For Guidance on For-Profit Colleges, Look to the GI Bill
After Congress decided to give soldiers returning home from World War II the opportunity to pursue a college education, thousands of for-profit "colleges" began springing up around the country to serve the demand. The most notorious, featured in a 1948 magazine expose, was a school that trained students to sort baby chicks by gender. The tuition charges for the chicken sexing program were set, not coincidentally, at the maximum level of the GI Bill.
Investigations by the Veterans Administration found 58 percent of these vocational schools were charging more than was fair and reasonable. Many were stretching out courses to claim more tuition, enrolling more students than could be served well, and keeping students on the attendance rolls long after they stopped attending. According to GI Bill historians Glenn C. Altschuler and Stuart M. Blumin, it was the conservatives in Congress who were most vocal in denouncing the abuses.
Among the repairs enacted by Congress was a market test: for every 20 students enrolled in a program, at least three students needed to be paying the tuition without the aid of the GI Bill. The rule was aimed at both quality and price: someone not under the influence of government aid had to find the program worthy, at a price that wasn't set merely to maximize federal aid. It worked well, helping to ensure that programs expanded only as fast as they were able to maintain quality at a market price.
After the creation and expansion of federal scholarships and loans in the 1960s and 1970s, abuses emerged again. In response, Congress adapted the GI Bill's market test. Unfortunately, the adaptation had a fatal flaw. While the intent was the same, it was written as a percentage of the school's revenue rather than a proportion of students: at least 15 percent of a school's revenue had to come from sources other than the U.S. Department of Education (since reduced to 10). This seemingly minor change turned the rule completely on its head: schools now offer up federal aid to cover 90 percent of every student's tuition bill. No one is paying full price, defeating the purpose of the original reform.
Today, most for-profit colleges charge around $14,000 a year, just enough above federal aid limits to be able to meet the 10 percent requirement. It typically costs the colleges less than $5,000 to deliver the instruction, often far less. The remaining 60 percent of those government funds are used for aggressive marketing, high-priced lobbyists, and huge profits—much of it funneled back to the campaign coffers of Members of Congress who, alas, seem to have trouble seeing that anything at all is amiss.
Some for-profit colleges are lobbying to eliminate the rule. But doing so would only return us to the original 1948 problem, with the colleges setting charges at the level of the maximum aid that is available. Instead, Congress should return to the GI Bill approach, requiring colleges to demonstrate that there are at least a few students or employers who find enough value in the program to be willing to pay the price without government aid.
Robert Shireman was U.S. deputy undersecretary of education in 2009 and 2010.
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