Letter to Regulators: Comment in Response to ED Notice of Proposed Rulemaking on Prison Education Programs, 90/10 and Change of Ownership

View or download a PDF of the letter here.

August 26, 2022  

Nasser Paydar, Ph.D.
Assistant Secretary for Postsecondary Education
United States Department of Education
400 Maryland Avenue, SW
Room 2C179
Washington, DC 20202  

Dear Dr. Paydar:  

Thank you for the opportunity to provide comments on the Notice of Proposed Rulemaking issued July  28, 2022 (Docket ID ED-2021-OPE-0062). We represent a broad coalition of organizations working on  behalf of students, veterans, faculty and staff, civil rights advocates, researchers, and other stakeholders  concerned about institutions receiving Title IV funds that rely on deceptive and fraudulent tactics to lure  students into programs that provide little or no value.  

Below, we provide further backing for strong measures to protect students and taxpayers’ investment in  federal financial aid programs. We also provide recommendations on improvements to the proposed  regulations. By incorporating these recommendations, the Department can add further assurance to  students and taxpayers that their investments in higher education will be to their benefit, as well as to  the benefit of our broader citizenry and economy.  

Prison Education Programs. Prior to passage of the 1994 Crime Bill that stripped people who were  incarcerated of Pell Grant eligibility, approximately 772 prison education programs operated across  1,287 correctional facilities nationwide. By 1997, fewer than ten prison education programs remained in  operation. The change in federal law restoring Pell Grant eligibility for students who are incarcerated  represents a milestone advance in equitable access and affordability; we welcome this change and look  forward to the expected growth in prison education programs. 

Congress wisely excluded for-profit colleges from eligible providers. Far too often, institutions in this  sector have misled students about their program offerings, defrauded students and federal financial aid  programs, and left taxpayers with bills and students with credentials of little or no value. Excluding for profit colleges provides a safeguard for a uniquely marginalized student population.  

Although we welcome the for-profit college exclusion, we are concerned by the potential for institutions  from other sectors to move quickly into the prison education space without sufficient attention to the  needs of students who are incarcerated or the environments in which they learn. To ensure students  who are incarcerated have not just access to higher education through federal aid, but equitable  learning experiences in high-quality programs, we offer this set of recommendations:  

 Prevent institutions and oversight entities from adding student eligibility restrictions. Research  shows beneficial effects both for students and communities that go beyond reduced recidivism rates. Accordingly, Congress did not place restrictions on Pell eligibility associated with  sentences, parole eligibility, or types of crimes. The Department should give guidance to  correctional entities and institutions not to place such restrictions on program access.  

 Develop an appeals process for oversight entity decisions. Without a process for institutions to  appeal Bureau of Prisons/corrections department decisions, oversight entities may unfairly  reject programs; institutions of higher education would have no other recourse than to reapply.  The Department should keep the ability to reapply in the final rule, as well.  

 Require institutions to disclose third-party vendors. Potentially predatory online program  management companies may stand to profit from incarcerated students’ Pell Grant funding. As  part of any program approval process, the Department should require institutions to disclose to  accreditors, oversight entities, the Department, and students the use of any third-party vendors  involved in the development, management, maintenance, and provision of programs—as well as  involvement in marketing, recruitment, and enrollment management of programs.  

 Remove institutions’ ability to deny admission to formerly incarcerated applicants. The  Department should not give permission to institutions to deny admission to applicants based on  criminal history. When determining best interest, oversight entities should be concerned about  any college that would enroll a person in a prison education program, but not enroll them on  the college’s campus. The Department should delete the “barring exceptional circumstances  surrounding the student’s conviction” provision and language from §668.241.  

We add two notes for consideration by oversight entities of students’ best interest. First, we encourage  the Department to keep recidivism rates as optional metrics for such determinations, as allowed by  statute. Requiring this metric for consideration could unduly limit opportunities for students currently  incarcerated. Second, we support language encouraging maximum transferability of academic credits for  students participating in programs in federal prisons. Broad credit transferability should be considered  as a positive factor when evaluating whether a program is acting in the best interests of students.  

For additional technical improvements to the proposed regulations, we refer you to a letter submitted  by Dr. Bradley Custer on behalf of the Center for American Progress.  

Closing 90/10 Loophole. Since its original enactment as part of the 1992 reauthorization of the Higher  Education Act, the 90/10 Rule has required for-profit institutions to receive at least 10 percent of their  tuition revenue from sources other than student financial assistance programs. Because the rule did not  apply to funds from federal agencies other than the Education Department, it inadvertently created a  loophole for unscrupulous schools to target veterans and military-connected students. Every dollar of  their GI Bill and Tuition Assistance benefits enabled such schools to collect nine dollars in Title IV funds.  The negotiated rulemaking committee heard from multiple veterans about the effects of the high pressure sales tactics and the misrepresentation some schools used to recruit veterans and circumvent  the intent of the rule.  

After more than a decade of advocacy by veterans service organizations, Congress finally closed the  90/10 loophole last year and instructed the Department to develop enabling regulations. We welcome the consensus reached by members of the negotiated rulemaking committee on proposed 90/10  regulations to fulfill Congress’ directive. We are pleased to support the proposed rule, and we urge the  Department to vigilantly monitor institutional compliance to ensure schools do not create ways to game  the new rule.  

