(a) When a for-profit business obtains more than 85 percent of its revenue from recruiting taxpayer-funded beneficiaries, the business is, in effect, a vendor of educational services for the government and taxpayers should expect, and the government should ensure, that the business obtains only the funding that is reasonably required to achieve the purposes of the program.
(b) In 2018 the federal Department of Veterans Affairs Inspector General reported that the federal Veterans Administration will pay an estimated $2.3 billion in taxpayer-funded GI Bill student aid over the next five years on improper payments to ineligible educational institutions, including institutions with deceptive advertising and recruiting, prohibited under federal law.
(c) In 1992, Congress capped the amount of taxpayer financial aid collected that a for-profit institution could receive at 85 percent of an institution’s revenues, later increased to 90 percent. This reform was intended to ensure that the prices charged to recipients of government aid were not inflated solely to match the size of the financial aid benefit, leaving less aid for students’ other expenses. The reform was also intended to ensure that prices charged to government aid recipients were based in part on
the prices being charged in the competitive market to students not using government aid.
(d) Analysts, including the Federal Reserve Bank of New York, have found that tuition at for-profit educational institutions rises at a rate far higher than tuition rises at public or nonprofit colleges when federal aid expands, confirming the need to ensure that prices at for-profit institutions are not based solely on the amount of the government aid received by a student.
(e) A loophole in federal law provides that GI Bill benefits are not what they indisputably are, namely, government benefits. Under the loophole, an institution is permitted to count GI Bill benefits as if the veteran was paying out of their own pocket. This loophole undermines the very purpose of the cap as a check on the fairness of the tuition price.
(f) With this loophole, the institutions that most aggressively recruit veterans are those of low quality that are unable to attract even a modest amount of employer, or other private, support. As the United States Senate Committee on Veterans’ Affairs stated in adopting a similar rule for GI Bill funds in 1976, “if an institution of higher learning cannot attract sufficient nonveteran and nonsubsidized students to its programs, it presents a great potential for abuse.” Veterans deserve our utmost protection in honor of their service.
(g) For these reasons, state law must end the excessive incentive to enroll veterans in overpriced programs that exploit a loophole. To prevent price gouging, the state must impose reforms that ensure that institutions that enroll veterans charge what consumers who are paying with private funds would be willing to pay.