In July, U.S. Secretary of Education Betsy DeVos announced the formation of a negotiated rulemaking committee to develop regulations to expand access for students to “high-quality, innovative programs” by revising or rescinding a sweeping range of Department regulations. Among regulations slated for review as part of her self-described “rethink” of higher education, Secretary DeVos included rules governing how online programs are approved and operated, including the statutory requirement that they ensure instructors have “regular and substantive interaction” with students to maintain eligibility for federal financial aid.¹ But a look back at history reveals that the regulations that Secretary DeVos plans to rewrite or eliminate have their origins in abuses of federal aid dollars by an earlier form of distance education—correspondence programs, the precursor to today’s distance education.

Correspondence education dates back to the late 1800s, when schools and companies would send out lessons by mail to subscribers. But these programs didn’t become giant government-subsidized enterprises, in some cases with tens of thousands of postsecondary students, until after World War II, when Congress for the first time allowed veterans to use their GI Bill benefits to pay for correspondence courses.² The flow of federal funds to these programs attracted fraudsters, who charged hundreds of dollars to provide course materials in everything from writing, to cartooning, to starting correspondence schools in anything under the sun, even skydiving. From the 1950s on, policymakers spent decades trying to put the federal-subsidy genie back in the bottle through periodic crack-downs on the use of federal dollars by for-profit correspondence programs.

College-by-mail courses typically forced students to study and master the material themselves, without adequate support from instructors and experts in the field.

Blatant abuse of the federal financial aid system forever changed the post-war regulation of higher education in America. College-by-mail courses typically forced students to study and master the material themselves, without adequate support from instructors and experts in the field. In May 1970, the New York Times published a front-page exposé on correspondence programs that found “education-hungry Americans are quietly pouring hundreds of millions of dollars each year into an industry plagued by overblown advertising, fast talking salesmen, questionable instruction, and marginal results. By the uncounted thousands, people long on dreams but short on background and motivation pay the nation’s booming correspondence schools for painless learning and a ticket to surefire success.”³ A 1972 Government Accountability Office (GAO) study of veterans enrolled in correspondence courses found that three-fourths never graduated and just 6 percent found work in their fields of study.

A second wave of abuses occurred in the 1970s after Congress allowed students to use federally guaranteed student loans to pay for correspondence courses. With a new source of federal dollars, correspondence schools had a much larger constituency of students beyond veterans to target for enrollment, and the schools began to swell into postsecondary behemoths, with some enrolling tens of thousands of students apiece. The same problems of aggressive recruitment, poor-quality educational outcomes, and waste of taxpayer dollars that Congress had begun to tamp down with the veterans’ programs returned with a vengeance through the federal student aid system. Once again, Congress spent years cracking down on the programs while it continued to pour money into them, before sharply curtailing federal grants and loans from the Education Department to correspondence programs in 1992.

Today, that same cycle of increased access to federal funding, followed by abuses of students and taxpayers, appears set to repeat itself. Secretary DeVos has proposed weakening the restrictions on distance education programs, allowing them to operate more like the correspondence courses of yesteryear, where students are left to learn on their own—all in the name of innovation. Virtually every argument made now in favor of deregulating online learning to enhance innovation was previously made in favor of deregulating the correspondence, or “home study” schools that delivered courses by mail.

To take one example, supporters of deregulation in higher education argue now—as they did then—that the government role in higher education should be largely limited to maximizing educational choice, with students themselves bearing the primary responsibility for taking out federal loans and using grants to advance their career goals. Market-based “accountability” would substitute for federal accountability guardrails for protecting consumers and taxpayer dollars, or so the argument has gone. Deregulation advocates today, just like their predecessors, maintain that, to the extent that the educational quality of programs is subject to independent review, private accrediting agencies alone should bear the responsibility for assessing and certifying program quality, not government agencies. And they insist that federal laws and regulations that restrict online learning will only impede quality innovation, not nurture it.

As history shows, providing taxpayer dollars with few safeguards to new and untested distance education programs has consistently produced poor quality programs, excessive consumer costs, and unfair recruiting practices.

Yet as history shows, providing taxpayer dollars with few safeguards to new and untested distance education programs has consistently produced poor quality programs, excessive consumer costs, and unfair recruiting practices. In particular, the perverse financial incentives in for-profit higher education to make a buck by cutting corners in educating students⁴ underscores the vital role that government regulation plays in saving the for-profit industry from its worst excesses. And the risks of poor-quality distance-education programs today extend beyond the for-profit sector, where half of students are enrolled in entirely online courses. Nearly three million students are enrolled in exclusively online courses in the larger public and private nonprofit sectors, more than three times as many as in the for-profit sector.⁵ As colleges across sectors struggle to maintain enrollment and revenue, the dangers of a race to the bottom are real. It is only by imposing regulations and laws that Congress and the executive branch have periodically succeeded in curbing abuses and provided incentives for quality education and innovation. When done well, regulation has been both the salvation and necessary corrective of the higher education sector, as the cautionary saga of correspondence schools illustrates, time and again.

Until the passage of the original GI Bill, federal student aid as we know it now essentially did not exist.⁶ After the passage of the 1944 Servicemen’s Readjustment Act, known as the GI Bill of Rights, the federal government for the first time provided educational grants or scholarships to millions of veterans. The 1944 GI Bill is rightly remembered as one of the most effective social policy programs and government interventions in U.S. history, earning the sobriquet "The Greatest Legislation." By the fall of 1946, more than one million veterans had enrolled in American universities, doubling the size of the student population almost overnight.⁷ In total, thanks to the GI Bill, more than 2 million World War II veterans went to college, and millions more were able to obtain low-interest loans to buy a home.

