Any day now, the U.S. Department of Education is expected to release a new proposed version of the Gainful Employment rule. The Gainful Employment rule, or GE, determines whether certain career preparation programs in higher education remain eligible for federal financial aid, based on whether, as required in the law, the programs “provide an eligible program of training to prepare students for gainful employment in a recognized occupation.”1

The GE requirement is the route through which for-profit colleges gain access to grants and loans authorized by the federal Higher Education Act (HEA). The rule applies to public or nonprofit colleges only when they want to offer aid for programs that are more narrowly job-focused than degree programs, such as a certificate in welding, phlebotomy, or web development.

The fact that the GE requirement applies largely to for-profit schools is a major talking point for those opposed to the rule, with for-profit lobbyists claiming that its requirements unfairly target them. Their highly misleading mantra is that “regulations should apply to all colleges regardless of sector.” The assertion is deceptive because nonprofit status is itself a form of regulation: it means the college is subject to prohibitions on its use of funds, rules that don’t apply to for-profit colleges. As TCF has extensively documented, eschewing those nonprofit restrictions has real impacts on college behavior and, as a result, on students and taxpayers.

This report provides a history of the role that the conditions incumbent on independent, nonprofit institutions—the term of art here is nonprofit “control”—has played in the evolution of our country’s unparalleled excellence in higher education, and the role of GE and other regulations in lawmakers’ efforts to find ways to constructively harness the profit motive without the harms that have resurfaced again and again over the past seventy-five years.2

An important note: for-profit lobbyists always bring up “tax status” because it misleads the listener into believing that taxation is the important difference between a nonprofit and for-profit entity. But the critical difference is in the financial restrictions on those who control nonprofits. Describing the difference as one of taxation would be like saying that calories are the important difference between vodka and water. Both vodka and for-profit colleges have something else besides calories and taxes that influence human behavior.

The American Formula for Higher Education Excellence Started with Nonprofit Governance

To ensure we’re clear on what the purpose of a college or university is, let’s begin by asking a fundamental question: What is higher education?

In America, colleges and universities have been where society has explored philosophy, beauty, religion, history, equity, justice, and, frequently, have engaged in wandering scientific inquiry. They also happen to graduate highly successful leaders, entrepreneurs, and workers. But, somewhat paradoxically, our institutions have excelled not by aiming for practical utility or marketability, but instead by prioritizing intellectual freedom, allowing curiosity and passion to be the guide that inspires thought and analysis and creation.

It is not hard to see why a for-profit entity, particularly one using government grants and loans, might not be a reliable partner in producing the outcomes that have made American higher education great. The unrestricted profit motive works well when harnessed to produce goods and services that can be readily measured, such as cars and food and televisions. In contrast, research has repeatedly shown that forms of organizational control, whether public or private, with motivations other than profit are frequently necessary to produce unmeasurable outcomes like curiosity, inspiration, and opportunity.3

That said, excising the profit motive is not the sole requisite. If the “nonprofit” label was all that mattered, other nations would not have so much difficulty emulating the U.S. success in higher education.4 At least three other factors have proven important to the success of the formula:

  • corporate independence from government control;
  • enforcement of the key characteristics of being nonprofit; and
  • an ecosystem of academic integrity, bolstered by voluntary regional accrediting bodies through which, historically, nonprofit and public institutions held each other accountable.

Independence

Independence from government has been a crucial component of the success of U.S. nonprofits for nearly two centuries. The seminal case involved not just control of any corporation, but of the illustrious Dartmouth College.5 Prior to 1819, there was no such thing as a private corporation as we know it today. The charters of pre-revolutionary corporations, including colleges, declared them as independent entities, but the working assumption was that the sovereign that created them (e.g.,the king or queen before the American revolution, the state after) could always intervene if it chose to do so.

Colleges, as centers of thought and leadership development, were viewed as potential threats to political power, and as tools for furthering that power. Control of higher education was thus a frequent battleground in the latter 1700s and early 1800s. For example, state officials in Pennsylvania, during the Revolutionary War, tried to replace the board of what is now the University of Pennsylvania, leading to dueling claims of control that lasted for twelve years. As a state legislator in 1779, Thomas Jefferson irked the trustees of his alma mater, William and Mary College, with his attempt to alter its governance and curriculum. In New York just after the revolution, the governor wanted King’s College (now Columbia University) to become the apex of a new state system; he lost. In 1791, the State of Connecticut sought control of Yale, and after a fight, the parties compromised on the governor and lieutenant governor serving on the board of trustees, an arrangement that continues today.

And then there was the New Hampshire legislature’s attempt in 1816 to wrest control of Dartmouth College, which prompted the Supreme Court to look for a way to stop the political meddling.

