[Federal Register Volume 87, Number 196 (Wednesday, October 12, 2022)]
[Proposed Rules]
[Pages 61544-61548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22107]
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DEPARTMENT OF VETERANS AFFAIRS
38 CFR Part 21
RIN 2900-AR56
85/15 Rule Calculations, Waiver Criteria, and Reports
AGENCY: Department of Veterans Affairs.
ACTION: Proposed rule.
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SUMMARY: The Department of Veterans Affairs (VA) is proposing to amend
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. VA is proposing to eliminate these exceptions, thus
clarifying the types of scholarships that educational institutions must
include in their calculations of ``supported'' students. Also, VA is
proposing to revise the criteria that shall be considered by the
Director of Education Service when granting an 85/15 rule compliance
waiver. Lastly, VA is proposing to amend the timeline for certain
educational institutions' submission of 85/15 compliance reports.
DATES: Comments must be received on or before December 12, 2022.
ADDRESSES: Comments may be submitted through www.Regulations.gov,
Comments should indicate that they are submitted in response to ``RIN
2900-AR56(P)--Amendments to 85/15 Rule Calculations, Waiver Criteria,
and Reports. Comments received will be available at regulations.gov for
public viewing, inspection, or copies.
FOR FURTHER INFORMATION CONTACT: Cheryl Amitay, Chief, Policy and
Regulation Development Staff (225B), Chief of Policy & Regulations,
Education Service, Department of Veterans Affairs, 810 Vermont Avenue
NW, Washington, DC 20420, (202) 461-9800. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION: 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
[[Page 61545]]
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, but
does not include loans and funds provided under section 401(b) of the
Higher Education Act of 1965 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, we note 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 proposes to amend 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 (i.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 Sec. 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 proposing to remove all
four categories.
Removal of the first and third categories would have no impact
because these students are already ``non-supported,'' as they are not
receiving institutional or VA aid. Consequently, their inclusion is
non-substantive since their numbers would remain on the 15-percent side
of the ratio calculation. The practical impact would be 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
tuition and fees under the PGIB are paid directly to the educational
institution, often in an amount equal to the net charges for tuition
and fees (subject to statutory caps for certain types of educational
institutions), PGIB beneficiaries are not similarly incentivized to
bargain shop. 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 Sec. Sec. 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 to bargain shop, as their actual charges for tuition and fees
are reduced. Because these students are allowed, through Sec. Sec.
21.4201(e)(2)(ii) and (iv), to be considered ``non-supported,'' they
serve as a false-positive market validation for the tuition and fee
charges levied on VA. This undermines the operative mechanism of the
85/15 rule by allowing schools to inflate their tuition and fees since
there is no longer an effective counterweight.
The original GI Bill (for Veterans of World War II, in effect from
1944 to 1948) also paid tuition and fees directly to schools and was
fraught with abuses
[[Page 61546]]
and overcharges by schools. After investigating the abuses of the
original GI Bill, Congress, when designing the successor Korean War GI
Bill, took steps to eliminate such abuses by making payments directly
to students and by instituting the 85/15 rule. Now that PGIB once again
pays tuition and fees directly to schools and having witnessed the same
abuses seen under the original GI Bill, VA needs to restructure its
implementation of the 85/15 rule to give the rule the force it was
originally intended to have when payments are being made directly to
schools. As this presents an immediate threat to taxpayers' investment
in Veterans' education and training, VA must emphasize the fundamental
objective of the rule and strictly adhere to the requirement that
students counted on the 15 percent side of the 85/15 rule are not
``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.'' We propose to do this by removing all exceptions
listed in Sec. 21.4201(e)(2), thus ensuring that every student who
receives institutional or VA aid would be counted as a ``supported
student.''
These proposed changes would also clarify requirements for schools,
thereby making it easier for schools operating in good faith to remain
in compliance. The current various classifications of students are
difficult for the School Certifying Officials at educational
institutions to follow, which can lead to improper payments and
overpayments. Currently, when school officials have questions about
making accurate student count calculations, they must individually
reach out to their state Education Liaison Representative or VA staff
in Washington, DC. As a result, the guidance they receive may be
delayed or vary slightly depending upon the source of guidance.
Further, some schools may opt not to make this effort and just guess on
which side of the ratio certain students should be reported. All these
scenarios have resulted in unsupported calculations by schools which do
not reflect the intent of the current regulation's underlying statute.
The proposed removal of all four current exceptions to the ``non-
supported'' side of the 85/15 ratio would simplify the calculation of
the 85/15 ratio--meaning, any student receiving any funding from either
VA, or the school will be considered ``supported.'' Further, these
proposed amendments would resolve related compliance process issues by
removing ambiguity about the appropriate classification of students in
receipt of aid. In sum, these regulatory amendments would both simplify
and promote consistency in calculating and reporting 85/15 counts and
would better align the regulation with its underlying statute.