Yet what has been largely forgotten is that the GI Bill also led to widespread scandals and systematic abuses at for-profit schools, including at for-profit correspondence or home study schools. Mail-order correspondence courses, used primarily by high school and grade school dropouts seeking to improve their career prospects, were popular in the 1920s.⁸ But mail-order programs were largely eviscerated by the Depression and the movement to make high school education universal.⁹ Correspondence programs developed a reputation for misleading advertising, overblown job promises, and hucksterism, memorably captured by Sinclair Lewis in his 1922 satirical novel, Babbitt.¹⁰ However, up until the GI Bill, these programs faced little regulation, targeted adults without a high school diploma, and were not subsidized by the federal government. That all changed in December 1945, when Congress amended the just-passed 1944 law to allow veterans to use their educational benefits for correspondence courses and to raise the monthly subsistence payments to veterans that supplemented their tuition payments, to the point where the monthly subsistence payments exceeded the amount of unemployment benefits or wages that veterans could earn in some parts of the country.

In the five years that followed Franklin Roosevelt’s signing of the 1944 law, the total number of for-profit schools in the United States tripled, from 1,878 to 5,635.¹¹ Thousands of new ones opened to serve veterans, and thousands more, ill-suited to provide an education, closed.¹² Contrary to conventional wisdom, more veterans actually used their educational benefits to attend for-profit schools than went to four-year colleges and universities. And many of those programs utilized correspondence education. While 2.2 million vets went to college on the GI Bill, 2.4 million GIs used their educational benefits to enroll in trade and technical and business schools, with another 637,000 veterans taking correspondence courses.¹³

Correspondence programs developed a reputation for misleading advertising, overblown job promises, and hucksterism.

The abrupt explosion in the number of for-profit schools—the vast majority of which were heavily or entirely dependent on federal dollars—fed a simultaneous explosion in misleading advertising, predatory recruiting practices, sub-standard training, outright fraud, and even abuses by GIs themselves. Tens of thousands of veterans trained for jobs in overcrowded fields in which there were no job openings. GIs who wanted to collect their monthly subsistence checks but had no clear educational or occupational objective were allowed to switch willy-nilly from one field to another. And thousands of veterans signed up for recreational or avocational courses, many offered by correspondence, like bartending, personality development, dancing, and auctioneering. Others had the VA pay for TV repair courses and then dropped out of their courses as soon as they got their promised free television. In 1949 alone, nearly 550,000 veterans made course changes.¹⁴ Course and credit hours varied widely too. Bartending courses, offered in-person or by correspondence, ranged from 200 hours of instruction to seven months in duration.¹⁵

It didn’t take long before newspaper and magazine exposés about unscrupulous trade school owners and deceived GIs started popping up all over the country. The Saturday Evening Post ran a piece in 1946 headlined “Are We Making a Bum Out of GI Joe?” Other newspapers and magazines ran stories with headlines like “How Many Wrongs Make a GI Bill of Rights?” and “There’s a Shell Game at Every Turn for a Man with an Eagle on His Lapel.”¹⁶ An article in Collier’s in 1948 concluded that while the Veterans Administration lacked the funds to staff some VA hospitals, "there has been plenty to pay for the training of ballroom dancers, bartenders, amateur photographers, amateur piccolo players, horseback riders and chicken sexers….we have squandered at least half a billion dollars supporting what in many instances is the greatest boondoggle of all time: the questionable Veterans’ Education programs."¹⁷

Then-chair of the education subcommittee of the House Committee on Veterans’ Affairs, Homer Ramey (R-OH), published his own piece in Collier’s a week later, noting that for-profit operators “have established schools that are highly questionable in character—schools in which are taught subjects that are of no benefit to the veteran-student, and that milk the federal Treasury of the taxpayers' funds without giving any worthwhile return, either to the veteran or to the public.”¹⁸ With lawmakers’ concerns growing, Congress banned the use of GI educational benefits for avocational or recreational courses, many of which were offered by correspondence, in 1948. The new law barred the VA Administrator from approving the enrollment of a veteran in “any bartending course, dancing course, or personality development course…in any photography course or entertainment course; or in any music course—instrumental or vocal—public speaking course, or course in sports or athletics such as horseback riding, swimming, fishing, skiing, golf, baseball, tennis, bowling, [and] sports officiating.”¹⁹

Later changes by Congress further narrowed the scope of schools and programs that could access GI Bill education benefits, including restrictions on training in occupations the state determined were overly crowded, a common problem for correspondence programs. Misleading advertising and solicitations from the new for-profit trade schools and correspondence schools were so widespread that the National Association of State Approval Agencies passed a sweeping resolution in 1949 urging states to take cooperative action to “prevent any advertising, in oral, written, or printed form, which includes statements, illustrations, implications, or omissions, tending to mislead the public and the veteran.”²⁰

The prevalence of misleading advertising and fraud made it difficult for the VA and overwhelmed state approving agencies to distinguish between legitimate correspondence programs and mail-order diploma mills, schools that automatically dispensed degrees without requiring work or evidence of learning from students. In February 1950, the New York Times reported that “More than 1,000 questionable or outright fraudulent schools and colleges in this country are fleecing unsuspecting students of millions of dollars annually. At least 100 are nothing more than ‘diploma mills’.” According to the Times’ investigation, “A large proportion of the [questionable or fraudulent colleges] are correspondence schools and engage in false and misleading advertising to attract unwary students. Those enrolling in the courses receive promises of all kinds of college degrees as well as highly-paid jobs in government or private industry.”²¹

A House investigation found “there is no doubt that hundreds of millions of dollars have been frittered away on worthless training."