Writing for the majority in 1819, Supreme Court Chief Justice John Marshall found that the “fluctuating policy” and “repeated interferences” of legislative bodies was leading to “the most perplexing and injurious embarrassments.” New Hampshire officials’ attempt to force changes at Dartmouth College, the court found, had violated the U.S. Constitution’s prohibition on states “impairing the obligation of contracts.” The college’s charter6—which granted authority over the future of the college to the trustees and their chosen successors—was a contract, the court said, between the state and donors to the institution, who had relied on the state’s assurance that their charitable donation would be guided in perpetuity by the terms of the charter. The opinion asked, rhetorically, the following:

Is education altogether in the hands of government? Does every teacher of youth become a public officer, and do donations for the purpose of education necessarily become public property so far that the will of the legislature, not the will of the donor, becomes the law of the donation? These questions are of serious moment to society, and deserve to be well considered.

These gifts were made not indeed to make a profit for the donors or their posterity, but for something, in their opinion, of inestimable value—for something which they deemed a full equivalent for the money with which it was purchased. . . The corporation is the assignee of their rights, stands in their place, and distributes their bounty as they would themselves have distributed it had they been immortal. So, with respect to the students who are to derive learning from this source, the corporation is a Trustee for them also. Their potential rights, which, taken distributively, are imperceptible, amount collectively to a most important interest.7

The independence of our private nonprofit colleges, and of corporations more broadly, comes in part from this 1819 decision, which was designed to end the meddling that threatened to undermine the core values of Dartmouth’s academic enterprise.

An Ecosystem of Academic Integrity

The Dartmouth decision put America’s colleges and universities on a path toward greater independence from government than what higher education institutions enjoy in the rest of the world. States could and did include provisions in college charters granting government officials an ongoing role, clarifying the distinction between “public” and “private” colleges. But even our public universities have typically enjoyed greater independence, due to the competitive ecosystem led by the private institutions.8 (To build more resilient, higher-quality public institutions, some states have established institutions through their constitutions, with board appointments that cannot be changed rapidly by a governor or legislature.)

Accreditation has also played a role in maintaining a separation between private universities and government, with some protections for public institutions as well. Government funding creates opportunities for that government to attach strings to the funding it provides; educators have rightfully seen this potential as a concerning one, as an avenue down which political meddling can undermine the independence of private institutions. Rather than having direct authority over deciding what is or is not a valid institution of higher education, the federal government has typically relied on federal recognition of accreditors, nongovernmental go-betweens which in turn assess academic quality.9 The approach, while admittedly awkward and imperfect, has helped maintain the independence of the private nonprofit college sector. Further, the norms established by the accrediting agencies regarding governance and political interference have also helped protect public institutions to some degree.

More Genuinely Nonprofit

The third ingredient in the recipe for American excellence in higher education has been that our nonprofit colleges have been more genuinely nonprofit than those in the rest of the world. Aside from a few notable recent exceptions,10 control of American colleges is not in the hands of people who profit from the position. College trustees are generally volunteers and are usually donors, too—and they are legally prohibited from benefiting financially from their decisions about how the college operates, the opposite of the owners who run for-profit colleges.

In the rest of the world, colleges that are labeled as “private nonprofit” frequently are neither: instead, they are tightly regulated by government and/or are closely associated with a for-profit owner.11 The ecosystem noted above may be one reason for the difference. But the U.S. nonprofit sector overall is different, probably owing to IRS enforcement that stems from the income tax exemptions granted to donors.12 States have played little role in enforcement, even though they granted the institutions their nonprofit corporate charters.13

The hand-wringing that usually follows a description of nonprofit versus for-profit colleges usually involves endowments and salaries, so here’s an account of those complaints and their flaws. Yes, some nonprofits amass huge endowments, and there are legitimate criticisms of how they use (or don’t use) those funds. However, in these cases, the endowment is legally dedicated to the institutional mission: it is not anyone’s personal treasure. In fact, if the for-profit University of Phoenix’s profit over fourteen years had been placed in an endowment, it would have among the largest endowments of any university.14 Similarly, I don’t like to see high-salaried college football coaches or administrators, but in the judgment of trustees without a financial interest, they see the pay as part of maintaining or building a strong institution. One may not agree with the decision, but one cannot call it profit-taking.

The Profit Motive Is a Strong One

For-profit firms make different choices than do nonprofit firms. Why? Because the incentives and goals are so very different. That of course is the whole idea behind the profit motive: owners and managers at a for-profit firm are inspired to do things they would not do if they did not have the profit motive. On the positive side, those profit-motivated behaviors may include finding cheaper ways to make products, offering lower prices, increasing production to meet demand, improving product quality, and on and on. On the negative side, those profit-motivated behaviors include imposing production costs on society or the environment, under-investing in quality when doing so is difficult to detect, preying on poorly informed consumers, exaggerating a product’s benefits, distracting attention from consumer costs and risks, and so on.

