ED Revises Prior Interpretation of Classification of Revenue Under 90/10 Rule
By NASFAA Policy & Federal Relations Staff
The Department of Education (ED) announced in a July 7 Federal Register that it is revising its prior interpretation regarding the classification of revenue received by a proprietary institution under the “90/10 rule.”
Background
Prior to the 2023-24 award year, to participate in Title IV federal student aid programs, a proprietary institution of higher education must have derived at least 10% of its revenues from sources other than the Title IV aid programs for each fiscal year.
The American Rescue Plan (ARP) Act of 2021 amended Section 487 of the Higher Education Act of 1965 (HEA) and changed how proprietary institutions calculate the percentage of their revenue from nonfederal sources. Under the ARP, the 90/10 rule requires proprietary institutions to include other sources of federal revenue, in addition to Title IV revenue, in the 90% calculation. As a result of these changes, the department published a final rule on October 28, 2022, to amend the regulations relating to the 90/10 rule.
As is standard, the final rule was published in the Federal Register along with its preamble. The preamble is an introductory section that appears before the actual regulatory text. It typically provides a summary of the rule, as well as background information and context, including the relevant statutory authority, such as the HEA. The preamble also provides discussion and responses to public comments, as part of the notice-and-comment rulemaking process. The preamble also states if any changes are made to the rule, as a result of those public comments.
Prior Interpretation
In one discussion of public comments in the October 28, 2022 Federal Register’s preamble, the department stated it was restricting the ability of institutions to include non-federal revenue received for non-Title IV eligible programs offered through distance education or at unapproved locations. In this discussion, ED wrote, “we decline to allow institutions to include revenue generated from these ineligible programs in their 90/10 calculations.” In the July 7 Federal Register, the department says that 34 CFR 668.28(a)(3)(iii) does not specify the modality of instruction, such as distance education versus in-person instruction, but instead only refers to “location.” So, while the preamble states there is a restriction on including non-federal revenue from ineligible programs offered through distance education or at unapproved locations, this was not included in the actual regulatory text. Additionally, in response to this public comment in the preamble, the department indicated no changes were made to the rule.
Revised Interpretation
The announcement of revised interpretation says, “A legal interpretation articulated in the preamble to a final rule has not gone through notice and comment rulemaking and so cannot legally have a binding effect.” As such, because ED did not change the regulatory text, the legal interpretation in the preamble text “is non-binding and does not have the force of law.”
The department goes on to say the preamble was “procedurally deficient” under the Administrative Procedure Act (APA) – which allows agencies to publish interpretive rules outside the notice-and-comment rulemaking process – and even if the department had properly created a distinction for these ineligible programs in the regulatory text of 90/10 rule, this would have been unlawful.
Section 487(d)(1) of the HEA is cited as the statutory reference for what revenue is to be included in the institution's calculation of “federal funds” and what sources of funds may be counted as non-federal funds. Specifically, 487(d)(1)(B)(iii) pertains to the inclusion of revenue from ineligible programs. The department states, “Congress's careful construction of subsection (iii) is authoritative. Unlike the interpretation in the preamble, nothing contained within the clause directs the Secretary to consider the modality of educational delivery, such as distance education.” Subsection (iii) also does not reference the “unapproved locations,” that are mentioned in the preamble.
Based on this, the department’s revised interpretation is that location is not relevant for the purposes of calculating revenue under the 90/10 rule, and institutions may include revenue from ineligible programs offered through distance education or at unapproved locations. As stated in the July 7 Federal Register, interpretive rules do not have effective dates, so ED says institutions may revise their revenue calculations for fiscal years that have already concluded.
Publication Date: 7/10/2025
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