By 1950, both congressional leaders and President Truman had become critics of the for-profit sector. The previous year, Senator Elbert Thomas (D-UT), chairman of the labor committee, asked VA Administrator Carl Gray to prepare a report on education and training under the GI Bill. Gray’s 200-page study, released in January 1950, was a sharp indictment of the trade school and correspondence school industry, noting that “most of the problems encountered by the Veterans’ Administration since 1947 in the administration of the education and training program have occurred in connection with these new schools.”²² A subsequent report issued by a House select committee tasked with investigating education and training programs under the GI Bill found that many for-profit schools “offered training of doubtful quality,” “exploitation by private schools has been widespread,” and “many schools have offered courses in fields where little or no employment opportunity existed.” “There is no doubt,” the committee concluded, “that hundreds of millions of dollars have been frittered away on worthless training.”²³

When Congress passed the Korean War GI Bill in 1952, lawmakers sought to curtail the abuses by correspondence programs and trade schools.²⁴ That law made further changes to the eligibility of certain types of programs and attempted to cut down on programs that offered little value, mandating that veterans had to identify a specific educational, professional, or vocational goal and enroll in courses consistent with that goal. Even more consequential, it eliminated the system of paying benefits directly to postsecondary institutions, including proprietary schools, and instead provided a basic lump-sum monthly payment directly to student veterans to cover tuition, books, and educational supplies.²⁵ Due largely to the new restrictions, the for-profit sector stopped expanding and instead shrank rapidly. In 1952, more than 600,000 World War II veterans were enrolled in proprietary schools under the original GI Bill; by 1954, their numbers had fallen to about 150,000.²⁶

In January 1955, President Eisenhower established a Commission on Veterans’ Pensions to study the question of what benefits should be offered to post-Korean War “peacetime” veterans, and appointed his friend, the famed general Omar Bradley, as chairman. The committee, which came to be known as the Bradley Commission, took 15 months to complete its report and commissioned several studies of veterans’ educational benefits. “The Government,” the Bradley Commission stated in its spring 1956 final report, “was overcharged for much of the training in schools below [the] college [degree-granting] level, particularly in profit schools.”²⁷ Many veterans, the commission concluded, enrolled in courses in “occupational fields where the employment prospects were far from good,” and “much of the training in profit schools was of poor quality."²⁸

No one really knew, the commission pointed out, how many veterans landed jobs in their field of training after completing their courses. What was clear, however, was that the vast majority of veterans never graduated from their proprietary school programs. The Bradley Commission’s report noted that there was “no information on the number of veterans graduated from profit schools who were actually placed in jobs for which they were trained, but it was estimated in January 1951 that of the 1,677,000 veterans who attended profit schools, only 20 percent completed their courses.”²⁹ At for-profit correspondence schools, the completion rate was even lower. Of the 286,000 veterans who took training by correspondence in the five-and-a-half years following the passage of 1944 GI bill, just 30,600 of the veterans, or 10.7 percent, had completed their home study courses. “The low rate of completion,” a commission staff analysis concluded, “suggests that many of the courses taken were of little subsequent use to the veterans.” That finding was buttressed by a 1955 Census Bureau survey of 8,000 World War II vets which found that half of those trained by correspondence said they had not used their training “at all” in subsequent jobs.³⁰

In 1965, Congress enacted President Lyndon Johnson’s landmark Higher Education Act (HEA), which dramatically expanded the role of the federal government in higher education and created the Federal Insured Student Loan (FISL) program, known today as the Stafford loan program. Due, however, to the abuses of the World War II GI Bill, Congress limited access to federal student aid for correspondence schools to programs that prepared students for “gainful employment” in a specific occupation, in keeping with previous laws that barred veterans from using their GI bill benefits for recreational or avocational courses. Thus, a student couldn’t pay for a correspondence course with a federal student loan just for the “fun” of taking the course or because he believed in exploring lifelong learning—federally subsidized correspondence courses were supposed to lead to jobs.

In 1972, Congress passed the HEA amendments and enacted a second major new program of federal grants to help low-income students attend postsecondary institutions, the Basic Educational Opportunity Grants, soon to be known as Pell Grants. Unlike the guaranteed FISL loans, Pell Grants operated like scholarships, and students did not have to repay them if they dropped out of school. The law represented a new source of funding, and an important coming of age, for trade schools and home study courses. For the first time, proprietary programs were explicitly included as part of the universe of postsecondary educational institutions eligible for federal student loans and grants.³¹ For trade school and correspondence program salespeople, the advertising slogan “Go now—pay later” became a potent selling point with customers.³²

Like the World War II GI Bill’s provision of direct tuition payments to schools, the up-front payment of tuition through guaranteed FISL loan proceeds created new perverse incentives to undermine program quality that accreditors seemed helpless to fix. In a 1974 study of accreditation, Harold Orlans and his colleagues found that “the enrollments and also dropouts of many schools rose sharply due to stepped-up recruitment, misleading advertisements, inadequate student screening…and broken promises of job placement. In conjunction with the practice of collecting the entire tuition in advance, these techniques yielded high profits, for as students dropped out, their places were quickly filled by others. So long as some tuition remained unrefunded, there was a premium on sieving large numbers of students through the doors.”³³ The result, as the Federal Trade Commission (FTC) concluded, was that “FISL monies have allowed marginal schools to add thousands of students to their rolls without regard for proper career training.”³⁴

Twisted federal incentives led correspondence programs to operate as flunk-out factories.