The type of institutional control causes differences in behavior, which results in different outcomes. “But any college can be predatory,” the for-profit lobbyists are fond of saying. True. However, in the same way that alcohol consumption tends to cause poor driving, or smoking cigarettes tends to cause cancer, the causation is real, even if it doesn’t explain the damage 100 percent of the time.

Why Higher Ed?

In many, if not most, industries, for-profit companies have emerged in the market as the preferred providers, without any controversy. Few are arguing that the nation needs nonprofit airplane or computer manufacturers, or nonprofit refrigerator or baseball equipment providers.

Yet in education, nonprofit providers, including public institutions, have emerged as preferred. Why? Experts explain that nonprofits become the preferred, or at least the less problematic, providers in industries where consumers can easily be taken advantage of. Economist Burton Weisbrod compared nonprofit and for-profit providers in nursing homes, psychiatric care facilities, and facilities for the developmentally disabled, and found that nonprofits provided better and more affordable care while also reducing predatory treatment of consumers.15 His explanation: Blunting management’s incentive to seek profits “decreases their incentives to take advantage of underinformed consumers.” In the evidence, he found “no support for the view that nonprofits act essentially like private firms.”16

The exploitation-reduction value of nonprofit provision is greatest in industries that have two key characteristics. First are industries that involve a lot of personalized, expert judgment, such as the appropriateness and likelihood of effectiveness of a service or treatment for a particular consumer, the availability of alternatives of which the consumer may not be aware (or which are difficult to compare), and the amount and type of risk the consumer will be taking on. Second, nonprofit provision excels in industries for whom the quality of those judgment calls is nearly impossible for consumers to discern, and extremely difficult for inspectors to adequately monitor. In those situations, nonprofit provision can help to address the market failure. As explained by economist Gordon Winston, “By reducing incentives for the opportunistic behavior, nonprofits become the preferred suppliers in certain settings: they increase the probability—and the confidence of donors or buyers—that they’re getting what they are paying for.”17

Decision-Making Differences between For-Profits and Nonprofits

For-profit and nonprofit providers in higher education tend to make different decisions about how to operate, who to employ, who to recruit, and what to spend money on. Here are just some of the observable differences in the choices that nonprofit (including public) institutions make compared to for-profit owners and managers:

  • Nonprofits are more likely to hire full-time faculty and to grant them tenure, contributing to academic freedom.
  • Nonprofits tend to involve the faculty more intensively in the management of the institutions.
  • Nonprofits are more likely to list their faculty members and their qualifications on the institution’s website.
  • Nonprofits tend to spend more of their revenue on instruction.
  • Nonprofits commit more of their own funds to grant aid.
  • Nonprofits are less likely to deny students’ legal rights through forced arbitration of disputes.
  • Nonprofits are more likely to engage in other practices that, from a monetary standpoint, can seem inefficient, like large grassy quads, vast library and museum collections, and faculty who do research with no apparent purpose other than curiosity or whim.

For-profit institutions are also more predatory in their recruitment of potential students, misleading them with regard to costs, their own fit with the program, or their likely earnings after graduation. The comparison is stark: the analysis by Betsy DeVos’s Department of Education found that the predicted rate of school misconduct, leading to possible findings of fraud, is more than ten times higher at for-profit colleges in the federal aid program than it is at public and nonprofit schools.18

The different behaviors by for-profit management lead to different—generally worse—outcomes for students. Students enrolling at nonprofit colleges are more likely to graduate, more likely to get a job, and typically earn more than students enrolling at for-profit colleges, even after accounting for student background factors (and even though the for-profit schools supposedly aim for employment outcomes).19 Students from nonprofit colleges are twice as likely to make progress in repaying their student loans,20 and are far less likely to default,21 especially the longer you track: twelve years after college, more than half of for-profit students have defaulted, triple the rate of nonprofit students.22

The data, in short, demonstrate that nonprofit control is an effective consumer protection and quality enhancement mechanism. As one prominent for-profit college CEO acknowledged, the incentive to take advantage of consumers is inherent in the for-profit model.23

The Role of People

Discussions of consumer protection in higher education frequently lead to agreement that a system must be developed to root out “bad actors” in the industry, and to stop “fraud.” This framing of the problem is problematic. While surely there are some for-profit owners and CEOs who know they are taking unfair advantage of consumers or taxpayers, many, if not most, of them merely perceive themselves as doing their best to run a competitive business while following the rules that apply to them. What they fail to recognize is that there is no checklist or compliance manual that will make for an excellent university—and if the dominant measurable outcome they are using as their guidepost is profit, or “starts,” or a stock price, then a quality education will often not be the result.

