In recent months federal regulators and government agencies have increased scrutiny of for-profit colleges and their interactions with servicemembers, veterans and their families. Today, lawmakers furthered that mission by introducing legislation that would restore previous limits on how much money these educational institutions can receive from the federal government via military benefits and other programs. 

The Protecting Our Students and Taxpayers (POST) Act aims to put an end to the for-profit industry’s allegedly predatory marketing campaigns and aggressive recruitment of military members and their families by closing loopholes in federal funding equations.

The bill, introduced by Senators Dick Durbin, of Illinois, Jack Reed, of Rhode Island, Richard Blumenthal, of Connecticut, and Elizabeth Warren, of Massachusetts, would prohibit for-profit colleges and universities from receiving more than 85% of their revenue from the federal government and change the calculation of federal revenue to include all federal funds.

“Too many servicemembers and veterans have been targeted by predatory for-profit colleges, and our men and women in uniform deserve better,” Warren said in a statement. “The POST Act will tighten the rules and help protect veterans by closing the loophole that permits for-profit schools to prey on our servicemembers.”

The current federal provision – known as the 90/10 rule and used to cap for-profit colleges’ federal funding – bars for-profit colleges and universities from deriving more than 90% of their revenue from the U.S. Department of Education’s federal student aid programs. The other 10% needs to come from sources other than the federal government.

Currently, tuition assistance such as the GI Bill for servicemembers and MyCAA for their spouses are not included in the 90/10 calculation. That essentially allows for-profit colleges to count federal funds for 100% of their funding, legislators say.

The POST Act would restore the federal funding rule to 85/15, which was changed to the present 90/10 division in 1998.

The bill would also change the definition of what counts as federal revenue so that it includes all federal funds, essentially eliminating the incentive for for-profit schools to aggressively recruit servicemembers and veterans.

“Reinstating the 85/15 rule will help hold for-profit colleges accountable and prevent them from preying on veterans and servicemembers,” Reed said in a statement. “Too much federal funding has poured into these for profit-college companies without adequate results for veterans or taxpayers. We need to ensure veterans and taxpayers alike are getting better value for their investment and we can start by closing the 90/10 loophole.”

In addition to closing the funding loopholes legislators say for-profit colleges exploit, the POST Act would hold institutions accountable if they don’t abide by the proposed 85/15 division.

Under the legislation, for-profit colleges would lose eligibility to participate in federal student aid programs after one year of noncompliance with the new rule. Current law requires the schools to be noncompliant for two years before losing eligibility.

It would also prohibit schools from issuing their own private student loans to borrowers and counting those fund toward outside revenue.

Legislators and regulators have recently taken a tougher stance when it comes to for-profit colleges and veterans and servicemembers.

In October, the Department of Defense put University of Phoenix on probation, meaning the school is barred from recruiting on U.S. military installations, and its participation in the DoD Tuition Assistance Program for active duty military personnel is on hold.

According to an earlier report from Reveal, the University of Phoenix received $20 million in military tuition assistance from the Pentagon last year and $1.2 billion in GI Bill benefits since 2009.

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.