A federal 'loophole' is keeping for-profit colleges alive - and Hillary Clinton wants to close it

For-profit colleges are eligible to receive federal financial aid - just like public and private institutions of higher education.

But unlike public and private schools, for-profits are governed by a federal provision called the "90-10" rule, which mandates that for-profit colleges cannot receive more than 90% of their revenues from federal student aid from the Department of Education (ED).

It may come as a surprise then that funds from the US Veterans Affairs Office (VA), a federal agency, do not count in the 90% category.

Using the post-9/11 GI Bill, the VA pays varying amounts of tuition for up to 36 months of higher education for former service members. The funds are eligible for tuition at public, private, and for-profit schools nationwide.

In what's often referred to as loophole, GI Bill benefits count as part of the 10%. That means, in theory, if a for-profit receives the full 90% from the ED and the remaining 10% from the VA, it could operate entirely on federal money.

For-profit colleges especially covet enrolling veterans for this reason, which can lead to aggressive, and sometimes deceptive, recruiting tactics.

"This loophole creates an incentive to see servicemembers as nothing more than 'dollar signs in uniform,'" the US Senate, Health, Education, Labor and Pensions Committee wrote in a 2014 report, issued after a two-year investigation into the sector.

The report disparaged for-profit colleges for abuses and the share of GI Bill money they receive. It also revealed that of the top 10 institutions receiving GI Bill dollars, eight were for-profit schools. Recently shuttered ITT Tech ranked third on the list, according to the report.

Democratic presidential nominee Hillary Clinton has proposed to close the 90-10 loophole but would likely face push back from Republican members of Congress who, in 2014, indicated that stricter regulations around for-profit schools would inhibit their ability to pass a new version of the Higher Education Act, the federal law that dictates the provision.

Still, the for-profit sector seems willing to address the criticism that it derives too much money from federal sources. DeVry Education Group, one of the largest for-profit college educators, announced last week that it will limit the amount it receives from federal student aid and GI Bill benefits.