85/15 Rule Calculations, Waiver Criteria, and Reports

<RULE> DEPARTMENT OF VETERANS AFFAIRS <CFR>38 CFR Part 21</CFR> <RIN>RIN 2900-AR56</RIN> <SUBJECT>85/15 Rule Calculations, Waiver Criteria, and Reports</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Department of Veterans Affairs. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Department of Veterans Affairs (VA) is amending its educational assistance regulations by eliminating the four 85/15 rule calculation exemptions for students in receipt of certain types of institutional aid. Currently, VA regulations provide exceptions that allow certain categories of students to be considered “non-supported” for purposes of the 85/15 rule notwithstanding their receipt of institutional aid. In this final rule, VA is eliminating these exceptions, thus clarifying the types of scholarships that educational institutions must include in their calculations of “supported” students. Also, VA is revising the criteria that shall be considered by the Director of Education Service when granting an 85/15 rule compliance waiver. Lastly, VA is amending the timeline for certain educational institutions' submission of 85/15 compliance reports. </SUM> <DATES> <HD SOURCE="HED">DATES:</HD> This rule is effective February 15, 2024. The provisions of this final rule shall apply to all terms that begin on or after January 16, 2025, to include all 85/15 waivers pending before VA on that date. </DATES> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Thomas Alphonso, Assistant Director, Policy and Procedures Education Service, Department of Veterans Affairs, 810 Vermont Avenue NW, Washington, DC 20420, (202) 461-9800. (This is not a toll-free number.) </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> The 85/15 rule (38 U.S.C. 3680A(d); 38 CFR 21.4201(a)) prohibits the Department of Veterans Affairs (VA) from paying educational assistance benefits to any new students once “more than 85 percent of the students enrolled in the [program of education] are having all or part of their tuition, fees, or other charges paid to or for them by the educational institution or by the Department of Veterans Affairs.” 38 U.S.C. 3680A(d)(1). “Institutional aid” refers to the financial assistance that is provided by the educational institution to the student that includes any scholarship, aid, waiver, or assistance, <E T="03">but does not include loans and funds provided under section 401(b) of the Higher Education Act of 1965</E> or financial assistance from a third-party. “VA aid” refers to financial benefits paid under Chapters 30, 31, 33, 35 and 36 of Title 38 and Chapter 1606 of Title 10. VA refers to students who receive such institutional or VA aid as “supported students.” Conversely, no less than 15 percent of the students enrolled in the program must be attending without having any of their tuition, fees, or other charges paid to or for them by the educational institution or VA (referred to as “non-supported students”). The 85/15 rule is a market validation tool designed to prevent schools from inflating tuition charges for VA education beneficiaries. The rule functions by requiring a school to enroll no less than 15 percent of its students paying the full tuition charge without institutional or VA aid. If a school fails to enroll enough non-supported students, the cost of the program is presumed to be out of step with the competitive market and thus too expensive for VA to continue to support due to the burden on taxpayers. Currently, in accordance with 38 CFR 21.4201, educational institutions are required to track the percentage of supported and non-supported students enrolled in each of their approved programs and to confirm their compliance with the required 85/15 percent ratio (38 CFR 21.4201(e)-(f)). During the time that the ratio of supported to non-supported students exceeds 85 percent, no new students can be certified to receive VA education benefits for that program (38 CFR 21.4201(g)(2)). “New students” include students returning after a break in enrollment unless the break is wholly due to circumstances beyond the student's control (38 CFR 21.4201(g)(6)). The 85/15 rule does allow VA to continue to pay benefits for students already enrolled in the program and receiving benefits prior to the ratio of supported students exceeding 85 percent of the total population enrolled in the program (38 CFR 21.4201(g)(2)). Further, although students receiving Veteran Readiness and Employment (38 U.S.C. chapter 31) or Survivors' and Dependents' Educational Assistance (38 U.S.C. chapter 35) benefits must be counted as supported students when calculating 85/15 rule compliance, VA notes that the rule does not prohibit the enrollment of new chapter 31 and chapter 35 students while the 85 percent ratio is exceeded. The rules regarding reporting requirements and how individual students must be assessed based on their program of education and campus location are detailed in 38 CFR 21.4201. Specifically, paragraph (e) details the rules regarding how to compute the 85/15 percent ratio, and paragraph (e)(2) provides special rules by which some students, even though they are in receipt of institutional aid, are nonetheless counted as “non-supported students.” VA is amending 38 CFR 21.4201(e)(2) to define “non-supported students” and “supported students” and remove paragraphs (e)(2)(i) through (e)(2)(iv), which diminish the effectiveness of the market validation mechanism of the rule. Although 38 U.S.C. 3680A(d)(1) explicitly states that the 85 percent side of the ratio ( <E T="03">i.e.,</E> the supported student count) should include all students “having all or part of their tuition, fees, or other charges paid to or for them by the educational institution or by the Department of Veterans Affairs,” current VA regulations at 38 CFR 21.4201(e)(2) create tension with this essential goal of the 85/15 rule by providing four categories of students who are considered “non-supported” students notwithstanding their receipt of institutional aid. Currently, the four categories of such “non-supported” students are as follows: (1) non-Veteran students not in receipt of institutional aid; (2) all graduate students receiving institutional aid; (3) students in receipt of any Federal aid (other than VA benefits); and (4) undergraduate and non-college degree students receiving any assistance provided by the educational institution, if the institutional policy for granting this aid is the same for Veterans and non-Veterans alike. VA is removing all four categories. Removal of the first and third categories will have no impact because these students are already considered “non-supported,” as they are not receiving institutional or VA aid. Regarding whether Federal aid (other than VA benefits), such as student loans and grants, is considered “institutional aid,” VA has never considered it to be institutional aid and will continue to not consider it institutional aid. Through this final rule (as further detailed below in the section titled REMOVAL OF INSTITUTIONAL AID EXEMPTION), VA is adding a regulatory definition that clarifies why it is not appropriate to classify Federal, state, or municipal grant funding as “institutional aid.” Therefore, recipients of these funds are to be counted as “non-supported,” barring receipt of other prohibited funding. Consequently, the removal of these “exclusions,” which are not included to begin with, amounts to a clarification of current practice since their numbers would remain on the 15 percent side of the ratio calculation. The practical impact is in the removal of the second and fourth categories, which provide that students can be in receipt of institutional aid and still be considered non-supported. These two categories (and particularly the fourth category) have created loopholes that educational institutions have exploited since the inception of the Post-9/11 GI Bill (PGIB). The problem stems from the fact that the PGIB pays up to the full amount of tuition and fees directly to educational institutions. This is unlike prior VA educational benefits implemented since 1952, from the Korean War GI Bill through the Montgomery GI Bill, for which VA pays a one-size-fits-all stipend amount directly to the beneficiary, and the beneficiary then pays tuition, fees, or other approved education-related expenses to the school using the stipend and/or other means. Under the prior model, if the tuition and fees exceed the stipend amount, then the beneficiary incurs out-of-pocket costs. By the same token, if the tuition and fees are less than the stipend amount, then the beneficiary may apply the funds towards other education costs. When beneficiary payments are structured this way, there is no incentive for an educational institution to inflate costs, as such a tactic might drive VA beneficiaries away in a competitive free market. Conversely, since under the PGIB, VA pays the net charges for tuition and fees (subject to benefit level and statutory caps for certain types of educational institutions) directly to the educational institution, the same competitive market forces do not apply. Consequently, the only students who can serve to validate the cost effectiveness of the program are those non-supported students who are counted on the 15 percent side of the 85/15 rule. However, given that the provisions in sections 21.4201(e)(2)(ii) and (iv) stipulate that certain scholarship recipients are to be considered “non-supported,” a school can meet its 15 percent non-supported requirement while providing scholarships to some number of students so long as the students are graduate level, or the terms of the scholarship are such that Veterans and non-Veterans alike may qualify. These students are likewise not motivated by competitive free market forces because their actual charges for tuition and fees are reduced. Because these students are ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 72k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━