[Federal Register Volume 90, Number 127 (Monday, July 7, 2025)]
[Rules and Regulations]
[Pages 29734-29737]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-12554]
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DEPARTMENT OF EDUCATION
34 CFR Part 668
Classification of Revenue Under Title IV
AGENCY: Office of the Secretary, Department of Education.
ACTION: Interpretive rule.
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SUMMARY: 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
[[Page 29735]]
Funds regulations called the ``90/10 Rule''.
DATES: July 7, 2025.
FOR FURTHER INFORMATION CONTACT: Andrea Drew, Office of Postsecondary
Education, U.S. Department of Education, 400 Maryland Avenue SW,
Washington, DC 20202. Email: [email protected].
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.
SUPPLEMENTARY INFORMATION:
I. Background
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.
II. The Preamble Cannot Be Used To Add Substantive Duties That the
Regulations Do Not Contain
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.'' Perez v. Mortg.
Bankers Ass'n, 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.'' Shalala v. Guernsey Memorial Hospital,
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. See Wilgar Land
Co., 85 F.4th at 837 (holding that a preamble that responds to comments
as part of a final rule is an interpretive rule); Fertilizer Inst. v.
EPA, 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.'' Wilgar Land Co., 85 F.4th at 837. Id.
``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.'' Iowa League of Cities v. EPA, 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. See Guedes v. Bureau of
Alcohol, Tobacco, Firearms & Explosives, 920 F.3d 1, 18 (D.C. Cir.
2019) (citing Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2122,
(2016)). In other words, if
[[Page 29736]]
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. Id.
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 preamble text cited above is non-binding and does not have the
force of law.
III. The 90/10 Rule May Include Revenue Generated From Ineligible
Programs
As discussed above, the Department believes the preamble was
procedurally deficient under the APA; however, even if the Department
had properly created a distinction for these ineligible programs under
the 90/10 regulations, it is clear that such a regulation would have
been unlawful. See Loper Bright Enters. v. Raimondo, 603 U.S. 369, 400
(2024) (holding that if a federal agency's interpretation of a federal
statute is not the best reading of the law, then it is not
permissible). Section 487(a)(24) of the HEA provides that to be
eligible for Title IV programs, proprietary institutions of higher
education must ``derive not less than ten percent of such institution's
revenues from sources other than federal funds that are disbursed or
delivered to or on behalf of a student to be used to attend such
institution . . .'' In making these calculations, Section 487(d)(1)
provides very prescriptive rules regarding what revenue is to be
included in the institution's calculation of ``federal funds'' (the
`90' side) and what other sources of funds may be counted (the `10'
side).
As it pertains to the inclusion of revenue from ineligible
programs, section 487(d)(1)(B)(iii) provides that institutions consider
as revenue only those funds generated by the institution from:
(iii) funds paid by a student, or on behalf of a student by a party
other than the institution, for an education or training program that
is not eligible for funds under this title, if the program--
(I) is approved or licensed by the appropriate State agency;
(II) is accredited by an accrediting agency recognized by the
Secretary; or
(III) provides an industry-recognized credential or certification.
When interpreting the statute, the text should be construed as a
whole, as statutory enactments contain interrelated parts that may
provide context when construing one of its parts. See Scalia & Garner,
Reading Law 167 (2012); United Savings Ass'n v. Timbers of Inwood
Forest Assocs., 484 U.S. 365, 371 (1988) (a statutory ``provision that
may seem ambiguous in isolation is often clarified by the remainder of
the statutory scheme--because the same terminology is used elsewhere in
a context that makes its meaning clear, or because only one of the
permissible meanings produces a substantive effect that is compatible
with the rest of the law'' (internal citation omitted)); Merit Mgmt.
Grp., LP v. FTI Consulting, Inc., 583 U.S. 366, 378 (2018) (considering
``[t]he language of [the statutory provision at issue], the specific
context in which that language is used, and the broader statutory
structure''); Johnson v. United States, 559 U.S. 133, 139 (2010)
(``Ultimately, context determines meaning.'')