The Washington Star gave an even harsher assessment of this federal aim scam for veterans, noting that according to FTC testimony, some correspondence schools were “designed to be flunk-out mills, whereby a student is sold a course he is expected to flunk, a course he will have to pay for.”³⁵ A comprehensive 1968 study of correspondence instruction by the Carnegie Corporation echoed the testimony to the FTC about the profits of failure at home study schools. The Carnegie study found that “correspondence programs depend on student nonstarts [students who sign up for a course but never take a lesson] and dropouts for their financial livelihood….the nonstart who has paid a large part of his tuition generally brings a higher profit.”³⁶

The Senate Committee on Veterans Affairs reached much the same conclusion about the twisted federal incentives for correspondence programs to operate as flunk-out factories. As George Arnstein of the National Advisory Council on Education Professions Development wrote in 1974, “Correspondence schools almost certainly would be unprofitable—judging by data submitted to the Senate Committee on Veterans Affairs—if they had to process, read, and score all of the lessons students have bought and paid for. Many such schools, the committee’s legal counsel said, apparently gear their operations to the expectations that students will not complete the course, thus saving the owners millions of dollars.”³⁷

By the mid-1970s, the number of students using guaranteed loans to attend correspondence schools and trade schools had increased dramatically, so much so that the federal administrator of the guaranteed loan program was warning in internal memos of the rise of the “FISL factories.”³⁸ In FY 1970, just one student enrolled at the Commercial Trades Institute (CTI), a correspondence school, with a guaranteed loan; by FY 1973, 50,906 enrollees at CTI had guaranteed loans. At Advance Schools, another correspondence school, the enrollment of students with guaranteed loans increased nearly 67-fold over three years, from 1,209 to 80,891 students.³⁹

The home study courses of the 1970s were the early and direct predecessors to the distance learning courses offered today by many colleges. Like online learning programs today, correspondence schools in the 1970s were portrayed by industry advocates as flexible and innovative postsecondary alternatives, as “the only place in America where opportunity knocks twice”⁴⁰ and as vehicles for expanding educational choice. Correspondence education was to be the original school-without-walls that would free students from the constraints of rural isolation, socioeconomic class, local institutional limitations, and class schedules that conflicted with work and family time.⁴¹

Compared to traditional campus-based education, correspondence education by mail purportedly provided “easier access, independent learning opportunities, a more intimate interface with employment, better quality control over course materials, the possibility of cumulative improvement in pedagogic quality…and, under certain circumstances, lower costs.”⁴² Yet in practice, correspondence programs were hardly founts of innovation and often provided poor-quality education, bilking students and taxpayers out of thousands of dollars. Among those programs was the infamous case of the Famous Writers School (see Box 1).

An FTC investigation of the Famous Writers School, launched soon after The Atlantic published its exposé of the program,⁵² was only the beginning of the wave of scrutiny for correspondence schools. In the early 1970s, over 2 million Americans were enrolled in some 700 to 1,000 home study schools. Fewer than 160 correspondence schools were accredited, but many of the accredited schools, like Famous Writers, had large enrollments, totaling nearly 1.5 million students.⁵³

The explosive growth of correspondence schools was heavily fueled by federal taxpayer dollars. By December 1972, 96 proprietary institutions had become direct lender schools, meaning they had obtained federal insurance contracts and could lend money directly to students who banks otherwise might be reluctant to serve, such as those who were half-time, high-risk, or low-income. The rapid growth in direct lending at for-profit schools was largely concentrated at home study schools. At three large correspondence schools, the number of students enrolled with guaranteed student loans jumped more than 50-fold in a three-year period, from 3,972 students in 1970 to 201,731 students in April 1973, and direct lending to students at the three schools soared from $7.6 million to $81 million during the same time span.⁵⁴

The U.S. Office of Education’s first efforts to curtail abuses of federal loan dollars started with regulation to limit direct lending by schools. Changes in federal practice led to restricted lending for more than 40 non-degree-granting institutions in 1973, and the suspension or limitation of another 31 for-profit colleges.⁵⁵ But the fledgling USOE regulatory effort was noticeable for its modesty—even suspended lender schools didn’t lose access to all federal loan dollars, just direct lending authority. Meanwhile, the rapid growth in taxpayer-funded correspondence schools continued unabated. All told, roughly one in four students enrolled at accredited correspondence schools used guaranteed student loans.

The explosive growth of correspondence schools was heavily fueled by federal taxpayer dollars.

Veterans were even more likely than civilian students to enroll in correspondence schools. More than a third of all home study enrollees used GI Bill benefits to pay for their courses, according to a 1976 FTC report.⁵⁶ The extension of educational benefits to active-duty servicemembers in the Johnson administration in 1966⁵⁷ had helped to boost correspondence course enrollment, since mail-order courses were popular with GIs stationed at military bases overseas and in the United States. Of the 267,000 active-duty soldiers who used education benefits in the early 1970s, 166,000, or more than 60 percent, used them for correspondence courses.⁵⁸

As a rough rule of thumb, active duty servicemembers were more than twice as likely to take correspondence courses as veterans.⁵⁹ Moreover, unlike courses in residential schools, correspondence courses were typically taken part-time, which servicemembers could comfortably accommodate in their schedules. In a one-year span alone, from November 1970 to November 1971, the number of veterans and servicemembers taking correspondence courses jumped almost 30 percent, from 180,000 to about 231,200.⁶⁰ By 1973, 430,000 veterans and servicemembers were enrolled in correspondence schools.