There may be instances where certain schools have a large
percentage of their students (both Veteran and non-Veteran alike) in
receipt of institutional aid, even if the amount of the aid is
insignificant. In these situations, it is unlikely that the school's
institutional aid program is a subterfuge to disguise tuition inflation
while complying with the 85/15 rule. In response to any concerns that
such schools would be unfairly placed in noncompliance with the 85/15
rule by operation of this proposed rule, VA notes that whenever an
educational institution exceeds the 85-percent limit, it may apply for
a waiver of the 85/15 rule under 38 CFR 21.4201(h). Accordingly, VA
proposes to amend Sec. 21.4201(h) to allow an education institution to
demonstrate that although its program is in violation of 85/15, its
non-VA scholarship recipients are effectively serving as market
validation, and, therefore, continued enrollment of new VA education
beneficiaries is nonetheless in the best interests of the student and
the Federal government. Consequently, the proposed elimination of Sec.
21.4201(e)(2) does not mean that all generous schools would be
eliminated from the GI Bill. It merely means that, on a case-by-case
basis, a well-intentioned generous school could be granted a waiver
while simultaneously limiting the potential for miscalculations and
misapplication of scholarship information, whether intentional or
unintentional.
Regarding the current 85/15 waiver criteria, VA further proposes to
amend the criteria found at 38 CFR 21.4201(h) by removing paragraphs
(2) and (3) while leaving paragraph (1) in place and modifying
paragraph (4). This is necessary because, while current regulations
list four criteria to be considered, only paragraphs (1) and (4) (the
availability of comparable education facilities effectively open to
Veterans in the vicinity of the school requesting a waiver; and the
general effectiveness of the school's program in providing educational
and employment opportunities to the Veteran population it serves) are
cogent indicators of a program's qualifications to obtain a waiver.
Paragraph (2) only applies to schools in receipt of a Strengthening
Institutions Program grant or a Special Needs Program grant
administered by the Department of Education. The Strengthening
Institutions Program grant is only available to accredited institutions
of higher learning. However, many GI Bill-approved institutions are
non-degree granting and thus ineligible for these programs. Therefore,
this criterion is irrelevant when considering waiver requests for such
programs. Furthermore, the ``Special Needs Program'' grants referenced
in paragraph (2) as being located in title 34, parts 624-626, of the
Code of Federal Regulations no longer exist at that reference. VA
rarely receives waiver requests from schools in receipt of either of
these grants, so the criterion in paragraph (2) rarely is satisfied.
This absence of qualifying schools therefore is not dispositive in the
adjudication of waiver requests. Paragraph (3)--previous compliance
history of the school--is of no independent value to VA's decision-
making because if a school has failed to satisfy the criterion in
paragraph (3), then the program's approval would be suspended or
withdrawn by the State Approving Agency. Consequently, by default, the
Director of Education Service bases decisions on waiver requests
exclusively on a school's performance relative to the criteria in
paragraphs (1) and (4). However, because paragraphs (2) and (3) are
included in this regulation, schools must expend resources to address
these criteria in their requests. Likewise, the Director must expend
resources to respond to these criteria in his or her decision.
Therefore, VA proposes to remove paragraphs (2) and (3) to conserve
both school and VA resources. It is important to note that because
these criteria have been functionally irrelevant in the adjudication of
waiver requests, such a removal would have no substantive effect on the
likely outcome of any future waiver request decisions.
Additionally, we propose to amend the list of factors to be
considered in paragraph (4) because the current list is not
particularly helpful to the decision maker. The list contains only two
criteria, and one of them--ratio of educational and general
expenditures to full-time equivalency enrollment--is difficult to
ascertain and verify while also being of questionable utility.
Therefore, there is only one practical and pertinent factor--the
percentage of Veteran-students completing the entire course--generally
left to consider. Accordingly, VA proposes to amend the list to provide
a broader range of factors that may be considered (although the list
would not be all inclusive). VA proposes to maintain the current
graduation rate factor but add other factors of graduate employment
[[Page 61547]]
statistics, graduate salary statistics, satisfaction of Department of
Education rules regarding gainful employment (where applicable), other
Department of Education metrics (such as student loan default rate),
student complaints, industry endorsements, participation in and
compliance with the Principles of Excellence program, which was
established by Executive Order 13607 on April 27, 2012, (published in
the Federal Register on May 2), to ensure that student Veterans,
Servicemembers, and family members have information, support, and
protections while using Federal education benefits. (where applicable),
etc. This list is not exhaustive. The Director could, on a case-by-case
basis, consider other factors not listed, which provide an indication
of the program's general effectiveness. In addition, the Director may
consider whether the educational institution's aid program appears to
be consistent with or appears to undermine the 85/15 rule's tuition and
fee costs market validation mechanism.
