how to exploit veterans’ trust in fellow service members by using veteran recruiters to target military personnel. Some for-profit colleges established “military departments” focused exclusively on veteran recruitment, measured recruiters’ performance based on how many veterans they enrolled, and provided bonuses or other incentives tied to military enrollment numbers. The systematic nature of military-focused recruitment demonstrated that it was driven by regulatory incentives rather than by any genuine comparative advantage that for-profit colleges had in serving military students.

The educational outcomes for veterans who attended for-profit colleges were particularly poor, suggesting that the aggressive recruitment was indeed predatory rather than serving veterans’ interests. Data showed that veterans attending for-profit colleges had lower graduation rates, higher student loan default rates, and worse employment outcomes than veterans who used their GI Bill benefits at public universities or community colleges. Many veterans reported that for-profit recruiters had steered them away from public universities—where their GI Bill benefits would often cover full tuition at state schools, allowing them to graduate debt-free—toward expensive for-profit programs where even with GI Bill coverage they had to take out additional federal student loans to cover costs. Veterans frequently discovered after enrolling that for-profit credits did not transfer to other institutions, that employers did not recognize or value for-profit degrees, and that they had used their one-time GI Bill benefits on programs that did not advance their careers.

The predatory nature of for-profit military recruitment was compounded by the fact that GI Bill benefits are a one-time resource that veterans earn through military service. Service members typically have 36 months of GI Bill eligibility that they can use toward education and training. Once those benefits are exhausted, they cannot be renewed—if a veteran uses GI Bill benefits at a for-profit college and then discovers the credits won’t transfer and the degree isn’t valued, the veteran has permanently lost the educational benefit earned through military service and cannot use GI Bill benefits to obtain a legitimate degree elsewhere. This one-time nature of the benefit made predatory steering of veterans toward for-profit colleges particularly harmful, as it resulted in permanent loss of a crucial veteran benefit in exchange for worthless or low-value credentials.

Multiple major for-profit college collapses revealed the extent to which institutions had relied on military recruitment to satisfy 90/10 requirements. Corinthian Colleges, ITT Technical Institute, and other failed for-profit chains had all operated substantial military recruitment operations and had derived significant portions of revenue from GI Bill and military tuition assistance. When these institutions collapsed leaving tens of thousands of students stranded with worthless credentials, veterans were disproportionately affected. The Corinthian and ITT closures prompted renewed focus on the 90/10 loophole and on the need to protect veterans from predatory recruitment, building political momentum for reform.

Congressional efforts to close the 90/10 loophole had been proposed multiple times over the years but had faced resistance from the for-profit education industry which viewed military recruitment as essential to its business model. The for-profit lobby had successfully blocked loophole closure legislation for years by arguing that counting military benefits as federal aid would reduce educational access for veterans by making schools less willing to serve military students. However, this argument was contradicted by evidence that closing the loophole would simply remove the perverse incentive to target veterans for regulatory reasons while leaving intact any genuine interest schools had in serving military students effectively. Public universities and community colleges that did not face 90/10 requirements continued to welcome and serve veterans well, demonstrating that military enrollment was not dependent on regulatory incentives for veteran targeting.

The political breakthrough came with the American Rescue Plan Act of 2021, a major COVID-19 relief and economic recovery package passed by Congress and signed by President Biden. Advocates succeeded in including 90/10 loophole closure as a provision in the American Rescue Plan, redefining GI Bill and military tuition assistance as federal revenue for purposes of the 90/10 calculation. The provision specified that starting with institutional fiscal years beginning on or after January 1, 2023, for-profit colleges would have to count all federal revenue including military education benefits toward the 90 percent federal aid cap. This meant that for-profit colleges that had been operating with 85-90 percent of revenue from Title IV aid plus 10-15 percent from military benefits—totaling 95-100 percent federal revenue—would now be out of compliance with 90/10 requirements unless they reduced Title IV dependence or attracted substantial private-pay enrollment.

The Department of Education finalized regulations implementing the statutory change in October 2022, clarifying how the new 90/10 calculation would work and establishing compliance and reporting requirements. The regulations specified that proprietary institutions must now demonstrate that at least 10 percent of revenue comes from sources other than all federal funds, including Title IV aid, GI Bill, DOD Tuition Assistance, and other federal education benefits. The regulations also strengthened reporting requirements to ensure accurate calculation of revenue sources and to prevent schools from manipulating revenue reporting to appear to comply with 90/10 when actually violating it.

For-profit colleges responded to the loophole closure in several ways. Some institutions that had been heavily dependent on military enrollment cut back on military recruitment, acknowledging that without the regulatory incentive to target veterans, military students were no more valuable than other students. Other for-profit colleges worked to reduce overall federal aid dependence by attracting more private-pay students through employer partnerships or income share agreements, or by increasing tuition charges to students who did not qualify for federal aid. Some for-profit colleges that had been operating at or near the 90/10 threshold faced the prospect of losing federal aid eligibility entirely if they could not reduce federal revenue dependence, potentially forcing closures or restructuring.