Nearly 2,000 veterans took courses at Famous Writers on the taxpayer’s dime—and that figure was on the low side among the giant correspondence schools. Advance Schools, Inc., a correspondence school that went bankrupt in 1975, had more than 51,000 VA beneficiaries; Commercial Trades Institute had nearly 35,000 VA beneficiaries; and close behind was Bell & Howell Schools, with almost 34,000 VA beneficiaries.⁶¹

To put those numbers in contemporary perspective, the Post-9/11 GI Bill, enacted in June 2008, broadly liberalized educational benefits for veterans and service personnel, leading to an explosion of enrollment at for-profit schools. At the giant for-profit chain Corinthian Colleges, the number of vets enrolled tripled between 2009 and 2012 alone—to just over 6,400 veterans.⁶² Like Corinthian Colleges, Advance Schools Inc. eventually went bankrupt. But the correspondence school had eight times as many veterans enrolled as Corinthian Colleges near the peak of its veteran enrollment.

More troubling than the sheer dependency on taxpayer dollars was the fact that the return on taxpayer investment in correspondence courses appeared to be even worse than at brick-and-mortar proprietary schools. A March 1972 GAO report found that 75 percent of veterans did not complete their correspondence courses and only 6 percent of sampled veterans achieved the ultimate goal of finding gainful employment in their field of training.⁶³ As is the case today, many veterans were unaware that they had to request a refund immediately for unfinished lessons if they stopped their course,⁶⁴ and 134,000 veterans and servicemen who dropped out of courses had to pay an average of $180 out of their own pocket,⁶⁵ the equivalent of more than $1,000 today. All told, the VA paid out more than $76 million for veterans from 1966 through 1974 who had not completed their home study courses.⁶⁶

The correspondence school sector contracted during the latter half of the 1970s, primarily due to new laws from Congress and new regulations from the Veterans Administration restricting veterans’ and servicemembers’ access to correspondence courses. In 1972, Congress moved to requiring home study schools to have a pro rata refund policy for courses (with some adjustments for institutional costs),⁷⁷ reducing the amount of unused educational aid that proprietary institutions could collect from the VA after veterans dropped out of their courses. The 1972 law also stipulated that home study course contracts for veterans would only be honored if a veteran or serviceman reaffirmed his commitment to signing the contract after a 10-day “cooling off” period,⁷⁸ and beginning in 1973, GIs would have to pitch in 10 percent of the costs of home study courses for the first time from their own pockets. Moreover, the VA required counseling from company commanders or education advisors before soldiers could get reimbursement for correspondence courses.⁷⁹ Finally, correspondence course providers had to show they offered an education that would meet pre-determined occupational requirements, like preparing veterans to pass a licensing exam,⁸⁰ and refund unused tuition based on how many lessons veterans completed, rather than how much time had elapsed since enrollment.⁸¹

The 1972 amendments to the GI Bill weren’t enough to stanch fraud and abuse at correspondence schools, but lawmakers’ ongoing concerns helped prompt several congressional committees to launch investigations of the for-profit sector. In the Senate, a Veterans’ Affairs subcommittee headed by Senator Vance Hartke (D-IN) held a hearing in 1972 on correspondence school abuses of veterans. A far more extensive set of hearings was held in the House, where the Government Operations committee appointed a special subcommittee to examine abuses by proprietary vocational schools. The subcommittee’s report concluded that a “great many students are being enrolled in courses that they do not complete, especially in home study schools, and some students are the victim of outright fraud.” The report recommended that schools “disclose to prospective students the completion rate for the course being considered… [and] placement data on individuals who have completed the course.”⁸² Two Republican congressmen, as the lead-off witnesses for the subcommittee’s hearings, laced into the for-profit sector, accusing it of having “violated the most minimal standards of decency and professional ethics” and calling shady for-profit owners a “curse” on American society.⁸³

In 1974, in the aftermath of its hearings, Congress attempted to take the crackdown on correspondence schools several steps further, including tightening restrictions on misleading advertising. The Senate Committee on Veterans’ Affairs had grown increasingly concerned both about the deceptive and misleading advertising that some for-profit schools used to attract veterans and the question of whether correspondence courses were actually helping veterans and active duty servicemembers train for new jobs. Accredited correspondence schools were then running two-page color ads in national magazines promoting “home entertainment electronic” courses, ads in which veterans were told, among other promises, that they could take the courses “for fun”—appearing to violate the 1950 legislative ban on using VA educational benefits to pay for recreational or avocational courses, and resurrecting the scam from a quarter-century earlier in which some GIs used their educational benefits to get black-and-white television sets for free, under the pretext of training to be TV repairmen. A 1974 report from the Senate Committee on Veterans’ Affairs warned that the correspondence school advertisements “suggest in a variety of subtle and not so subtle ways that enrollment in the course (which typically costs about $1,500) will enable the veteran to obtain valuable merchandise such as a 25-inch color television set which the veteran can assemble in his spare leisure time.”⁸⁴

In many ways, the central regulatory challenge for Congress was ensuring that correspondence courses served their core statutory purpose—enabling students to find employment in their field of training. GI Bill educational grants for veterans and servicemembers, the 1965 creation of federally-guaranteed student loans, and the 1972 establishment of Pell Grants had collectively created a vast voucher-like expansion of educational opportunity in higher education that enabled students and veterans to choose between a wide range of postsecondary institutions and programs. But the problem with providing unfettered educational choice at correspondence schools was that it repeatedly led to widespread abuses of students, veterans, and taxpayers.