Lastly, for educational institutions organized on a term, quarter,
or semester basis, the 85/15 calculations must currently be submitted
to VA no later than 30 days after the beginning of each regular school
term (excluding summer sessions) or before the beginning of the
following term, whichever occurs first. 38 CFR 21.4201(f)(2)(i).
Educational institutions not organized on a standard term, quarter, or
semester basis must also submit their 85/15 calculations to VA,
however, no later than 30 days after the beginning of each calendar
quarter to which the waiver applies. 38 CFR 21.4201(f)(2)(ii).
Consequently, educational institutions with short, non-standard terms
that begin and end more frequently than once per calendar quarter may
have several terms that begin before VA is notified of failure to
comply with the 85/15 rule. To remedy this shortcoming, VA proposes to
amend 38 CFR 21.4201(f)(1) and (f)(2)(ii) to require that educational
institutions with non-standard terms submit their exemption
justification reports and 85/15 percent calculations to VA no later
than 30 days after the beginning of each non-standard term. This would
provide VA with the opportunity to review compliance reports submitted
by educational institutions before approving additional enrollments
that impact compliance with the 85/15 rule. This proposed amendment
would promote accurate and up to date 85/15 calculations, ensure that
reporting is done on a fair and consistent basis, and enable VA to base
consideration of 85/15 waiver requests on relevant criteria.
In summary, the 85/15 rule was created to prevent training
institutions from developing courses solely for GI Bill students and
then inflating tuition charges. The 85/15 rule serves as a market
validation tool by which the cost of the program is validated by
demonstrating that a sufficient number of students (15 percent of the
total program enrollment) are willing to pay the full cost of tuition
out of pocket. These proposed changes would strengthen the existing 85/
15 rule by addressing the regulatory provisions that, over time, have
been shown to be ineffective with regard to the rule's intent.
Executive Orders 12866 and 13563
Executive Orders 12866 and 13563 direct agencies to assess the
costs and benefits of available regulatory alternatives and, when
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, and other advantages; distributive impacts;
and equity). Executive Order 13563 (Improving Regulation and Regulatory
Review) emphasizes the importance of quantifying both costs and
benefits, reducing costs, harmonizing rules, and promoting flexibility.
The Office of Information and Regulatory Affairs has determined that
this rule is a significant regulatory action under Executive Order
12866. The Regulatory Impact Analysis associated with this rulemaking
can be found as a supporting document at www.regulations.gov.
Regulatory Flexibility Act
The Secretary hereby certifies that this proposed rule would not
have a significant economic impact on a substantial number of small
entities as they are defined in the Regulatory Flexibility Act (5
U.S.C. 601-612). Notwithstanding data collection limitations regarding
the number of schools that are classified as small entities, VA's
certification is based on the fact that students would continue to
provide revenue to schools regardless of whether they were classified
as supported or non-supported. Should a school already at or near the
statutory 85/15 ratio limit find that a reclassification of students
from ``non-supported'' to ``supported'' would alter its ratio to the
point where it would fall out of compliance with the 85/15 rule, the
school could recruit additional non-supported students to restore that
ratio. While needing to recruit more non-supported students would be an
effect on schools, it does not qualify as a significant economic
impact. Therefore, pursuant to 5 U.S.C. 605(b), the initial and final
regulatory flexibility analysis requirements of 5 U.S.C. 603 and 604 do
not apply. Nonetheless, VA acknowledges that the provisions in this
rulemaking may create some uncertainty and reactive behavior from both
Veteran students and personnel within institutions of higher learning.
Therefore, VA welcomes input and comment about whether the provisions
of this rulemaking would have an adverse impact or significant impact
on a substantial number of small entities, including lost revenue or
other costs.
Unfunded Mandates
The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C.
1532, that agencies prepare an assessment of anticipated costs and
benefits before issuing any rule that may result in the expenditure by
State, local, and tribal governments, in the aggregate, or by the
private sector, of $100 million or more (adjusted annually for
inflation) in any one year. This proposed rule would have no such
effect on State, local, and tribal governments, or on the private
sector.
Paperwork Reduction Act
Although this proposed rule contains collections of information
under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C.
3501-3521), there are no provisions associated with this rulemaking
constituting any new collection of information or any revisions to the
existing collections of information. The collections of information for
38 CFR 38 CFR 21.4201 are currently approved by the Office of
Management and Budget (OMB) and have been assigned OMB control numbers
2900-0896 and 2900-0897.
