The Washington PostDemocracy Dies in Darkness

How Betsy DeVos could trigger another financial meltdown

For-profit colleges need more oversight, not less.

U.S. Education Secretary Betsy DeVos participates in a Federal Commission on School Safety meeting at the White House, Aug. 16. (Leah Millis/Reuters)

Education Secretary Betsy DeVos once compared opponents of market-based education reforms to “flat-earthers” — suggesting they tend to ignore evidence.

When it comes to her market-based vision for deregulating education, especially higher education, it is DeVos who appears to be guilty of ignoring historical evidence.

DeVos has made deregulating higher education a top priority for the Education Department. Most controversially, she threw out guidelines established during the Obama administration related to transgender students and sexual assault.

Both moves provoked outrage, but another, lower-profile decision has the potential to affect millions of Americans — and not for the better. DeVos has targeted key accreditation policies — those which determine whether colleges and universities meet minimal standards — for reduction or elimination. She is motivated, in part, by her belief that for-profit colleges and universities did not receive a fair shake under the previous administration.

On this score, DeVos is unequivocally on the wrong side of history and risks creating the kind of moral hazard that led to the global banking collapse of 2007 and 2008.

Without strict regulation, enforcement and consequences for illegal actions, sectors like banks and for-profit higher education tend to run amok. It is the taxpayer who gets stuck with the bill once the “innovation” and “deregulation” free-for-all is over.

We know this because for-profit education is not a new innovation. For centuries, for-profit institutions have developed alongside traditional ones. But they have been guided by a different metric: the profit margin. All too often, these institutions have favored owners, operators and shareholders at the expense of students and educational standards.

Consider, for instance, the case of medical education.

When the nonprofit University of Pennsylvania launched the first American medical school in the 1760s, the curriculum was informed by what trained physicians at the time believed students needed to learn. The school's founder, physician John Morgan, and its first faculty all received training at the well-established University of Edinburgh. Morgan and his team deliberately tied themselves to a traditional university to emphasize rigorous academics and affiliated themselves with a hospital to supplement book-learning with practical bedside teaching. This established a standard followed by major nonprofit medical schools that continues to the present.

The same could not be said of for-profit medical schools in the late 18th and early 19th centuries.

Early investigations found they cut corners to make their curriculum more attractive but less rigorous. Those that cropped up near the University of Pennsylvania’s school offered doctoral degrees in the same time it took students to finish a bachelor's degree. This created a downward pressure on standards for early American medicine, as students gravitated toward these shorter and less demanding programs of study. This meant fewer students for nonprofits, forcing them to lower their standards just to compete.

For such reasons, the Council on Medical Education later called for-profit medical schools an ongoing “menace” to the profession.

The pattern in medical education repeated itself in other academic areas, including law. By the start of the 20th century, the American Bar Association felt compelled to declare: “We believe that law schools should not be operated as commercial enterprises, and that the compensation of any officer or member of its teaching staff should not depend on the number of students or on the fees received."

This conclusion stemmed in part from investigations that showed explicit fraud, false advertising and reduced standards in for-profit higher education.

During virtually every decade of the 20th century, local, state and federal agencies reported similar troubles with the sector and documented widespread for-profit abuses. Despite this, Congress allowed the sector to receive federal education funding through the GI Bill of 1944 and the Higher Education Act of 1965. As for-profits gained increasingly larger slices of the funding pie, a specialized accreditation industry sprang up to meet their needs.

By the 1980s, for-profit operators could pick from no fewer than seven accreditation agencies to help them gain access to federal funding. If one did not give for-profits a seal of approval, they could move on to another until they found one that would.

In the 1980s and 1990s, Congress caught on to the problem of lax accreditation standards. Their investigations found industrial-size Pell grant scams, for-profits with fake student names and invented identities, whistleblowers testifying to illegal recruitment practices and even a “nursing school” accessed through a hole in the drywall of an X-rated video store.

All of these institutions received federal funding, which meant an accreditor had given them a clean bill of health.

A bipartisan consensus emerged that for-profits needed oversight. During his tenure as U.S. Education Secretary in the 1980s, the conservative William J. Bennett decried how “exploitative and deceitful practices characterize too many proprietary institutions.” Decades later, the liberal stalwart Sen. Tom Harkin could be heard saying the same thing. “These practices,” he reminded Americans, “are not the exception — they are the norm.”

The solution, these critics agreed, was tougher accreditation standards for for-profits — not more lenient ones.

DeVos, however, appears to be ignoring this history. She is overriding objections and data from her staff to bring the Accrediting Council for Independent Colleges and Schools (ACICS) back from the dead. ACICS was the lead accreditor for for-profit colleges and universities until the Obama administration deemed it unfit for determining a college’s eligibility for accessing federal student-aid programs.

This judgment stemmed from ACICS giving positive reviews to for-profits like Corinthian Colleges and ITT Tech right up until their collapse in 2015 and 2016. The accreditor found no wrongdoing or violations for either company, despite multibillion-dollar class-action lawsuits against them. More than a dozen state attorneys general and thousands of students rallied against business practices involving false advertising, wholesale fraud and worthless degrees. Somehow, ACICS could not find any of this when writing up its accreditation reports.

DeVos has kept ACICS in business, and today it continues to certify the quality of 85 for-profits rejected by other accreditors. This fits with DeVos’s agenda of giving for-profit colleges and universities favorable treatment.

History tells us such moves create predictable and preventable moral hazards. There is good reason, based on historical experience, the agency’s past inspector generals have devoted approximately 75 percent of their enforcement attention to the for-profit sector. Deregulating accreditation will only make their job more difficult.

Under lax accreditation standards and enforcement policies, for-profits will predictably cut corners, violate norms and break the law in pursuit of profits. That is a historical inevitability. Market-based models are driven by quarterly reports, earning statements and chief executive officers accountable to owners and shareholders, not professional standards and disciplinary norms. As one of many for-profit whistleblowers noted, “Quality education and higher earnings are two masters. You can’t serve both.”

Staying the present course charted by DeVos will expose taxpayers to moral hazards not seen since the financial crisis. With more than $1.3 trillion in student debt sloshing around in the economy, the last thing we need is to deregulate or experiment with “innovative” accreditation practices. Doing so, especially when it comes to for-profit colleges and universities, is about as informed as subscribing to the Flat Earth Society’s platform. Future generations will judge us as harshly.