The least dangerous for-profit leaders are the ones who recognize that being free of the nonprofit restrictions in education is a privilege that requires greater restraint in management decisions than they would have exercised in any other industry. More than restraint, it requires the self-awareness that the ability to make a profit will likely affect their moral judgments. As fraud experts Jean Braucher and Barak Orbach explain, confirmation bias and other cognitive biases cause business people to “act without conscious intent to engage in a ‘scam,’” a sort of willful but unconscious blindness that often leads them to blame the victims.24

For-profit leaders, if they genuinely wanted to be the “good actors,” would recognize not just the benefits they think their profit-driven operation can bring to education but also the very real hazards, and would welcome guardrails like the GE rule.

“Gainful Employment in a Recognized Occupation”

The Higher Education Act of 1965 (HEA) was the nation’s fourth major college aid effort. The first was enacted during the Great Depression, a grant program that was large enough to support an eighth of the students in the country. The aid was made available to nonprofit and public universities, and no major scandals are in the historical record from that nine-year initiative.25

The second major federal aid initiative, the GI Bill, was quite a different experience. While the college aid for veterans of World War II was an enormous success overall, the program also fed an explosion of misleading advertising, predatory recruitment practices, sub-standard training, and outright fraud in for-profit education.26

Third was the National Defense Education Act, in 1958. With the GI Bill experience still fresh in many members’ minds, Congress avoided using a voucher approach at all. Instead, the act provided pots of funds to nonprofit and public universities for them to distribute as loans and fellowships to students.27

With the HEA seven years later, Congress decided to make federal grants and loans available only for academic degrees, and, again, only at accredited institutions that were nonprofit or public. The idea of including for-profit schools in the HEA was considered in 1965 but rejected: members of Congress did not want a repeat of the GI Bill scandals.28

For-Profits Regain Access to Federal Funds, with a Condition

The for-profit operators didn’t give up following the HEA’s passage. They continued to lobby Congress until, in 1968, Congress reached an accommodation. Accepting the argument that focused vocational studies were leading to incomes that could repay federal loans, they allowed programs at for-profit institutions to access the HEA’s grants and loans if the program prepared students “for gainful employment in a recognized occupation.” At the same time, public and nonprofit institutions gained access to Title IV grants and loans for their non-degree programs, if those programs prepared students for gainful employment in a recognized occupation. (As a result, the authority for a GE rule is applicable to any program at for-profit colleges, and to non-degree programs at public and nonprofit institutions).

The recognized occupation was an important part of the deal. The idea was that students were being prepared for specific jobs—like electricians, plumbers, secretaries, and nurses—for which the educational requirements are more specific and measurable. Theoretically, it should be more difficult for the school to get away with under-investing in the training or enrolling unqualified students. The job focus, the thinking went, made them less risky than allowing for-profits to use taxpayer funds for more open-ended liberal arts education.

The For-Profit Explosion

No system was established to prevent the scope of the for-profit Title IV-financed programs from straying from occupation-specific training.29 So, over time, for-profit colleges claimed eligibility for programs like bachelor’s degrees in psychology, economics, criminal justice, or nearly anything else, few of which are tied to any specific occupation. They were the types of degrees Congress thought were best provided by a college not distracted by a profit motive. The creeping expansion of the scope of unlimited grant and loan funding to for-profit schools meant the for-profit scandals that followed in the 1970s, 1980s, and 2000s were far more damaging to students and taxpayers than they would have been—if they would have occurred at all.

From 2000 to 2010, undergraduate enrollment at for-profit colleges quadrupled,30 with federal grants and loans accounting for more than 90 percent of revenue at many schools.31 For-profit colleges accounted for over a third of all student loan defaults,32 even though they enrolled just slightly more than one out of every ten postsecondary students.33 Investigations revealed that owners, repeating the tactics of the past, grew their schools rapidly34 while overcharging and under-delivering along the way.35 After caps on online enrollment were lifted by Congress, enrollment at the University of Phoenix reached nearly half a million students.36

In many cases, these schools were less than honest about the value of the degrees they were awarding,37 and the likelihood they would lead to jobs.38 Some used manipulative sales tactics,39 hired unqualified faculty,40 enrolled unqualified students,41 and hid their misdeeds through forced arbitration clauses,42 all while leaving students with crushing student loan debts43 and school executives with bulging bank accounts.44 The leader of the education program at the conservative American Enterprise Institute acknowledged that for-profit access to federal student loans had created a system “rife with sleazy operators.”45

The Birth—and Death—of the Gainful Employment Rule

I arrived at the U.S. Department of Education in early 2009, in the midst of the for-profit feeding frenzy and a deepening recession that was prompting even more adults to consider college as a way to improve their job prospects. With an economic stimulus bill putting even more federal money into higher education, I brainstormed with the career staff about ways we could bolster our oversight to prevent abuses of the aid programs. In May, we announced public sessions for input on seven topics. One of them was “gainful employment in a recognized occupation.”46 In my role as a deputy undersecretary of education, I asked in a follow-up conference call whether “it might make sense to have some clarifications” regarding the meaning of the words in the law.47

We at the department did not have a particular approach in mind for defining the phrase. I contacted my counterpart at the Department of Labor to inquire about the possibility of that agency playing a role in connecting the provided training to recognized occupations, based on their system of job classifications, which include descriptions of job skills and responsibilities (see energy auditor, for example). They were not interested in teaming up. Further, for-profit programs had crept so far beyond job-specific training that the idea of reining them back in was not politically realistic. Instead, the idea that gained currency was to focus on the first part of the phrase: Are the program’s job outcomes “gainful employment”?