The impact of the loophole closure on reducing predatory military recruitment would take time to fully assess, but early indicators suggested that for-profit college military recruitment had declined following the rule change. Veterans’ advocates reported fewer complaints about aggressive recruiting on military bases, fewer deceptive steering tactics, and less pressure on service members to choose for-profit options over public universities. However, advocates also noted that closing the loophole was only one element of needed military education protections, and that additional reforms were needed to prevent predatory recruitment through other tactics, to improve quality standards for programs serving military students, and to create better pathways for veterans to use education benefits at high-quality public institutions.

The 90/10 loophole closure also had implications for for-profit college business models more generally. The fact that many for-profit colleges had relied on the loophole to maintain 90/10 compliance revealed that these institutions were excessively dependent on federal revenue and were not delivering educational value that private payers would choose to purchase. The need to recruit veterans for regulatory reasons rather than to serve veterans effectively demonstrated that the for-profit model was based on regulatory arbitrage rather than on educational quality. The loophole closure forced for-profit colleges to confront whether their programs delivered sufficient value to attract students who were not motivated primarily by federal aid availability, and many institutions would fail that market test.

Critics of for-profit colleges argued that the 90/10 rule itself was too permissive even with the loophole closed, noting that allowing institutions to derive 90 percent of revenue from federal aid was still an extraordinarily high level of federal dependence that created misaligned incentives. Some advocates called for strengthening the rule to require 20 or 30 percent non-federal revenue, or for applying similar revenue diversification requirements to all institutions receiving federal aid rather than only to for-profit colleges. However, the for-profit industry argued that any tightening of 90/10 would reduce access to education for low-income students who depended on federal aid, though this argument was undermined by evidence that community colleges served low-income students effectively while maintaining much higher levels of non-federal revenue through state appropriations and local funding.

The loophole closure represented a significant victory for veterans’ advocates who had documented predatory recruitment for years and had fought for reform despite for-profit industry resistance. Organizations like Veterans Education Success, Student Veterans of America, and the American Legion had provided evidence of harm to military students, had advocated in Congress for statutory reform, and had supported regulatory implementation of the loophole closure. The reform demonstrated that sustained advocacy documenting harm and building political coalitions could achieve meaningful policy change even against well-funded industry opposition, and that protecting military veterans from exploitation could motivate bipartisan support even in a polarized political environment.

For the thousands of veterans who had already been harmed by predatory for-profit recruitment before the loophole closure—who had used GI Bill benefits at for-profit colleges that delivered poor education, who had credits that wouldn’t transfer forcing them to start over at public universities, who had taken on additional student debt beyond GI Bill coverage, who had lost the one-time benefit earned through military service—the loophole closure came too late. Many of these veterans would eventually receive loan forgiveness through borrower defense or through programs like the Corinthian and ITT debt cancellation, but the years of financial hardship and the permanent loss of GI Bill benefits could not be remediated. The loophole closure was a crucial reform to prevent future harm but could not undo the damage that regulatory failure had allowed over decades.

The 90/10 loophole closure illustrated how poorly designed regulations can create perverse incentives that harm vulnerable populations. The original intent of excluding military benefits from 90/10 calculations may have been to avoid disincentivizing service to military students, but the actual effect was to create incentives for predatory targeting of veterans. The reform demonstrated the importance of considering how regulated entities will respond to regulatory incentives and of closing loopholes that create opportunities for regulatory arbitrage rather than creating incentives for quality and student service. The loophole closure was an example of regulatory learning and improvement, correcting a flaw that experience had shown was harmful.

The reform also demonstrated the political power of military veterans as a constituency. While for-profit colleges had successfully lobbied to block many regulatory reforms by claiming they would reduce access to education for disadvantaged students, the industry could not similarly block reforms framed as protecting military veterans from predatory practices. The military and veterans’ constituency commanded bipartisan respect that made predatory military recruitment politically indefensible, creating political space for reform that might not have been achievable if framed solely as protecting low-income students generally. This dynamic suggested that protecting veterans could serve as an entering wedge for broader for-profit college accountability reforms, with protections initially developed for military students potentially extended to all students in subsequent policy iterations.

The 90/10 loophole closure stands as an important but partial reform in for-profit college regulation. The reform eliminated one of the most egregious incentives for predatory behavior and provided important protection for military veterans whose service-earned educational benefits deserved to be used at quality institutions rather than exploited by for-profit colleges seeking regulatory arbitrage. However, the reform did not address the fundamental problems with the for-profit college business model, did not prevent predatory recruitment of non-military students, and did not create comprehensive accountability for educational quality and student outcomes. The loophole closure was a necessary step toward protecting students and taxpayers from for-profit fraud, but additional reforms including stronger outcome accountability, restrictions on predatory recruitment, enhanced borrower protections, and better oversight mechanisms remain necessary to prevent the systematic exploitation that has characterized for-profit higher education for decades.