A Look Back at Federal Support for the For-Profit Sector

by Nidia Banuelos, Doctoral Candidate at University of Chicago, Dept. of Sociology

The “Corinthian 100’s” recent debt strike has brought much-needed attention to the level of support for-profit colleges and universities (FPCUs) receive from the Federal Government.  Although they enrolled only 9 percent of all degree-seeking students, FPCUs received 25 percent of all Department of Education student aid funds in 2009-10.  That’s about $32 billion (U.S. Senate, 2012).  This kind of unqualified support makes it easy to forget that, not long ago, students were barred from using most kinds of federal aid at FPCUs.  What changed?  Why does our current system make it easy for some schools to profit from federal money?  It’s worth turning, for a moment, to history for some insight. 

Often called “proprietary” schools, FPCUs have been operating in the United States since the late-1800s.  Early proprietary schools were a far cry from Corinthian Colleges, Inc.  Into the 1960s, they had modest goals—most enrolled between 100 and 300 students at a single campus location and conferred certificates (not degrees) in business, secretarial skills, cosmetology, or electronics.  Yet, as early as 1922, there were documented cases of proprietary schools cutting costs by eliminating basic instructional necessities—like desks and textbooks (Marvin, 1922).  These practices became more common after the passage of the GI Bill in 1944, when soldiers used their federal aid at for-profit schools that cashed their checks and offered them little to nothing in return.  (The term “degree-mill” comes from this era.)  In response to these abuses, Congress created the accreditation system we still have in place today.  Nevertheless, this early experience of funding the for-profit sector was so harrowing that, even as college enrollment ballooned in the 1960s, Congress limited proprietary schools’ access to aid. 

In the 1970s, lawmakers faced unprecedented pressure to increase access to college for diverse groups of students while also keeping costs down for taxpayers.  Proprietary schools offered a solution: they promised to “democratize” higher education by giving students who had neither the time nor money to attend a traditional university the opportunity to learn skills that would help them make a living.  And because proprietary schools focused on occupational training alone, they would not waste taxpayers’ money on esoteric research projects, grandiose architecture, or theoretical instruction.  Compared to the free-loving, flag-burning hippies protesting the Vietnam War at elite institutions across the country, the hard-working, low-income students attending proprietary schools looked like saints.  This image—of the beleaguered for-profit student, unable to pay her tuition bills because the federal government refused to consider her school a viable “institution of higher education”—was a powerful tool and supporters of the for-profit sector employed it often.  Words like “discriminatory” and “minority group” were used to argue against the unfair practice of denying for-profit students access to grants and loans (Statement of Richard A. Fulton, 1970, p. 1034).  If a student wants to attend a proprietary school to learn a useful trade, who is the Federal Government to deny her the right to do so?   

Most importantly, education was not immune from the free market ideology that was so rampant in the 1970s.  Supporters of the for-profit sector (Congress included) believed that proprietary schools that were providing a subpar education would lose their students to higher quality competitors.  A representative of the National Association of Trade and Technical Schools put it this way:  “The cost of education in a proprietary school has an even greater safeguard by the fact that if their tuition rates are too high, there is a great tendency on the part of the students not to come to the institution” (Statement of Leo Kogan, 1970, p. 1784).  In other words, if the free market works as it should, for-profit schools will have an incentive to regulate themselves.  Students will notice if the education they’re getting is inadequate and will choose to attend a different school if they are unsatisfied.  Indeed, a little competition from the for-profit sector might even encourage non-profits to better serve the public. 

The Department of Education (then “Office of Education”) initially opposed this plan.  They worried that giving proprietary schools access to aid (and grants, especially) would encourage them to cut spending per student.  But curiously, the DOE was the proprietary sector’s most vocal opponent.  Even community colleges—proprietary schools’ closest competitors—testified before Congress in support of for-profit students (Statement of Joseph Cosand, 1971).    