After extensive analysis and input from the industry and from consumer advocates, the department (shortly after I left in July 2010) proposed a rule that would end federal aid eligibility for programs that failed certain debt-earnings benchmarks. The approach, amended and finalized in 2011, also included a loan repayment measure as a second-chance way that a program could remain eligible for aid.

The industry sued to stop the rule, successfully convincing a judge that one provision of the rule lacked adequate justification. Ironically, the provision was the repayment threshold, which had been set not based on any research but instead—I know because I was there—to ensure that the number of programs that could ever fail could not be so high that it would become difficult to sustain politically, given the industry’s friends in Congress. The revised version of the rule, adopted in 2014, eliminated the repayment rate metric, resulting in a rule that was somewhat tougher.

Tougher, but the 2014 rule was still exceedingly generous. For a bachelor’s degree program to fail, for example, it would have to exhibit, over multiple years, more than triple the debt burden average of public and nonprofit institutions. Most for-profit colleges—82 percent—had no failing programs at all, based on the data available in 2017. Further, the rule was having the intended effect: companies were reducing tuition and emphasizing programs with strong employment outcomes.48

But Secretary of Education Betsy DeVos wanted the gainful employment rule gone, so she repealed the regulation.49 A former for-profit school investor herself, she said it discriminated against for-profit schools, ignoring her own department’s data showing that nonprofit requirements—which for-profit colleges do not follow, to the detriment of their students—result in substantive improvements in outcomes and consumer protection.50

The Department of Education—now under the Biden administration—is currently planning to propose a third version of the gainful employment rule. In early 2022, the department convened stakeholders, including TCF Senior Fellow Carolyn Fast, for discussions of possible approaches. Drafts from the department suggest that the agency will likely propose something similar to the 2014 debt-to-earnings ratio approach, with the addition of a requirement that programs meet a minimum earnings threshold pegged to typical earnings of workers with only a high school diploma.51 The department will consider public comments before finalizing a new rule later this year.

Accountability for Federal Aid

Compared to nonprofit schools, for-profit colleges are demonstrably more hazardous for consumers and taxpayers, and we know why: they lack the restrictions that come with being nonprofit. The additional danger justifies avoiding government investment in for-profit colleges altogether, as many state and federal programs do. For the federal aid program, the inclusion of for-profit providers makes additional consumer protections an imperative. The gainful employment rule creates the right incentives for for-profit owners, countering the internal pressures to oversell their wares and to underinvest in students.

The GE rule is hardly a panacea, turning away only the worst of the bad programs from the federal funding spigot. With the growing use of federal aid by all colleges, and parent and graduate loan programs lacking any loan limits at all, the evidence is mounting that federal aid is playing a role in pushing up tuition higher than it should be in components of all sectors, undermining the affordability that is the core intention of the aid programs. In addition to GE, Congress and the Biden administration should take steps to regulate tuition in programs that are reliant on federal aid, in the same way that Medicare and other government programs refuse to pay just any price the provider decides to charge.

Capping tuition is an idea that has bipartisan support,52 and can be designed in ways that honors the missions of nonprofit and public higher education. That will take some time, though, so for now, the Biden administration is taking the right step in protecting consumers and taxpayers from the most dangerous threat: a resurgence of predatory for-profit operators.

