One of the cardinal precepts of higher education regulation for the past half-century is that all types of colleges and universities should be regulated equally. Institutional equity is of paramount priority today for conservatives, and particularly for representatives of for-profit colleges. Champions of institutional equity insist that all sectors of higher education should compete on a level playing field.
The notion that federal regulation should provide a level playing field for all postsecondary institutions sounds eminently fair and hardly objectionable. In practice, however, the regulatory goal of equal treatment of institutions is a canard and little more than a faux equity standard in higher education. Even conservative advocates of institutional equity, such as Terrel Bell and Lamar Alexander, when they each served as secretary of education, have acknowledged when faced with persistent abuses, the need for differential regulation of for-profit colleges.
The Myth of the Level Playing Field
Federal regulation need not and cannot treat all institutions identically, because of the legal and regulatory distinctions that go to the heart of what constitutes a for-profit college and a nonprofit college. As public charities under state and federal laws, nonprofit colleges and universities are subject to a non-distribution constraint. The officers of a nonprofit college and its trustees must reinvest any funds that remain after paying institutional expenses in educational or charitable purposes—that is, for a public good—and cannot distribute profits to themselves or others.
By contrast, the owner or CEO and the boards of for-profit colleges are expected to earn and maximize profits—and in the case of publicly traded for-profit chains, actually have a fiduciary duty to do so. That’s why for-profit colleges are regulated not only by the U.S. Department of Education but also by federal agencies with comparatively little involvement in oversight of nonprofit colleges, such as the Securities and Exchange Commission, the Consumer Financial Protection Bureau, and the Federal Trade Commission.
Without rewriting vast swaths of the tax code, securities law, and consumer protection statutes, and without doing away with the core distinctions between for-profit and nonprofit organizations, federal regulators can never create the level playing field that the champions of institutional equity promote.
Despite their fundamental differences, nonprofit colleges are not inherently virtuous any more than for-profit colleges are necessarily predatory. Both sectors have well-run and poorly run institutions, and each sector has its built-in advantages and disadvantages.
Public colleges, for example, are supported by tax dollars, while private nonprofits can raise substantial tax-free endowments. For-profit colleges must pay taxes and lack endowments, but, unlike nonprofit institutions, can raise money in capital markets.
In short, no matter what federal regulators and lawmakers want or do, the accountability and financing mechanisms for nonprofit and for-profit institutions will inevitably diverge due to their core legal and structural differences. As Robert Shireman, of The Century Foundation has pointed out, “Equal regulatory treatment sounds like a no-brainer. But actually, it’s brainless: the very definitions of the sectors are about their accountability, the way that each is regulated.”
Thus, it makes no sense to regulate colleges in all sectors of higher education identically, anymore than it makes sense to regulate trucks and cars identically because both are motor vehicles. Trucks and passenger cars are regulated differently because they pose different safety risks and because trucks are generally more likely to be gas guzzlers and bigger sources of pollution than lighter weight, more efficient cars.
The same distinctions apply in higher education, where for-profit schools are far more likely than nonprofit colleges and universities to engage in boiler-room recruiting tactics, fraud, deceptive advertising and misrepresentation, and are much more likely to suffer disastrous abrupt, mid-semester closures.
Does Mission Matter?
While universal and uniform regulation of postsecondary institutions is impossible today, legislators and policymakers could still insist that new regulation and law apply equally to all types of institutions. Yet identifying institutional equity as a guiding principle for new regulation is also less compelling than it first sounds. The normative question remains: Should postsecondary institutions with radically different missions be judged and potentially sanctioned solely under the same standards, or should they be evaluated by whether they have fulfilled their educational mission?
Should, for example, federal officials sanction the ministry leadership major program at Calvin University, the Christian college in Michigan that former education secretary Betsy DeVos attended, under the same career placement standards as the manicurist program at the Michigan College of Beauty? Should federal officials judge the job-placement record of music performance majors at Vanderbilt, a private research university and Lamar Alexander’s alma mater, by the same standards it applies to the Tennessee Truck Driver Institute?
I think not—in fact, attempts to eliminate all differential regulation of the for-profit sector are arguably unfair and inequitable. Why should programs that produce ministry leadership majors and music performance majors be judged by the same job placement standards as career education programs specifically designed to place their graduates in jobs? Liberal arts students who major in English, history, philosophy, and political science rarely go on to fill jobs in their field of study.
Many conservatives do allow that government regulation can sometimes draw distinctions outside of the for-profit sector between, say, a Christian college and a community college. When it comes to regulating and accrediting religious schools, which are often exempt from provisions that apply to other schools, conservatives recognize that it can be logical to recognize distinct missions of different postsecondary sectors.
