Empire’s Foundation: Federal Aid Fueled an Industry

In the 1920s, a new profession was born to help women emulate the style of the actresses they saw on the silver screen¹—such as the “it” girl, Clara Bow, with her modern short and curly haircut and “bow lip.” The growth and popularity of cinema in the Roaring Twenties led to the emergence of cosmetology as an industry where budding professionals learned in small groups at shops to recreate different hair styles and help women apply lipstick to create “bow lips” of their own.²

The burgeoning industry surrounding cosmetology established the precursor of the American Association of Cosmetology Schools.³ The industry association was one of the first higher education lobbying groups, coming into existence around the same time as the “umbrella” organization of the higher education lobby—the American Council on Education (founded in 1918). It also predates the powerful for-profit college lobby—Career Education Colleges and Universities (founded in 1991).

After World War II, students began flooding into higher education and needed ways to access and pay for college. Thus, lawmakers passed two consequential bills that opened the door to federal subsidy of higher education: the GI Bill and the Higher Education Act.

These new sources of federal aid, including student grants and loans, improved access to community colleges and four-year universities. But other types of programs, such as for-profit colleges and vocational postsecondary schools, also benefited. A seismic shift happened with the reauthorization of the Higher Education Act in 1972 when sub-baccalaureate training programs, like the ones at cosmetology schools, became eligible for the Basic Educational Opportunity Grant, which is now known as the Pell Grant.⁴

While the intention to expand postsecondary opportunities was laudable, once the federal subsidy was offered, for-profit providers swooped in to capitalize, leaving a trail of waste, fraud, and abuse.⁵ Before this moment, for-profit cosmetology schools needed to price themselves in a way where students could afford to attend. If they didn’t, the schools would risk closure. Suddenly, they had a new pot of money—federal financial aid and GI benefits—they could not only use to subsidize the cost of the education and lower any financial friction students were facing but also to increase prices and capture more profit.

As early as 1971, bankers who serviced the federal student loan program raised alarm bells about borrowers at for-profit cosmetology schools. During a hearing on reauthorizing the Higher Education Act, a loan servicer said that the largest increases in loans had been among “trade schools and so-called beauty or barber schools.” He noted that while cosmetology schools made up only a small, but growing, volume of the loan portfolio, they generated a significant portion of loan defaults. “Who is benefitting from these programs?” he asked. “Are the students benefitting, or are the school operators benefitting?”⁶

The sudden, rapid growth of sub-baccalaureate cosmetology programs newly eligible for federal aid came under increasing scrutiny. The predecessor of the U.S. Department of Education—the Department of Health, Education, and Welfare—began investigating cosmetology schools in the late 1970s. In a 1978 Washington Post article showing how the availability of federal student aid was fueling the growth of beauty school programs with poor outcomes, the department’s deputy commissioner said investigations and regulations were needed “to prevent rip offs.”⁷

One of the schools featured in that Washington Post article was Empire Beauty School, which started with three campuses in Pennsylvania in the 1930s.⁸ By 1973, Empire had grown to 17 campuses in the Keystone State. Around that time, the school’s enrollments started shrinking fast, and the chain was on the brink of closure.⁹ But in the 1973–74 academic year, a new source of funding became available to colleges: federal financial aid in the form of the Pell Grant. Having access to federal grants that were targeted at low-income students allowed Empire to heavily recruit students who otherwise wouldn’t be able to afford their programs. “Many of our schools would not be in existence today without grants,” an Empire executive acknowledged to the Post.¹⁰ With the help of federal aid, Empire Beauty not only survived but expanded far beyond Pennsylvania.