Notes

  1. Section 103(b)(1) of the Higher Education Act of 1965 as amended.
  2. See the series of reports by David Whitman and Robert Shireman, The Cycle of Scandal at For-Profit Colleges, The Century Foundation, “https://tcf.org/topics/education/the-cycle-of-scandal-at-for-profit-colleges/.
  3. “The profit incentive can be a dynamic force shaping change in any industry. Yet there remain questions about reliance on for-profit firms in such industries as higher education, where it is clear from both theory and evidence that judging quality of education is difficult, as is gauging the quality of a school’s research and public service activities. Careful oversight by both government and accrediting bodies, and the development of strong school reputations over time, can help, but the history of the higher education industry suggests that oversight is difficult and costly and reputations are not easily built. It is costly, for example, to prevent ‘cherry-picking,’ a process through which a school has the financial incentive to attract only the most profitable students. These might be low-income students who would qualify for federal grants to pay the school’s tuition but who, being ill-prepared for college and having little interest in it, are unlikely to benefit. The probable result is that the school is paid but the student accomplishes little or nothing except for taking on student-loan debt.” Burton A. Weisbrod, Jeffrey P. Ballou, Evelyn D. Asch, Mission and Money: Understanding the University (New York: Cambridge University Press, 2008), 54–55.
  4. Other countries marvel at our colleges’ success in teaching students to think and act “beyond conventional wisdom” in ways that are entrepreneurial rather than narrowly career-focused. Ben Wildavsky, “While liberal arts decline in U.S., China and other economic rivals add them,” Hechinger Report, March 18, 2016, http://hechingerreport.org/while-liberal-arts-decline-in-u-s-china-and-other-economic-rivals-add-them/.
  5. Trustees of Dartmouth College v. Woodward; see https://www.oyez.org/cases/1789-1850/17us518.
  6. See Dartmouth College Charter, available at Dartmouth College, https://www.dartmouth.edu/library/rauner/dartmouth/dartmouth-college-charter.html.
  7. Trustees of Dartmouth College v. Woodward, 17 U.S. 518 (1819), https://supreme.justia.com/cases/federal/us/17/518/#tab-opinion-1918147.
  8. “European private universities are very much funded and regulated by public authorities; American private universities are not.” The competition from, and example of, private universities has led to U.S. public universities having greater autonomy. Philippe Aghion, Mathias Dewatripont, Caroline M. Hoxby, Andreu Mas-Colell, and Andre Sapir, “The governance and performance of universities: Evidence from Europe and the US,” National Bureau of Economic Research, April 2009, 26, https://www.nber.org/papers/w14851.
  9. The United States stands out in having created this buffer: most countries keep accreditation in-house, as a function of the government, and do not delegate it. “About Accreditation,” Council for Higher Education Accreditation, accessed May 11, 2023, https://www.chea.org/about-accreditation.
  10. Robert Shireman, “How For-Profits Masquerade As Nonprofit Colleges,” The Century Foundation, October 7, 2020, https://tcf.org/content/report/how-for-profits-masquerade-as-nonprofit-colleges/.
  11. Nonprofit colleges outside of the United States typically have a proprietor and “act much like the for-profit form,” putting limited resources into quality and having “low expectations for students.” Kevin Kinser, Daniel C. Levy, Juan Carlos Silas Casillas, Andres Bernasconi, Snejana Slantcheva-Durst, Wycliffe Otieno, Jason E. Lane, Prachajani Praphamontripong, William Zumeta, and Robin LaSota, “Special Issue: The Global Growth of Private Higher Education,” ASHE Higher Education Report 36 (2010). Furthermore, in some countries, a for-profit company can essentially own a nonprofit that it profits off of, an arrangement prohibited in the U.S. See Robert Shireman, “How For-Profits Masquerade As Nonprofit Colleges,” The Century Foundation, October 7, 2020, https://tcf.org/content/report/how-for-profits-masquerade-as-nonprofit-colleges/.
  12. The history of IRS enforcement is described in Helge, Terri Lynn “Policing the Good Guys: Regulation of the Charitable Sector through a Federal Charity Oversight Board,” Cornell Journal of Law and Public Policy 19, no. 1 (2009), http://scholarship.law.cornell.edu/cjlpp/vol19/iss1/1.
  13. Lloyd Hitoshi Mayer, “Fragmented Oversight of Nonprofits in the United States: Does It Work? Can It Work?” Chicago–Kent Law Review 91, no. 3 (2016), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2744820#.
  14. Robert Shireman, “For-Profit Colleges and Endowments,” The Century Foundation, September 9, 2015, https://tcf.org/content/commentary/for-profit-colleges-have-no-right-to-point-fingers-at-endowed-universities/