That same understanding of the value of regulating schools based on mission should also apply to the for-profit sector. Unlike Christian colleges, research universities, Historically Black Colleges and Universities (HBCUs), public flagship universities, and liberal arts colleges, for-profit career education schools such as the Michigan College of Beauty have a singular self-described mission to train and prepare students to land jobs in their fields of study. That distinct mission is even prescribed in the Higher Education Act (HEA), which, since 1968, has stipulated that all for-profit and career-education certificate programs can be eligible for federal student aid only if they provide a program of training to prepare students for “gainful employment in a recognized occupation.”
Real-World Tests of Differential and Uniform Regulation
After some initial reluctance, federal officials and lawmakers who have had to grapple with curbing widespread abuses in the for-profit sector have become believers in differential regulation.
During Gerald Ford’s presidency in the mid-1970s, commissioner of education Terrel Bell testified to Congress that while existing statutes made “some provision for stricter treatment and limited benefits of profitmaking schools, they are silent on the extent to which the public should be protected from unethical school operators who are more interested in profits than in education.” Bell, who would go on to become President Reagan’s first secretary of education, directed the Office of Education to examine “the problem of need and justification for valid, differentiated standards.”
One of Bell’s successors as secretary of education, Lamar Alexander, did more than just sow doubts about the need for uniform treatment. In 1991, Secretary Alexander proposed keeping the existing accreditation system for “collegiate” degree-granting programs but sought to eliminate accreditation for “vocational programs”—primarily for-profit schools—which would be subject instead to toughened state oversight and expanded federal supervision. Alexander recommended that state authority be expanded “with particular emphasis on vocational programs and schools,” because he said, for-profit career schools “would benefit most from closer oversight.”
Alexander’s proposal to differentiate career education programs in federal regulation was supported by the ranking Republican on the House Education and Labor Committee, Representative Bill Goodling (R-PA), who proposed legislation in 1991 that had a section entitled “Differential Standards for Approval” of institutions of higher education.
Alexander’s proposal also garnered the support of Senator Sam Nunn (D-GA), the powerful chairman of the Permanent Subcommittee on Investigations, who held a series of hearings highlighting extensive abuses in the for-profit sector. “Every dollar of Pell Grant money which goes to illegitimate and abusive schools results in a direct reduction of the funds available to needy students to obtain a truly worthwhile education,” Nunn stated at one hearing. “It is time we stopped treating these schools the way we would treat Emory University or the University of Delaware.”
Despite the support of Nunn and GOP lawmakers, Alexander’s proposal for differential regulation went nowhere. In a telling illustration of trading places with the conservatives of today, Congressman William Ford (D-MI), the labor-and-lunch-pail liberal who chaired the House education committee, staunchly opposed it. Ford told the Washington Post that differential regulation of for-profit career schools would create “a federal policy of class structure in postsecondary education that I am absolutely never going to support.”
Employing what conservatives today might deem as socialist or Marxist rhetoric, Ford warned that establishing different accountability standards for for-profit career schools was tantamount to having the government engage in “class warfare.”
Nonetheless, the fact that differential regulation makes sense, and also is obligatory under the HEA and other federal statutes, does not mean that all uniform and universal regulation is inappropriate or undesirable.
As Department of Education official Ben Miller argued when he worked at the Center for American Progress, all postsecondary institutions should be judged and held accountable for their student loan outcomes, and all postsecondary institutions need financial monitoring. A for-profit and nonprofit food co-op may operate under different regulations and laws, for example, yet still share a legal obligation to sell safe food with accurate labelling.
The same is true for postsecondary institutions where students take out federal loans to attend college—it’s appropriate to hold all institutions accountable for ensuring that most students are repaying their loans and to cut off programs from the federal student aid program where most students fail to repay their loans.
The regulatory shibboleth that all institutions must be regulated in an identical manner appropriates and misuses the language of the equity movement to label differential treatment of for-profit schools as a form of “class warfare” against vocational education. Differential regulation of the sector is no more a form of class warfare than regulating pickup trucks and cars differently is a form of class warfare.
It’s time for higher education leaders to abandon their long-running fealty to the cause of uniform and universal government regulation. Doing so is a prerequisite to drafting sensible regulation, whether it differentiates by sector or not.
It’s certainly reasonable to ask if government regulation treats colleges and universities fairly. But the first principle and priority of law and regulation must be that it treats students fairly, not that it maintains the illusory goal of institutional equity.
This essay is adapted from David Whitman’s new book, The Profits of Failure: For-Profit Colleges and the Closing of the Conservative Mind (Cypress House, 2021). Whitman wrote for nearly two decades for U.S. News and was the former speechwriter for U.S. Secretary of Education Arne Duncan. He is the author of the five-part Century Foundation series, “The Cycle of Scandal at For-Profit Colleges” which provides an overview of the history of abuses and regulation of the sector since the World War II GI Bill.