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. Here,
when considering the broader statutory enactment throughout the HEA, it
is clear that Congress knows how to create distinct rules for distance
education programs when it wishes to do so. See Whitfield v. United
States, 543 U.S. 209, 216 (2005) (``Congress has included an express
overt-act requirement in at least 22 other current conspiracy statutes,
clearly demonstrating that it knows how to impose such a requirement
when it wishes to do so''). Within the text of the HEA, Congress has
used the phrase ``distance education'' 44 times, oftentimes creating
distinct rules for such programs under the HEA. Here, the Department
presumes that, if Congress had wanted to create a distinction for
revenue from distance education programs for the purposes of the 90/10
Rule, it would have said so. It did not, so neither may the Department.
In the same way, and unlike the language of the preamble,
subsection (iii) does not authorize the Secretary to engage in a
process of ``weighing the potential benefits and risks'' of including
or excluding certain types of revenue. There is no indication in the
statute that Congress intended to delegate that sort of legislative
judgment to the Secretary. Instead, Congress wrote a granular formula
for calculating revenue directly into the statute, leaving little-to-no
room for regulatory interpretation, and certainly no room for a policy
exercise of ``weighing the potential benefits and risks.''
Finally, subsection (iii) does not speak of ``unapproved
locations,'' that are mentioned in the preamble. To the contrary, it
creates a disjunctive three-part test for including revenue from
ineligible programs. So long as funds are ``paid by a student, or on
behalf of a student by a party other than the institution'' such
revenue may be included if any of the following criteria are met: (1)
the program is approved or licensed by the appropriate State agency;
(2) the program is accredited by an accrediting agency recognized by
the Secretary; or (3) the program provides an industry-recognized
credential or certification. 20 U.S.C. 1094(d)(1)(b)(iii)
As shown above, none of the subclauses under subsection (iii) deal
with the location of instruction, physical or otherwise. As such,
location is not relevant for the purposes of calculating revenue within
this context under the 90/10 Rule.
Finally, the Department notes that regulatory changes made in the
ARP only concerned the shifting of certain types of federal revenue
received by institutions from the `10' side to the `90' side of the 90/
10 Rule. The ARP did not make any specific amendments to the 90/10 Rule
to reduce the overall amount of revenue. Although the Department was
not limited in its rulemaking to making regulatory amendments to
exclusively implement the ARP, Congress also could have made changes to
exclude other types of revenue from the 90/10 Rule if it wanted to
within the
[[Page 29737]]
ARP. Congress chose not to do so, which provides some evidence that
Congress was satisfied with the statutory and regulatory balance that
had already been struck relating to the inclusion of revenue for
certain types of ineligible programs. This provides further evidence
that the interpretive rule within the preamble conflicts with the
carefully crafted statutory design.
Interpretive rules do not have effective dates and, as such,
institutions may revise their revenue calculations under 34 CFR 668.28
for fiscal years that have already concluded. See Guedes v. Bureau of
Alcohol, Tobacco, Firearms & Explosives, 920 F.3d 1, 20 (D.C. Cir.
2019).
IV. Conclusions
The Department's interpretation announced herein supersedes the
interpretive rule that was published in the preamble to the 2022 final
rule. This interpretation represents the Department's current
interpretation and may be consulted by the Department when enforcing
the 90/10 Rule. But this interpretation is not binding on regulated
entities or the Department.
Accessible Format: On request to the program contact listed under
FOR FURTHER INFORMATION CONTACT, individuals with disabilities can
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Signing Authority
This document of the U.S. Department of Education was signed on
July 1, 2025, by Linda E. McMahon, Secretary of Education. That
document with the original signature and date is maintained by the U.S.
Department of Education. For administrative purposes only, and in
compliance with requirements of the Office of the Federal Register, the
undersigned has been authorized to sign the document in electronic
format for publication, as an official document of the U.S. Department
of Education. This administrative process in no way alters the legal
effect of this document upon publication in the Federal Register.
Tracey St. Pierre,
Director, Office of the Executive Secretariat, Office of the Secretary,
U.S. Department of Education.
[FR Doc. 2025-12554 Filed 7-3-25; 8:45 am]
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