We believe the proposed regulation includes important safeguards against potential abuses. These  provisions include:  

 Counting all federal funds used to pay tuition, fees, and other institutional charges—whether  received directly from a federal agency or indirectly from students—as mandatory;   Preventing institutional circumvention of the rule through timing of cash drawdowns;   Excluding tuition discounts, grants, and scholarships controlled by the institution or its owners  or affiliates;  

 Guarding against the inclusion of non-programmatic income, including cash proceeds from sales  of receivables and institutional loan assets;  

 Treating properly revenues from institutional loan assets held by the school; and   Incorporating safeguards in the Department’s treatment of institutional revenues from private  financing schemes such as income-share agreements.  

We urge the Department to retain these important protections in the final regulations.  

The proposed rule allows institutional revenues from a limited subset of ineligible programs— specifically, programs offered in-person and on the premises of an employer—to count toward the 10  percent component of the 90/10 ratio. It will be important for the Department to closely monitor these  programs and to ensure that this limited subset of non-Title IV programs does not ultimately serve as  the basis for more than a small share of a school’s “10 side” revenues. The purpose of the 90/10  statutory and regulatory provisions is to ensure that a school’s eligible programs can generate revenue  from non-federal sources to demonstrate that they have market validation.  

The Department will need to actively monitor institutional compliance with the rule. To do so, we urge  the Department to track and publish the component of each institution’s non-federal revenues derived  from its ineligible programs.  

Institutional Changes in Ownership. As noted by the Government Accountability Office, former owners  or their affiliates were insiders to as many as a third of the nearly 60 for-profit to nonprofit conversions  examined in the period from 2010 to 2020. Many owners or affiliates continued to play financial roles in the newly established nonprofits. We appreciate the Department’s interest in strengthening regulations  to guard against the kind of self-dealing that too often characterizes shadow conversions that serve the  financial interests of institutional leaders, but not the interests of students or taxpayers through  federally funded financial aid programs. However, we also note several concerning risks in the proposed  rules, which we note below. 

Revenue-sharing arrangements with insiders are particularly high-risk because they create incentives for  insiders to maximize profits at the expense of the nonprofit’s educational mission. In some conversions, the former owner avoids any possible controversy over asset valuation by “selling” the institution to a  nonprofit entity for negligible amounts like $1, while maintaining a profitable hold on the institution by  entering into a long-term revenue-sharing agreement with the converted nonprofit. We appreciate the  Department’s proposal, which would prohibit converted nonprofits from entering revenue-sharing  arrangements with former owners.  

We also support the proposed prohibition of arrangements in which converted institutions owe a debt  to an insider and the proposed prohibition on converted nonprofits entering other non-revenue-based  contractual arrangements with former owners. This prohibition would protect against high-risk  arrangements, such as former owners acting as landlords of converted nonprofits.  

Although we note and applaud these strengths of the proposed rule, we urge you to address several  critical areas of concern in the final rule:  

 Delete carve-outs permitting revenue-sharing and other contractual arrangements with  “affiliates” of former owners. The proposed rule appropriately establishes a general prohibition  against debt or other contractor relationships with former owners after the conversion of an  institution from for-profit to nonprofit. Exceptions to the prohibitions on revenue-sharing and  other arrangements are tantamount to a road map for corrupt transactions. Attributing an  exception to an “affiliated or related” entity creates an incentive for former owners to establish  affiliates to fit the exception. The use of a “market price” measure is particularly inappropriate,  inviting manipulation and placing a heavy burden on the Department to conduct and defend  myriad valuation analyses.  

 Reconsider the proposal to increase the ownership stake threshold for review to 50 percent,  and instead keep the existing 25 percent threshold, for limited liability companies and similar  types of legal entities. Under the current regulations, these entities experience a change in  control subject to Department review when an individual acquires control of at least 25 percent  of voting stock and control of the corporation. Raising this ceiling would weaken oversight by  limiting the range of transactions subject to Department review.  

 Raise letter of credit requirements for owners who cannot demonstrate financial responsibility.  The proposed rule provides that where a new owner lacks two years of audited financial  statements, the institution would have to provide a letter of credit of at least 10 percent of the  prior year’s Title IV funds. In cases where owners cannot produce any documentation of  financial responsibility, the proposal would require a letter of credit for 25 percent of the prior  year’s Title IV funds. Stronger protection for students and against potential institutional collapse  would come from setting these requirements at 25 or 50 percent without two years of audited  statements and at least 50 percent with no audited statements, respectively.  

We also share the concern noted in comments submitted by The Century Foundation with language in  the NPRM’s preamble indicating the Department would consider an institution to meet the definition of  a nonprofit if its agreements had been approved by the Department and “those agreements remain  largely unchanged since the latest review.” New information often reveals problematic agreements  sometime after the agreements have taken effect. The Department should regularly review all  converted institutions, given the high-risk nature of these transactions and the risk these institutions  pose to students and taxpayers. Further, the Department should state that such institutions should  expect more regular reviews as a matter of policy.


Together, these proposed regulations represent welcome steps toward strengthening student  protections and institutional accountability, in addition to significantly expanding access for a uniquely  marginalized student population. They will also advance racial and economic equity across higher  education in this country.  

We thank you for this set of proposals and for the opportunity to provide further input for consideration  in the final stage of crafting these needed rules. If you have any questions or need any clarification of  these comments, please contact Dr. Kyle Southern, Associate Vice President at The Institute for College  Access and Success, by email at ksouthern@ticas.org.  


American Federation of Teachers  

Americans for Financial Reform Education Fund  

Center for American Progress  

New America Higher Education Program  

The Education Trust  

The Institute for College Access & Success  

Third Way  


Veterans Education Success  

Young Invincibles  

Carolyn Fast, Senior Fellow, The Century Foundation  

David Halperin, Attorney