Tags: for profit college, education, higher education
Treat For-Profit Colleges Differently Because They Are Different
One of the cardinal precepts of higher education regulation for the past half-century is that all types of colleges and universities should be regulated equally. Institutional equity is of paramount priority today for conservatives, and particularly for representatives of for-profit colleges. Champions of institutional equity insist that all sectors of higher education should compete on a level playing field.
The notion that federal regulation should provide a level playing field for all postsecondary institutions sounds eminently fair and hardly objectionable. In practice, however, the regulatory goal of equal treatment of institutions is a canard and little more than a faux equity standard in higher education. Even conservative advocates of institutional equity, such as Terrel Bell and Lamar Alexander, when they each served as secretary of education, have acknowledged when faced with persistent abuses, the need for differential regulation of for-profit colleges.
The Myth of the Level Playing Field
Federal regulation need not and cannot treat all institutions identically, because of the legal and regulatory distinctions that go to the heart of what constitutes a for-profit college and a nonprofit college. As public charities under state and federal laws, nonprofit colleges and universities are subject to a non-distribution constraint. The officers of a nonprofit college and its trustees must reinvest any funds that remain after paying institutional expenses in educational or charitable purposes—that is, for a public good—and cannot distribute profits to themselves or others.
By contrast, the owner or CEO and the boards of for-profit colleges are expected to earn and maximize profits—and in the case of publicly traded for-profit chains, actually have a fiduciary duty to do so. That’s why for-profit colleges are regulated not only by the U.S. Department of Education but also by federal agencies with comparatively little involvement in oversight of nonprofit colleges, such as the Securities and Exchange Commission, the Consumer Financial Protection Bureau, and the Federal Trade Commission.
Without rewriting vast swaths of the tax code, securities law, and consumer protection statutes, and without doing away with the core distinctions between for-profit and nonprofit organizations, federal regulators can never create the level playing field that the champions of institutional equity promote.
Despite their fundamental differences, nonprofit colleges are not inherently virtuous any more than for-profit colleges are necessarily predatory. Both sectors have well-run and poorly run institutions, and each sector has its built-in advantages and disadvantages.
Public colleges, for example, are supported by tax dollars, while private nonprofits can raise substantial tax-free endowments. For-profit colleges must pay taxes and lack endowments, but, unlike nonprofit institutions, can raise money in capital markets.
In short, no matter what federal regulators and lawmakers want or do, the accountability and financing mechanisms for nonprofit and for-profit institutions will inevitably diverge due to their core legal and structural differences. As Robert Shireman, of The Century Foundation has pointed out, “Equal regulatory treatment sounds like a no-brainer. But actually, it’s brainless: the very definitions of the sectors are about their accountability, the way that each is regulated.”
Thus, it makes no sense to regulate colleges in all sectors of higher education identically, anymore than it makes sense to regulate trucks and cars identically because both are motor vehicles. Trucks and passenger cars are regulated differently because they pose different safety risks and because trucks are generally more likely to be gas guzzlers and bigger sources of pollution than lighter weight, more efficient cars.
The same distinctions apply in higher education, where for-profit schools are far more likely than nonprofit colleges and universities to engage in boiler-room recruiting tactics, fraud, deceptive advertising and misrepresentation, and are much more likely to suffer disastrous abrupt, mid-semester closures.
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Does Mission Matter?
While universal and uniform regulation of postsecondary institutions is impossible today, legislators and policymakers could still insist that new regulation and law apply equally to all types of institutions. Yet identifying institutional equity as a guiding principle for new regulation is also less compelling than it first sounds. The normative question remains: Should postsecondary institutions with radically different missions be judged and potentially sanctioned solely under the same standards, or should they be evaluated by whether they have fulfilled their educational mission?
Should, for example, federal officials sanction the ministry leadership major program at Calvin University, the Christian college in Michigan that former education secretary Betsy DeVos attended, under the same career placement standards as the manicurist program at the Michigan College of Beauty? Should federal officials judge the job-placement record of music performance majors at Vanderbilt, a private research university and Lamar Alexander’s alma mater, by the same standards it applies to the Tennessee Truck Driver Institute?
I think not—in fact, attempts to eliminate all differential regulation of the for-profit sector are arguably unfair and inequitable. Why should programs that produce ministry leadership majors and music performance majors be judged by the same job placement standards as career education programs specifically designed to place their graduates in jobs? Liberal arts students who major in English, history, philosophy, and political science rarely go on to fill jobs in their field of study.
Many conservatives do allow that government regulation can sometimes draw distinctions outside of the for-profit sector between, say, a Christian college and a community college. When it comes to regulating and accrediting religious schools, which are often exempt from provisions that apply to other schools, conservatives recognize that it can be logical to recognize distinct missions of different postsecondary sectors.
