• September 18, 2014

90/10 Rule: a'Catch-22' for Corinthian Colleges

To the Editor:

Americans must obey the law, even when conflicting laws create a perverse, no-win, "Catch-22" that could prevent low-income students from attending college.

So we at Corinthian Colleges were surprised when our straightforward effort to abide by contradictory federal statutes was derided as cynical and inappropriate ("Colleges Scramble to Avoid Violating Federal-Aid Limit," The Chronicle, April 2).

Your article focused on the "90/10 rule," which requires for-profit colleges to receive at least 10 percent of their revenue from nonfederal sources to be eligible to receive federal Title IV financial aid. Over the past three years, in response to the rising cost of postsecondary education and the severe recession, the government increased student aid by more than 40 percent. This means low-income students are entitled to as much as $15,000 in grants and loans during their first year of study.

At Corinthian we offer a number of diploma programs in health care and other fields that can be completed in a year or less. Until earlier this year, many of those programs had a total cost of about $15,000, which meant that federal grants and loans could cover nearly 100 percent of their cost. We very reluctantly raised tuition because we had no other feasible way to comply with the 90/10 rule.

A few perennial critics of our sector wrongly characterize this change as an attempt to increase borrowing from Corinthian's proprietary loan program. This allegation ignores a mountain of evidence to the contrary.

Corinthian launched its Genesis loan program as an emergency response to the credit crisis of 2008, when banks and commercial lenders abruptly cut off low-income students. Many students had no money, nowhere to turn, and no chance of attending college unless we stepped in. Congress—then controlled by a Democratic majority—passed legislation that helped colleges offer these in-house loans without running afoul of the 90/10 rule.

The Genesis program is not and never was intended to be a profit center. We lend modest sums—the current average is $2,800—at the same low interest rate as federal Stafford loans. We will end our loan program as soon as economic conditions allow commercial lenders to resume serving low-income students. And as we have said repeatedly, we will happily lower tuition if the 90/10 rule is changed.

Independent analysts such as Trace Urdan, of Signal Hill Capital, have noted that "Corinthian has a 90/10 issue because its tuition is low," and that in practice the 90/10 rule pushes the cost of college up. And even though proponents of the 90/10 rule have suggested vaguely that it somehow reflects educational quality, there is absolutely no evidence that it does.

The Chronicle is right to highlight the nonsensical state of federal law, which with one hand offers students financial aid and with the other prevents them from using it. Congress can end this paradox and lower the cost of higher education simply by changing the 90/10 rule. But until it does, Corinthian cannot pick and choose which laws we obey. Criticizing us for complying with bad law profoundly misses the point.

Jack Massimino
Chairman and Chief Executive Officer
Corinthian Colleges Inc.

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