  15. Burton A. Weisbrod, The Nonprofit Economy (Cambridge, Mass.: Harvard University Press, 1988).
  16. Ibid., 158–59.
  17. Gordon C. Winston, “Subsidies, Hierarchy and Peers: The Awkward Economics of Higher Education,” Journal of Economic Perspectives 13, no. 1 (1999): 13–36, https://www.aeaweb.org/articles?id=10.1257/jep.13.1.13.
  18. Final Regulations, U.S. Department of Education, Federal Register, September 22, 2019, https://www.regulations.gov/document/ED-2018-OPE-0027-31922.
  19. Stephanie Riegg Cellini, “For-Profit Colleges in the United States: Insights from Two Decades of Research,” EdWorkingPaper, 2021, retrieved from Annenberg Center at Brown University, https://edworkingpapers.com/sites/default/files/ai21-398.pdf.
  20. “Student Loan Repayment Rates Vary by Where Students Go and Where They Complete,” The Institute for College Access and Success, September 23, 2016, updated March 20, 2017, https://ticas.org/blog/student-loan-repayment-rates-vary-where-students-go-and-whether-they-complete.
  21. “Federal Student Loan Default Rate Rises for the First time in 4 Years,” The Institute for College Access and Success, September 27, 2017, https://ticas.org/sites/default/files/pub_files/cdr_nr_sept_27.pdf.
  22. Fifty-two percent of for-profit borrowers defaulted, compared to 17 percent and 18 percent of public and nonprofit four-year colleges, respectively. At community colleges, where far fewer students borrow, 26 percent of the borrowers defaulted during the twelve years. Jennie Woo, Alexander Bentz, Stephen Lew, Erin Dunlop Velez, and Nichole Smith, “Repayment of Student Loans as of 2015 Among 1995–96 and 2003–04 First-Time Beginning Students: First Look,” (NCES 2018-410), U.S. Department of Education, National Center for Education Statistics, October, 2017, https://nces.ed.gov/pubs2018/2018410.pdf.
  23. Andrew Rosen, CEO of Kaplan Higher Education, in his book Change.edu, quoted by Robert Shireman, “‘Change.edu’ and the Problem with For-Profits,” The Chronicle of Higher Education, January 31, 2012, https://www.chronicle.com/article/change-edu-and-the-problem-with-for-profits/.
  24. “For example, during the housing bubble of the 2000s, all major U.S. financial institutions operated in mortgage markets securitizing, selling, and marketing risky mortgages. In the aftermath of the crisis, it was quite difficult to prove that their directors and officers were aware of the implications of those risky mortgages.” Jean Braucher and Barak Orbach, “Scamming: The Misunderstood Confidence Man,” Yale Journal of Law and the Humanities 27, no. 2 (2015), http://digitalcommons.law.yale.edu/yjlh/vol27/iss2/2.
  25. Kevin P. Bower, “‘A favored child of the state’: Federal Student Aid at Ohio Colleges and Universities, 1934–1943,” History of Education Quarterly 44, no. 3 (2004): 364–87, http://dx.doi.org/10.1111/j.1748-5959.2004.tb00014.x.
  26. David Whitman, “Truman, Eisenhower and the First GI Bill Scandal,” The Century Foundation, January 24, 2017, https://tcf.org/content/report/truman-eisenhower-first-gi-bill-scandal/.
  27. Public Law 85-864 made funds available to students at “public or other nonprofit institutions.”
  28. David Whitman, “Vietnam Vets and a New Student Loan Program Bring New College Scams,” The Century Foundation, February 13, 2017, https://tcf.org/content/report/vietnam-vets-new-student-loan-program-bring-new-college-scams/.
  29. The U.S. Department of Education regulations defined “recognized occupation” as the jobs listed in the U.S. Department of Labor’s Dictionary of Occupational Titles. However, schools were not on the hook to link their programs to specific job titles and job responsibilities. See Session One, “Issue Paper #6: Team I—Program Integrity Issues: Gainful Employment in a Recognized Occupation, Program Integrity Negotiated Rulemaking, available at https://www2.ed.gov/policy/highered/reg/hearulemaking/2009/integrity.html.
  30. “The Condition of Education: Undergraduate Enrollment,” National Center for Education Statistics, May 2016, https://nces.ed.gov/programs/coe/indicator_cha.asp.
  31. “New Analysis Finds Many For-Profits Skirt Federal Funding Limits,” U.S. Department of Education, December 21, 2016, https://www.ed.gov/news/press-releases/new-analysis-finds-many-profits-skirt-federal-funding-limits.
  32. Lucinda Shen, “For-Profit Colleges Account for a Third of All Federal Student Loan Defaults,” Fortune, September 29, 2016, fortune.com/2016/09/29/student-loan-defaults-2/.
  33. Scott A. Ginder, Janice E. Kelly-Reid, Farrah B. Mann, “Postsecondary Institutions and Cost of Attendance in 2015–2016; Degrees and Other Awards Conferred, 2014–15; and 12-Month Enrollment, 2014–15,” National Center for Education Statistics, July 2016, https://nces.ed.gov/pubs2016/2016112.pdf.
  34. Mary Beth Marklein, “For-profit colleges see major gains in past decade,” USA Today, May 26, 2011, http://usatoday30.usatoday.com/news/education/2011-05-26-for-profit-college-undergraduate-enrollment_n.htm.