That same understanding of the value of regulating schools based on mission should also apply to the for-profit sector. Unlike Christian colleges, research universities, Historically Black Colleges and Universities (HBCUs), public flagship universities, and liberal arts colleges, for-profit career education schools such as the Michigan College of Beauty have a singular self-described mission to train and prepare students to land jobs in their fields of study. That distinct mission is even prescribed in the Higher Education Act (HEA), which, since 1968, has stipulated that all for-profit and career-education certificate programs can be eligible for federal student aid only if they provide a program of training to prepare students for “gainful employment in a recognized occupation.”
Sign up for updates.
Real-World Tests of Differential and Uniform Regulation
After some initial reluctance, federal officials and lawmakers who have had to grapple with curbing widespread abuses in the for-profit sector have become believers in differential regulation.
During Gerald Ford’s presidency in the mid-1970s, commissioner of education Terrel Bell testified to Congress that while existing statutes made “some provision for stricter treatment and limited benefits of profitmaking schools, they are silent on the extent to which the public should be protected from unethical school operators who are more interested in profits than in education.” Bell, who would go on to become President Reagan’s first secretary of education, directed the Office of Education to examine “the problem of need and justification for valid, differentiated standards.”
One of Bell’s successors as secretary of education, Lamar Alexander, did more than just sow doubts about the need for uniform treatment. In 1991, Secretary Alexander proposed keeping the existing accreditation system for “collegiate” degree-granting programs but sought to eliminate accreditation for “vocational programs”—primarily for-profit schools—which would be subject instead to toughened state oversight and expanded federal supervision. Alexander recommended that state authority be expanded “with particular emphasis on vocational programs and schools,” because he said, for-profit career schools “would benefit most from closer oversight.”
Alexander’s proposal to differentiate career education programs in federal regulation was supported by the ranking Republican on the House Education and Labor Committee, Representative Bill Goodling (R-PA), who proposed legislation in 1991 that had a section entitled “Differential Standards for Approval” of institutions of higher education.
Alexander’s proposal also garnered the support of Senator Sam Nunn (D-GA), the powerful chairman of the Permanent Subcommittee on Investigations, who held a series of hearings highlighting extensive abuses in the for-profit sector. “Every dollar of Pell Grant money which goes to illegitimate and abusive schools results in a direct reduction of the funds available to needy students to obtain a truly worthwhile education,” Nunn stated at one hearing. “It is time we stopped treating these schools the way we would treat Emory University or the University of Delaware.”
Despite the support of Nunn and GOP lawmakers, Alexander’s proposal for differential regulation went nowhere. In a telling illustration of trading places with the conservatives of today, Congressman William Ford (D-MI), the labor-and-lunch-pail liberal who chaired the House education committee, staunchly opposed it. Ford told the Washington Post that differential regulation of for-profit career schools would create “a federal policy of class structure in postsecondary education that I am absolutely never going to support.”
Employing what conservatives today might deem as socialist or Marxist rhetoric, Ford warned that establishing different accountability standards for for-profit career schools was tantamount to having the government engage in “class warfare.”
Nonetheless, the fact that differential regulation makes sense, and also is obligatory under the HEA and other federal statutes, does not mean that all uniform and universal regulation is inappropriate or undesirable.
As Department of Education official Ben Miller argued when he worked at the Center for American Progress, all postsecondary institutions should be judged and held accountable for their student loan outcomes, and all postsecondary institutions need financial monitoring. A for-profit and nonprofit food co-op may operate under different regulations and laws, for example, yet still share a legal obligation to sell safe food with accurate labelling.
The same is true for postsecondary institutions where students take out federal loans to attend college—it’s appropriate to hold all institutions accountable for ensuring that most students are repaying their loans and to cut off programs from the federal student aid program where most students fail to repay their loans.
The regulatory shibboleth that all institutions must be regulated in an identical manner appropriates and misuses the language of the equity movement to label differential treatment of for-profit schools as a form of “class warfare” against vocational education. Differential regulation of the sector is no more a form of class warfare than regulating pickup trucks and cars differently is a form of class warfare.
It’s time for higher education leaders to abandon their long-running fealty to the cause of uniform and universal government regulation. Doing so is a prerequisite to drafting sensible regulation, whether it differentiates by sector or not.
It’s certainly reasonable to ask if government regulation treats colleges and universities fairly. But the first principle and priority of law and regulation must be that it treats students fairly, not that it maintains the illusory goal of institutional equity.
This essay is adapted from David Whitman’s new book, The Profits of Failure: For-Profit Colleges and the Closing of the Conservative Mind (Cypress House, 2021). Whitman wrote for nearly two decades for U.S. News and was the former speechwriter for U.S. Secretary of Education Arne Duncan. He is the author of the five-part Century Foundation series, “The Cycle of Scandal at For-Profit Colleges” which provides an overview of the history of abuses and regulation of the sector since the World War II GI Bill.
Tags: for profit college, education, higher education