Classification of Revenue Under Title IV

<RULE> DEPARTMENT OF EDUCATION <CFR>34 CFR Part 668</CFR> <SUBJECT>Classification of Revenue Under Title IV</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Office of the Secretary, Department of Education. <HD SOURCE="HED">ACTION:</HD> Interpretive rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The U.S. Department of Education (Department) is revising its prior interpretation and clarifying its classification of revenue received by a proprietary institution of higher education under the Title IV Revenue and Non-Federal Education Assistance Funds regulations called the “90/10 Rule”. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> July 7, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Andrea Drew, Office of Postsecondary Education, U.S. Department of Education, 400 Maryland Avenue SW, Washington, DC 20202. Email: <E T="03">andrea.drew@ed.gov.</E> If you use a telecommunications device for the deaf (TDD) or a text telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-800-877-8339. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> Section 487(a)(24) of the HEA establishes the requirement in the Federal Student Aid Program Participation Agreement that proprietary institutions derive not less than 10 percent of their revenue from non-federal sources. Among other things, Section 487(d) of the HEA defines how proprietary institutions calculate the percentage of their revenue that is derived from non-federal sources and outlines sanctions for proprietary institutions that fail to meet the requirement in Section 487(a). On March 11, 2021, the ARP was signed into law. Section 2013 of the ARP amended the scope of the revenue requirements under Section 487(a) of the HEA. Prior to the enactment of the ARP, as a condition for participation in the Title IV, HEA programs, institutions had to derive not less than 10 percent of their revenue from sources other than the federal student assistance programs authorized under Title IV of the HEA. The ARP amended that provision by requiring proprietary institutions to derive not less than 10 percent of their revenue from non-federal education sources. On October 28, 2022, the Department published a final rule to amend the Department's regulations relating to the 90/10 Rule under (34 CFR 668.28). The final rule amended several parts of the 90/10 Rule to implement the ARP, among other things. In addition to specific amendments to the regulatory text, the Department also announced in the preamble that it was restricting the ability of institutions to include non-federal revenue received for educational programs that are ineligible for HEA Title IV funding from programs offered through distance education or at unapproved locations. In relevant part and in response to a public comment, the Department stated it appreciated “the commenter's support for allowing institutions to include revenue from an ineligible program offered at an employer facility” though it disagreed “with commenters that we should allow proprietary institutions to count funds generated from programs offered at other unapproved locations or through distance education as non-Federal revenue in their 90/10 calculations.” The Department worked with the Committee to develop the language regarding the location of ineligible programs and believes that the regulations strike a balance between providing necessary consumer protections guardrails for purposes of 90/10, while allowing proprietary institutions to incorporate revenue from non-Title IV programs of value to students at other approved locations that provide Title IV programs and from their main campus. The Department also noted that “guardrails negotiated by the Committee require proprietary institutions to exclude revenue generated from ineligible programs offered through distance education. Restricting program revenues for 90/10 to sources from approved locations will better provide a nexus for those ineligible programs to be offered by the institution's instructors.” Doing so “also ensure[s] that the programs are offered from locations that have authorization from an institution's accrediting agency and from the states in which they are located.” The Department believed “limiting these ineligible programs from distance education or from unapproved locations will also permit greater oversight of the reported revenues by the Department.” It found that “after weighing the potential benefits and risks, the Department has determined that the risk of abuse outweighs the potential benefits.” Therefore, the Department declined “to allow institutions to include revenue generated from these ineligible programs in their 90/10 calculations. We further note that these regulations only govern revenue generated from ineligible programs that an institution counts in its 90/10 calculation and does not exclude a proprietary institution's