Understanding the 90/10 Rule
The 90/10 rule is a regulation set forth by the Department of Education (DOE) in 34 CFR § 668.28 for proprietary (for-profit) post-secondary institutions. The regulation requires that at least 10 percent of proprietary institutions revenue comes from non-federally funded sources. In simple terms the ratio is calculated by dividing all federal education assistance funds by total allowable revenue for the fiscal year. However, this must be calculated on a cash basis and there are several nuances that make calculating this ratio more complex than it sounds.
The calculation used to be based on just Title IV funds as opposed to all federal funds. This was a change that took effect for fiscal years beginning on or after January 1, 2023. Now that the numerator includes all federal education assistance funds, Title IV is just one of many potential funding sources that must be included in the numerator. The federal agencies impacting this new calculation the most is the Department of Veterans Affairs and the Department of Defense.
The DOE published a Federal Register that lists federal education assistance programs that must be included in federal funds, which currently includes 80 programs in addition to Title IV. However, this list is not conclusive and the DOE has stated that they will publish updates this list as needed. If the institution is aware of any federal educational assistance funds that are not on this list, they are still responsible for properly accounting for those funds in the 90/10 calculation.
The CFR describes the amounts that should be included in the 90/10 calculation as “Revenue generated from programs and activities” which is primarily comprised of tuition, fees, and other institutional charges from Title IV eligible programs. The institution can include revenue from programs that are not Title IV eligible if the program meets one of the following parameters:
- Is licensed or approved by the state
- Is accredited under 34 CFR part 602
- Provides an industry recognized credential or certification
- Provides training necessary to maintain state licensing
- Provides training needed to meet additional licensing requirements for specialized training in that field
If the program qualifies for one of the above parameters than it must also meet all of the following additional criteria to be included:
- Does not include any courses offered in a Title IV eligible program • Must be taught by an employee of the institution (further clarified by 90/10 Q&A not to include independent contractors)
- Must be taught at one of its approved additional locations, another school facility approved by the appropriate State agency or accrediting agency, or at an employer facility
- Must not be simply providing facilities for test preparation courses, acting as a proctor, or overseeing a course of study.
There is another means of revenue that can be included in the calculation which is for activities that are necessary for the education and training of its students given those activities meet all of the following requirements:
- Conducted on campus or at a facility under the institution’s control
- Performed under the supervision of a member of the institution’s faculty
- Required to be performed by all students in a specific educational program at the institution
- Related directly to services performed by students
This is a high-level understanding of what the 90/10 requirement is calculating and what amounts should be included in this calculation. Reach out today for a more in-depth conversation on the regulation to understand how to apply presumption, what to do with comingled federal and state funds, how to properly disclose the 90/10 in the financial statement report, how to present the 90/10 for the department’s eZ-Audit submission, sanctions for non-compliance, and more.
Article by: Colton Williamson, CPA