In 1974, the Senate Veteran Affairs Committee decided it was time to put more strings on unrestricted student grants by setting minimum job placement standards for all postsecondary vocational programs, including correspondence courses. Recall that under the 1965 Higher Education Act, students could pay for their correspondence courses with federal student loans only if the home study school provided a “program of training to prepare students for gainful employment in a recognized occupation.” Similarly, veterans and servicemembers could only use their GI Bill benefits to pay for correspondence courses if the courses had an employment-related objective and were not avocational or recreational in nature. Yet neither Congress nor the executive branch had ever meaningfully enforced those employment requirements by setting minimum job placement standards for postsecondary vocational programs. In 1974 that changed when Congress passed legislation requiring career programs to demonstrate to the Veterans Administration that at least half of veterans completing their courses in the previous two years had found jobs in their field of training.

The problem with providing unfettered educational choice at correspondence schools was that it repeatedly led to widespread abuses of students, veterans, and taxpayers.

Unfortunately, lawmakers’ efforts to require career programs to demonstrate they were in fact preparing students for careers proved largely toothless in practice.⁹⁴ The VA rarely, if ever, used its new statutory authority to bar proprietary schools from receiving GI bill benefits when they used deceptive or misleading ads and sales tactics.⁹⁵ And the job placement data submitted by schools to show that they were placing 50 percent of their graduates in jobs in their field of training soon appeared to be unreliable. In November 1974, nearly 26,000 for-profit and correspondence school programs reported to the VA that they had sterling job placement records for the 9,000 graduates of their courses, with just 2.7 percent of programs failing to meet the 50 percent job placement requirement. Yet more than 10,000 programs, with an unknown number of graduates, had not reported any job placement data to the VA, and the Senate Veterans’ Affairs Committee found neither states nor the VA had reviewed or verified the data.

Still, the fatal undoing of the 1974 law was not the unverified or missing job placement data from correspondence schools and trade schools. Instead, the problem was that the VA issued lax guidance, creating an abundance of loopholes, which correspondence schools and other vocational programs used to evade the 50 percent job placement requirement altogether. As a 1976 FTC report detailed at length, the VA failed to set clear job placement standards or establish difficult-to-game safeguards to protect veterans. The VA largely allowed correspondence and trade schools themselves to determine what counted as a job placement, effectively eviscerating the value of the job placement requirement. The FTC report found that the VA had decided that “only those graduates who are available for [job] placement be included within the final computation [of the 50 percent placement figure]. Moreover, schools are free to remove from the data any student who did not possess the requisite vocational intention, was on active duty, pregnant, changed marital status, was unwilling to move to a new locality, or who for other ‘valid’ reasons was not included within the [school’s] survey. Each school freely defines for itself what each of these exclusions should entail, and it is little wonder that the surveys have resulted in many schools eliminating the majority of their students from the final computations.”⁹⁶

The VA largely allowed correspondence and trade schools themselves to determine what counted as a job placement, effectively eviscerating the value of the job placement requirement.

By 1976, the Ford administration had largely despaired of reforming correspondence programs for veterans. In February 1976, it sent legislation to Congress, S. 3109, to terminate the use of all GI benefits for correspondence courses. In a letter transmitting the draft bill to Vice President Nelson Rockefeller (who served as president of the U.S. Senate), VA Administrator Richard Roudebush wrote that “our years of experience in administering education programs for veterans and their survivors convince us that…correspondence courses have not fulfilled their intended purpose,” and “there is ample evidence that the training does not lead to jobs for the majority of trainees and that the courses tend to serve avocational, recreational, and/or personal enrichment.”⁹⁷ The administrator asserted that “correspondence training is by far the weakest major part of the GI Bill, since it does the least for veterans and in-service personnel toward providing vocational readjustment and restoring lost education opportunities.”

Roudebush was not the only Republican appointee to recommend eliminating federal support for correspondence courses. Fifteen years later, in 1991, then-U.S. Secretary of Education Lamar Alexander would reach the same conclusion about his department’s federal student aid program, telling Congress: “The Department generally supports the idea of prohibiting students from receiving Title IV, HEA assistance for correspondence courses, and eliminating the eligibility of schools that offer 50 percent or more of their courses by correspondence. There have been many instances of student aid abuse involving correspondence courses.”⁹⁸

Ultimately, the 1992 HEA amendments did more to “crack down on sham schools” (in the words of President George H. W. Bush), including shoddy correspondence schools, than any legislation Congress has enacted before or since. In today’s bitterly partisan Washington, it is easy to forget that the 1992 HEA Amendments passed the House and Senate with overwhelming support on both sides of the aisle. The House voted 365–3 in favor of its bill, and the Senate bill passed with a 93–1 vote, with conservative Jesse Helms as the lone opponent. Congressman Steve Gunderson (R-WI), the future head of the career schools trade association, hailed the bill during the House floor debate, calling it “the most important piece of legislation that Congress will consider during this session,” and pledged that committee members on both sides of the aisle had drafted the reauthorization bill to respond to “the challenges in the area of program integrity, especially in the area of guaranteed student loan defaults.”⁹⁹

In addition to a series of new accreditation requirements that primarily targeted for-profit schools, the 1992 law contained a slew of provisions in other areas that cracked down on abuse and waste in the federal aid programs.¹⁰⁰ Among those, the “50 percent rule” provision in the 1992 HEA Amendments effectively ended federal taxpayer support for correspondence schools. Under the 50 percent rule, schools that offered more than 50 percent of their courses by correspondence, or where more than 50 percent of students were enrolled in correspondence courses, were barred from receiving federal student aid.¹⁰¹ After decades of trying to regulate correspondence schools, lawmakers of both parties concluded that the only way to control abuses in these for-profit distance learning institutions was to effectively cut off their life support of federal aid.