So, in 1972, Congress passed legislation making proprietary schools “institutions of higher education” under federal law (Education Amendments of 1972, p. 260).  In doing so, it gave them access to nearly all forms of federal aid for which non-profits are eligible.  Congress hadn’t forgotten about the for-profit sector’s sordid past when it made this decision—it just had many reasons to be optimistic about the industry’s future.  It’s also important to remember that the for-profit sector was not nearly as notorious then as it is now.  The DOE simply did not know how big the proprietary sector was, how big it would get, or how well it was doing with the few federal programs to which it already had access.  In other words, Congress made this decision blind.

Finally, lawmakers grew more comfortable with expanding access to federal student aid because they believed accreditation would weed out predatory schools.  Then, as now, in order to receive access to federal student aid, colleges and universities had to be accredited by an independent, non-governmental agency approved by the Department of Education.  Again, the government created this system after WWII, when millions of federal dollars went to degree-mills that took advantage of tuition assistance for veterans.  Before 1970, regional accrediting agencies—those that also accredit respected non-profit institutions—refused to even consider proprietary schools for accreditation.  But, in the 1970s, the growing demand for diversity in higher education also forced their priorities to shift.  At this time the North Central Association (which, in addition to venerated institutions like University of Michigan, also accredits more FPCUs than any other regional agency) made it their mission to craft a “diverse educational system needed for our diverse peoples” (North Central Association, 1977, p. 8; Kinser, 2006).  In 1978, this new philosophy led them to accredit the University of Phoenix, which offered, “so far as our evaluators can determine, programs of a quality comparable with those of traditional institutions” (North Central Association, 1977, p. 15). 

All this goes to show that the for-profit sector benefited greatly from a general move toward democratizing higher education by supporting new kinds of schools.  For both Congress and regional accreditors, betting on these schools seemed a responsible, and perhaps even, patriotic thing to do.  Although the for-profit sector has changed in size and scope, the arguments used to support it remain remarkably unchanged.  FPCUs still describe their project as a democratizing one.  They still cast themselves as opposing the elitist educational establishment. (Consider, for example, DeVry University’s new advertising campaign, which claims that the school is “Different. On purpose.”)  These themes are compelling—not only to students, but to accreditors and lawmakers as well. 

Now that students are refusing to pay back the debt they incurred from attending Corinthian Colleges, Inc. the Department of Education will be financially responsible for the actions of predatory institutions.  As awareness of this issue increases, we may see the Federal Government getting more involved in oversight of the for-profit sector than ever before.  Debates will ensue, accusations will be made, and defenses will be mounted.  Through it all, we should carefully evaluate the validity of the arguments presented.  Are these new ideas or merely old ones repackaged?

Works Cited

Education Amendments of 1972, Pub. L. 92-318, codified as amended at 318 U.S.C. § 417B.

Kinser, K. (2006). From Main Street to Wall Street: The transformation of for-profit higher education (ASHE higher education report). San Francisco, CA: Jossey-Bass.

Marvin, C.H. (1922). Commercial education in secondary schools. New York, NY: H. Holt and company.

North Central Association. 1977. Emerging Issues in Postsecondary Education: Standards and Accreditation. Box 12. Records relating to the North Central Association of Colleges and Schools/Higher Learning Commission.  Urbana, IL: University of Illinois Archives. 5 September 2014. 

Statement of Leo Kogan: Hearings Before the Subcommittee on Education of the House of Representatives. 91^st Cong. 2 (1970).

Statement of Joseph Cosand: Hearings Before the Subcommittee on Education of the House of Representatives. 92^nd Cong. 1 (1971).    

Statement of Richard Fulton: Hearings Before the Subcommittee on Education of the U.S. Senate. 91^st Cong. 2 (1970).

U.S. Senate. Health, Education, Labor, and Pensions Committee. (2012). For profit higher education: The failure to safeguard the federal investment and ensure student success. (S. Prt. 112-37, Volumes 1-4). Washington, DC: U.S. Government Printing Office.