ability to offer these programs.”87 FR 65450. But the Department did not include amendments in the final rule to the actual regulatory text or the accompanying Appendix to incorporate the assertions contained within the preamble text cited above. The Department simply refers to “location” in 34 CFR 668.28(a)(3)(iii) but does not specify the modality of instruction. When calculating revenue for the purposes of eligible programs under the 90/10 Rule, the regulation makes no distinction between distance education and in-person instruction. As a result, if the Department intended to break new ground in the regulation by creating a new distinction for ineligible programs (despite there being no distinction for ineligible program under Section 487(a)(24) of the HEA), one would expect it to do so on clear terms. But the Department did not make any substantive changes to the 90/10 Rule explicitly relating to modality in the final rule itself; nor did it make any changes between its proposal in the Notice of Proposed Rulemaking and the final rule. <HD SOURCE="HD1">II. The Preamble Cannot Be Used To Add Substantive Duties That the Regulations Do Not Contain</HD> The Administrative Procedure Act (APA) enables agencies to publish interpretive rules outside the informal notice-and-comment rulemaking process. 5 U.S.C. 553(b)(A), (d)(2). Unlike legislative rules, “interpretive rules do not have the force and effect of law and are not accorded that weight in the adjudicatory process.” <E T="03">Perez</E> v. <E T="03">Mortg. Bankers Ass'n,</E> 575 U.S. 92, 97, 135 S. Ct. 1199, 1204 (2015)(internal citations omitted). Interpretive rules are “issued by an agency to advise the public of the agency's construction of the statutes and rules which it administers.” <E T="03">Shalala</E> v. <E T="03">Guernsey Memorial Hospital,</E> 514 U.S. 87, 99 (1995). 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. <E T="03">See Wilgar Land Co.,</E> 85 F.4th at 837 (holding that a preamble that responds to comments as part of a final rule is an interpretive rule); <E T="03">Fertilizer Inst.</E> v. <E T="03">EPA,</E> 935 F.2d 1303, 1308 (D.C. Cir. 1991) (concluding that the preamble was an interpretive, not legislative, rule). In other words, agencies “cannot use preambles to add substantive duties that the regulations themselves do not contain.” <E T="03">Wilgar Land Co.,</E> 85 F.4th at 837. <E T="03">Id.</E> “The critical distinction between legislative and interpretative rules is that, whereas interpretive rules simply state what the administrative agency thinks the statute means, and only remind affected parties of existing duties, a legislative rule imposes new rights or duties.” <E T="03">Iowa League of Cities</E> v. <E T="03">EPA,</E> 711 F.3d 844, 873 (8th Cir. 2013) (cleaned up). In determining whether a rule is legislative or interpretive, courts consider whether the agency intended to speak with the force of law. <E T="03">See Guedes</E> v. <E T="03">Bureau of Alcohol, Tobacco, Firearms & Explosives,</E> 920 F.3d 1, 18 (D.C. Cir. 2019) (citing <E T="03">Encino Motorcars, LLC</E> v. <E T="03">Navarro,</E> 136 S. Ct. 2117, 2122, (2016)). In other words, if the agency used language that conveys that its pronouncements must be followed, the rule is legislative; by contrast, interpretive rules use permissive language that does not purport to bind private actions. <E T="03">Id.</E> Here, the Department's discussion in the preamble text uses language that purports to bind private action in calculating the revenue percentages under the 90/10 Rule. Indeed, the Department wrote, “we decline to allow institutions to include revenue generated from these ineligible programs in their 90/10 calculations.” The phrase “we decline to allow” is another way of saying “we prohibit.” Prohibitions are mandatory, not permissive. Therefore, the preamble most resembles a legislative rule because it claims to categorically prohibit certain types of private conduct, namely prohibiting institutions from including revenue generated from certain ineligible programs in their 90/10 calculations. As discussed above, legislative rules must go through notice-and-comment rulemaking and cannot be included in the preamble text to a final rule. Yet here, the Department did not include any changes to the regulatory text to incorporate the preamble text quoted herein. Of note, the Department's regulations include eight separate categories of types of revenue that are excluded from revenue calculation for the purpose of calculating the 90/10 Rule. 34 CFR 668.28(a)(6)(i)-(viii). The Department could have added additional categories of excluded revenue to 34 CFR 668.28(a)(6), but it declined to do so. Thus, because the Department did not make the changes to the actual regulatory text, the prea ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 20k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━