After decades of trying to regulate correspondence schools, lawmakers of both parties concluded they had to effectively cut off federal aid.

The 1992 HEA Amendments had a profound impact on the for-profit sector and on correspondence programs, particularly the federal sanctions that barred schools with high default rates from the federal student aid program and the 50 percent rule restricting correspondence education. From 1993 to 1997 alone, 860 for-profit schools closed. But as many of the worst for-profit schools shut their doors, and as news reports of abuses in the sector declined, two profound but related shifts in higher education slowly reignited interest in distance learning.

The first shift was the spread of the internet and the advent of online learning. Unlike the correspondence courses of the past, online learning could be interactive. Distance education students were no longer expected to get course materials in the mail, learn on their own, and study with little or no communication with a qualified instructor. That technological breakthrough created an exciting array of new opportunities for innovative instruction and curriculum. Reflecting policymakers’ interest, the 1998 HEA Amendments waived the “50 percent rule” which required institutions to offer at least half of their programs via brick-and-mortar locations, in a new demonstration program designed to test the quality and viability of predominantly online colleges.

Fifteen postsecondary institutions participated in the demonstration program when it began in July 1999, a number that grew to 24 institutions by 2007, including nine for-profit schools. The number of students in the online demonstration program grew too, from just under 8,000 students in 1998–99 to more than 63,000 students by 2003–04,¹⁰² although the growth of online learning in postsecondary institutions was still sharply limited by the 50 percent rule for other institutions. By the time George W. Bush took office in 2001, Omer Waddles, testifying for the Career College Association, was claiming that the 50 percent rule was little more than a needless relic. The 50 percent rule “was created in response to various concerns about the level of quality of correspondence courses back in the late 1970’s and early 1980’s,” Waddles told a House subcommittee. “This rule does not reflect the highly effective communications and interactive teaching methods developed for use on the internet only in the last few years.”¹⁰³

The second big shift after 1992 was the explosion in large, publicly-traded for-profit corporations, many of which would expand by adding tens of thousands of online students. A few large for-profit college chains had existed before 1992 and had been traded on the stock exchange, but the giant for-profit corporations that emerged by 2001 had no precedent in the industry. At the time of the Apollo Group's initial offering in 1994, its flagship University of Phoenix had 33 campuses in eight states and enrolled fewer than 27,000 students. Ten years later, the University of Phoenix had more than 225,000 students,¹⁰⁴ including more than 100,000 students enrolled online, a bigger enrollment than any public university in the nation. At the same time, the political allegiances of the for-profit sector began to shift from Democrats to Republicans. The multi-billion industry became a powerful lobby on Capitol Hill and befriended GOP lawmakers, especially House Speaker John Boehner (R-OH).

Boehner, then-chairman of the House education committee and later Speaker of the House, was the industry’s biggest booster in Congress. He asserted that the abuses of the past were now safely in the rearview mirror and introduced legislation to lift a number of restrictions on for-profit schools. “I believe and others believe,” Boehner stated, “that the accountability provisions still in the law are more than sufficient to prevent the abuses that we saw back in the 1980s and early 1990s.”¹⁰⁵ Nick Glakas, president of the Career College Association (now the Career Education Colleges and Universities association) agreed, and told Boehner that his 1,250 member-schools were “committed to and focused on compliance,” so widespread abuses in the for-profit sector would never reoccur. “We have to because of our past,” Glakas told Boehner’s committee. “We simply cannot and will not allow what happened 15 years ago to happen again.”¹⁰⁶

To prevent the abuses that had plagued correspondence education, Congress subsequently decided to add a requirement in 2008 that aid-eligible online learning programs had to have “regular and substantive” interaction between students and instructors.

Glakas and Boehner’s optimism soon proved unfounded as new scandals arose in the for-profit sector, including a damaging 60 Minutes report in January 2005 on the Career Education Corporation that became the subject of a hearing by Boehner’s committee. But Boehner managed to loosen and weaken the 50 percent rule in a 2005 budget act, which provided relief in the aftermath of Hurricane Katrina. The law maintained the 50 percent limitations for correspondence schools but did away with them for telecommunications/distance learning courses.¹⁰⁷

To prevent the abuses that had plagued correspondence education—in which students learned material largely on their own, often without the aid of a qualified instructor—Congress subsequently decided to add a requirement in 2008 that aid-eligible online learning programs had to have “regular and substantive” interaction between students and instructors. The definition was drawn from the Bush administration’s 2005 report to Congress on the demonstration project, which recommended creating a definition for distance education distinct from that of correspondence education. The administration noted in its report that “our concern is that the current definition could be interpreted to allow a correspondence school to qualify for full participation in student financial assistance programs by introducing even a very limited amount of email contact between students and a grader or instructional assistant with or without subject matter expertise into what is essentially a correspondence course.”¹⁰⁸ It recommended that the definition of distance education include “regular and substantive interaction between students and the instructor”—the very language Congress ultimately used in expanding aid eligibility for online programs.