  35. For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success, Senate Committee on Health, Education, Labor, and Pensions, 112th Cong., 2nd Sess., S. Prt. 112-37, vol. 1, July 30, 2012, https://www.govinfo.gov/content/pkg/CPRT-112SPRT74931/pdf/CPRT-112SPRT74931.pdf.
  36. A 2010 Senate report from Senator Tom Harkin’s HELP committee notes that in the first quarter of 2010, the Apollo Group reported an enrollment of 458,600 students, “more than the undergraduate enrollment of the entire Big Ten conference.” “Emerging Risk? An Overview of Growth, Spending, Student Debt and Unanswered Questions in For-Profit Higher Education,” Senate Health, Education, Labor, and Pensions Committee, June 24, 2010. Also see the University of Phoenix annual report, 2010, available at https://www.phoenix.edu/about_us/publications/academic-annual-report/2010.html.
  37. “ABC News Investigates For-Profit Education: Recruiters at the University of Phoenix,” ABC News, August 16, 2010, https://abcnews.go.com/TheLaw/profit-education-abc-news-undercover-investigate-recruiters-university/story?id=11411379.
  38. Tamar Lewin, “For-Profit Colleges Face a Loan Revolt by Thousands Claiming Trickery,” New York Times, May 3, 2015, http://www.nytimes.com/2015/05/04/education/for-profit-colleges-face-a-loan-strike-by-thousands-claiming-trickery.html?_r=1.
  39. Chris Kirkham, “For-Profit College Recruiters Taught To Use ‘Pain,’ ‘Fear,’ Internal Documents Show,” Huffington Post, February 8, 2011, http://www.huffingtonpost.com/2011/02/08/for-profit-college-recruiters-documents_n_820337.html.
  40. “For-Profit College Kaplan To Refund Federal Financial Aid Under Settlement With United States,” U.S. Department of Justice, January 5, 2015, https://www.justice.gov/usao-wdtx/pr/profit-college-kaplan-refund-federal-financial-aid-under-settlement-united-states.
  41. Jillian Berman, “Whistleblower suit against for-profit college charges schemes against students,” Marketwatch, January 21, 2016, http://www.marketwatch.com/story/at-itt-tech-a-greatest-hits-of-abuses-attorney-2016-01-21.
  42. Andrew Wolfson, “Students sue over Daymar College ‘lies,’” Courier-Journal, April 14, 2014, http://www.courier-journal.com/story/news/education/2014/04/08/students-sue-daymar-college-lies/7479559/.
  43. Abby Jackson, “Guy who spent $37,000 on a computer-science degree can’t get a job at Best Buy’s Geek Squad,” Business Insider, April 14, 2015, http://www.businessinsider.com/profile-of-corinthian-student-michael-adorno-2015-4#ixzz3XJ82Dkmh.
  44. Michael Vasquez and Jay Weaver, “Florida college chain FastTrain scammed taxpayers, feds say,” Miami Herald, October 3, 2014, http://www.miamiherald.com/news/local/community/miami-dade/article2485300.html.
  45. “Frederick M. Hess, resident scholar and director of education policy studies at AEI, said that it was ‘absolutely a no-brainer that the proprietary higher ed sector is rife with sleazy operators,’ pointing to for-profit institutions’ ability to accept federal financial aid from students as the root cause of those problems.” Jennifer Epstein, “Congressional Chaos?” Inside Higher Ed, November 10, 2010, https://www.insidehighered.com/news/2010/11/10/congressional-chaos#.
  46. Federal Register Notice, U.S. Department of Education, May 26, 2009, https://www.federalregister.gov/documents/2009/05/26/E9-12092/negotiated-rulemaking-committees-establishment.
  47. Conference Call with Deputy Undersecretary Robert Shireman of the U.S. Department of Education, May 29, 2009, transcript available at https://www2.ed.gov/policy/highered/reg/hearulemaking/2009/negreg-summerfall.html#gedt.
  48. Robert Shireman, “What Does the Gainful Employment Rule Mean for Career Schools Seeking Access to Federal Aid?” The Century Foundation, March 27, 2017, https://tcf.org/content/facts/gainful-employment-rule-mean-career-schools-seeking-access-federal-aid/.
  49. Yan Cao and Robert Shireman, “Betsy DeVos’s Shameful Repeal of the Gainful Employment Rule,” The Century Foundation, July 1, 2019, https://tcf.org/content/commentary/betsy-devoss-shameful-repeal-gainful-employment-rule/.
  50. David Whitman and Arne Duncan, “Betsy DeVos and her cone of silence on for-profit colleges,” Brookings Institution, October 17, 2018, https://www.brookings.edu/research/betsy-devos-for-profit-colleges-education-america/.
  51. Documents related to the discussions Negotiated Rulemaking 2021–22 website, https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html?src=rn. Also see “Issue Paper 3: Gainful Employment,” Session 3, U.S. Department of Education, March 14–18, 2022, https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/isspap3gainempl.pdf.
  52. Carolyn Fast, Robert Shireman, and Alex Edwards, “College Tuition Is Out of Control,” The Century Foundation, https://tcf.org/content/commentary/college-tuition-is-out-of-control-voters-want-government-to-do-something/.

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