For-Profit Institutions: Filling an Educational Gap or Offering Debt Without a Diploma?

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For-Profit Institutions: Filling an Educational Gap or Offering Debt without a Diploma?

William R. Lawrence IVBio


For-profit universities have become a hot topic in the realm of post-secondary education despite its ancient origins and early success in the United States.1  This is due to the dramatic increase in student enrollment since 1986 with nearly 2 million students enrolled in more than 2,800 for-profit institutions during the 2008-2009 school years.2  The For-profit industry’s growth can be tied to the growth and accessibility of federal financial aid funds to college students at for-profit institutions.3  These institutions provide a variety of choices between vocational and technical schools to four-year degrees, masters and doctoral programs.4  In addition to variety, these institutions provide flexible programs, both in hours and in location, that allow traditionally underserved demographics an opportunity to obtain post-secondary education.5

The dramatic growth of for-profit schools during a tumultuous economic period has placed these institutions under close scrutiny.6  Critics accuse for-profit schools of being diploma mills churning out graduates with worthless degrees.7  Others have come to defend these corporations as providing educational opportunities for traditionally under-served demographics and providing them with the means to be immediately employable upon graduation.8  While once traditionally left up to the states, the federal government and Congress have stepped in producing heavy regulation of this industry.9  The question becomes whether these regulations are enough or should more be done to protect students from being used solely as the means to a corporation’s bottom line.10

  1. a.     Early Developments

For-profit education can be traced as far back as ancient Greece in the Fifth Century B.C. where traveling teachers, known as sophists, taught students for a fee.11  This activity, along with the lack of any state established teaching institutions, lead to the establishment of for-profit educational schools, commonly referred to as proprietary schools.12 The competition between the sophists and these proprietary schools produced affordable tuition rates not just for wealthy children but also for underprivileged families.13  In addition to keeping tuition prices low, the competition provided for a quality education in Athens.14

Early demand in the United States for education led to the establishment of proprietary schools to teach needed labor skills not provided by colleges such as Harvard, William and Mary and Yale.15  In the mid-1800s there became an increased demand for agricultural schools to further the rapidly growing area of agricultural science.16  The first agricultural college was not established until 1855, which provided an opportunity for for-profit schools to develop and satisfy the demand.17  However, modern for-profit institutions more closely associate with proprietary business schools established in the 1850s.18  These schools focused on training students with practical skills not provided by traditional universities to make them more ready for employment in specific skill required careers.19

Such schools experienced rapid growth from only about twenty institutions in 1850 and more than 250 in 1890.20  In 1944, the G.I. Bill dramatically helped with the growth of these institutions by accepting returning veterans as students.21  The increase in federal financial aid for post-secondary education fueled a dramatic increase in for-profit institutions.22  With the increase in available financial aid and returning veterans, the for-profit industry became vulnerable to individuals looking to turn a profit at any expense, including the use of deceptive and fraudulent practices.23  This raised the need for federal regulation to address consumer concerns.24

  1. b.     History of the Regulatory Environment

Before the second half of the twentieth century, the federal government deferred regulation of the for-profit industry to the states.25  State regulations for the most part only required that these institutions register with the states in which they operate.26  In other words, they merely had to register with the Secretary of State’s Office as a business entity and then they were free to operate with little questioning.27


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