In a matter of months, the lifting of the 50 percent rule in distance education courses sparked an explosion of online for-profit college programs that qualified for Title IV aid, including those that offered online-only programs to students. In 2003, fewer than 50,000 students nationwide enrolled in exclusively online programs in all sectors of higher education.¹⁰⁹ Within two years of the lifting of the 2006 elimination of the 50 percent rule, online-only education was no longer an anomaly, especially in the for-profit sector. The Senate HELP committee investigation of the for-profit industry (a.k.a. the “Harkin Report”) found that 11 for-profit companies alone had enrolled 435,000 students in exclusively online programs by the start of the 2008-09 school year.¹¹⁰ By the fall of 2017, nearly 50 percent of the 1.4 million students enrolled at federal aid-eligible, for-profit institutions were enrolled in exclusively online programs.¹¹¹

Nearly 70 percent of students at four-year for-profit colleges take all of their courses online, compared with only 5 percent at two-year for-profit schools.

It is notable that students at four-year for-profit schools today are far more likely to take all their courses online than any other group of students. Nearly 70 percent of students at four-year for-profit colleges take all of their courses online, compared with only 5 percent at two-year for-profit schools. In general, for-profit students are now more than twice as likely as their peers at public and private nonprofit institutions to take their courses exclusively online. Many for-profit students also enroll in “brick-and-clicks” for-profit institutions, where only a minority of students attend courses in brick-and-mortar classrooms. Of the 14 large publicly-traded for-profit chains evaluated in 2010 by Senator Harkin's committee, at least seven of the chains then had more than 50 percent of their students in exclusively online curriculum.

In an eerie replay of the early 1970s, when correspondence courses suddenly mushroomed with access to guaranteed student loans and GI Bill educational benefits, the abrupt expansion of Title IV aid-eligible online programs recreated many of the same abuses that had plagued correspondence courses 30 years earlier. Across many institutions—particularly for-profit ones—enrollment skyrocketed, predatory recruiting practices spread, student supports and career placement services suffered, and fraudulent and deceptive marketing proliferated. Without requirements for good, much less minimal, standards for student outcomes, many institutions—especially proprietary colleges—saw the opening of distance education as little more than a cash-grab, a chance to sacrifice educational quality for profits.

Today, advocates of online programs claim that the potential of modern-day online learning to revolutionize higher education vastly outstrips that of the correspondence schools of the past. They are right—interactive online learning and high-speed internet open up learning opportunities that the founders of the Famous Writers School never envisioned. In light of that potential, many, including Education Secretary Betsy DeVos, have suggested lifting restrictions on higher education to allow innovation to bloom.

Yet recognizing the need to reduce regulatory barriers to innovation does not mean that legislative and regulatory guardrails on postsecondary online learning should be eliminated or drastically scaled back. To date, the biggest and most rigorous longitudinal studies of online learning have found that these courses generally have a poor return on investment, failing to significantly boost subsequent earnings for students¹¹² and depressing student grades and retention rates.¹¹³ With the benefit of experience and advances in online instruction, those disappointing early results could well—and hopefully will—change in the years ahead. But only the most naïve or most ideological advocates of online programs¹¹⁴ fail to recognize that exclusively online colleges have yet to fulfill their potential.

The unwelcome truth is that there is still abundant reason to create and maintain consumer protections, both for taxpayers and for students. Even staunch advocates of the theory of disruptive innovation like Clayton Christensen and Michael Horn acknowledge that online learning has yet to achieve its promised benefits in remaking higher education, in part because “federal financial aid seems to have gummed up the disruption [process]: the easy [federal] revenue has encouraged some [for-profit] schools to indiscriminately enroll [students], often at the expense of quality, and has discouraged cost reduction.”¹¹⁵

At every turn, the opening of federal dollars to new, cheaper-to-operate business models has led to the same outcome: abuses of students and taxpayer dollars. After World War II, tens of millions of dollars in veterans’ benefits were wasted on for-profit and correspondence education that far too often proved worthless for landing jobs. In the 1970s, the opening of federal loan dollars to for-profit higher education led poorly performing correspondence schools to expand dramatically and exploit government largesse at the expense of students and taxpayers. As one salesman at the time explained about the new pot of seemingly “free money” from the government: “I could go down in the ghetto and stand on the corner and enroll all kinds of people if it is free. He doesn’t care if the course is airlines, insurance adjusting, hotel-motel management, or what, if it is free, going to be paid for by the government and you can get him a job….This is a salesman’s dream.”¹²¹

The regulatory changes that the Department of Education seeks today, which would diminish the role of costly personalized instruction and interaction in distance learning and boost incentives for for-profit companies to shortchange educational investments to increase profit margins, may well be a salesperson’s dream. But eliminating consumer safeguards will almost certainly have the same effect as previous deregulatory efforts.

Only the most naïve or most ideological advocates of online programs fail to recognize that exclusively online colleges have yet to fulfill their potential.

The innovations of tomorrow will look wholly distinct from the college-by-mail programs of the past and will use more sophisticated technologies. Yet for all those apparent differences, the distance education landscape has been marred by the continuation of past abuses in the last several years, with the rise and fall of several predominantly-online for-profit behemoths that assured vulnerable students they would find well-paid careers in high-tech fields but which failed to deliver on their promises. The cautionary tale of correspondence schools suggests that unfettered access to federal dollars will lead to more scandals in which colleges place their bottom lines over their commitment to education—sullying, instead of burnishing, the worthy cause of innovation.