Assistance Listing
The Assistance Listing numbers and titles for the programs affected
by this document are 64.027, Post-9/11 Veterans Educational Assistance;
64.028, Post-9/11 Veterans Educational Assistance; 64.032, Montgomery
GI Bill Selected Reserve; Reserve Educational Assistance Program;
64.117, Survivors and Dependents Educational Assistance; 64.120, Post-
Vietnam Era Veterans' Educational Assistance; 64.124, All-Volunteer
Force Educational Assistance.
List of Subjects in 38 CFR Part 21
Administrative practice and procedure, Armed forces claims,
Colleges and universities, Education, Employment, Reporting and
[[Page 61548]]
recordkeeping requirements, Schools, Veterans, Vocational education.
Signing Authority
Denis McDonough, Secretary of Veterans Affairs, approved this
document on September 7, 2022, and authorized the undersigned to sign
and submit the document to the Office of the Federal Register for
publication electronically as an official document of the Department of
Veterans Affairs.
Jeffrey M. Martin,
Assistant Director, Office of Regulation Policy & Management, Office of
General Counsel, Department of Veterans Affairs.
For the reasons stated in the preamble, the Department of Veterans
Affairs proposes to amend 38 CFR part 21 as set forth below:
PART 21--VETERAN READINESS AND EMPLOYMENT AND EDUCATION
Subpart D--Administration of Educational Assistance Programs
0
1. The authority citation for part 21, subpart D continues to read as
follows:
Authority: 10 U.S.C. 2141 note, ch. 1606; 38 U.S.C. 501(a), chs.
30, 32, 33, 34, 35, 36, and as noted in specific sections.
0
2. Amend Sec. 21.4201 by revising paragraphs (e)(2), (f)(1)
introductory text, (f)(2)(ii), and (h) to read as follows:
Sec. 21.4201 Restrictions on enrollment; percentage of students
receiving financial support.
* * * * *
(e) * * *
(2) Assigning students to each part of the ratio. In accordance
with the provisions of paragraph (a) of this section, non-supported
students are those students enrolled in the course who are having none
of their tuition, fees or other charges paid for them by the
educational institution, or by VA under title 38, U.S.C., or under
title 10, U.S.C., while supported students are those students enrolled
in the course who are having all or part of their tuition, fees or
other charges paid for them by the educational institution, or by VA
under title 38, U.S.C., or under title 10, U.S.C.
* * * * *
(f) * * * (1) Schools must submit to VA all calculations (those
needed to support the exemption found in paragraph (c)(4) of this
section as well as those made under paragraph (e)(3) of this section).
If the school is organized on a term, quarter, or semester basis, it
shall make that submission no later than 30 days after the beginning of
the first term for which the school wants the exemption to apply. If
the school is organized on a non-standard term basis, it shall make its
submission no later than 30 days after the beginning of the first non-
standard term for which the school wishes the exemption to apply. A
school having received an exemption found in paragraph (c)(4) of this
section shall not be required to certify that 85 percent or less of the
total student enrollment in any course is receiving Department of
Veterans Affairs assistance:
* * * * *
(2) * * *
(ii) If a school is organized on a non-standard term basis, reports
must be received by the Department of Veterans Affairs no later than 30
days after the end of each non-standard term.
* * * * *
(h) Waivers. Schools which desire a waiver of the provisions of
paragraph (a) of this section for a course where the number of full-
time equivalent supported students receiving VA education benefits
equals or exceeds 85 percent of the total full-time equivalent
enrollment in the course may apply for a waiver to the Director,
Education Service. When applying, a school must submit sufficient
information to allow the Director, Education Service, to judge the
merits of the request against the criteria shown in this paragraph.
This information and any other pertinent information available to VA
shall be considered in relation to these criteria:
(1) Availability of comparable alternative educational facilities
effectively open to veterans in the vicinity of the school requesting a
waiver.
(2) General effectiveness of the school's program in providing
educational and employment opportunities to the particular veteran
population it serves. Factors to be considered should include, but are
not limited to: percentage of veteran-students completing the entire
course, graduate employment statistics, graduate salary statistics,
satisfaction of Department of Education requirements regarding gainful
employment (where applicable), other Department of Education metrics
(such as student loan default rate), student complaints, industry
endorsements, participation in and compliance with the Principles of
Excellence program, established by Executive Order 13607 (where
applicable), etc.
(3) Whether the educational institution's aid program appears to be
consistent with or appears to undermine the 85/15 rule's tuition and
fee costs market validation mechanism.
[FR Doc. 2022-22107 Filed 10-11-22; 8:45 am]
BILLING CODE 8320-01-P