BACKGROUND

PROPRIETARY SCHOOL CHARACTERISTICS

Under the terms of the higher education act, a proprietary school is one that is privately owned and managed for profit providing education and training for students after high school (although students need not have graduated from high school to attend). There are about 300 proprietary junior colleges, but most proprietary schools offer training for a particular set of skills and are thus often called trade schools. The average proprietary school tuition, according to the National Center for Education Statistics, was about $4,400 to $4,600 in 1986-87.

There are now over 4,000 proprietary schools in America, more than the number of colleges. Of these, about 75 are accredited correspondence schools, and most of the rest have classroom programs. Since 1980, proprietary school enrollment has been growing at an annual rate of 13 percent. This compares to less than a one percent increase for college enrollment. Proprietary schools enroll about 1.8 million students, about 15 percent of the total postsecondary student population. The growth in proprietary schools can be attributed to two factors. First is the decline in the practice of apprenticeship and the increased reliance on formal credentialing in the trades. Second is the availability of federal student aid to support proprietary school education.

Proprietary schools offer courses lasting from a few months to two years in length, usually providing entry-level skills in fields as varied as business (including secretarial and computer professions), allied health, cosmetology (about 1,800 accredited schools), truck driving, auto and electrical repair, and even such jobs as mail room clerks, security guards, cashiers, chauffeurs, manicurists, bartenders and nannies. Most of these courses qualify for federal student aid on the same basis as traditional college offerings. Many trade school programs offer degrees or certificates aimed at meeting specific entry-level state licensing or trade requirements.

The average proprietary school enrollment is 378. A little more than half the students are under 24 years old; about a quarter are over 30. About 60 percent of the students are white, 21 percent black and 14 percent Hispanic. Proprietary schools educate a higher proportion of women (78 percent) than any other postsecondary sector. According to the industry, about 47 percent of private career school students have incomes

of less that $11,000, while only 26 percent have incomes greater than $23,000. Proprietary school representatives repeatedly point to their record of admitting lowincome students and minorities as a way to justify the share of federal student aid monies they receive.

HISTORY OF PROPRIETARY SCHOOL

PARTICIPATION IN FEDERAL AID PROGRAMS

G.I. Bill: Proprietary schools have been eligible to participate in federal programs ever since the GI Bill was enacted in 1944. In fact, in the early years of the GI Bill, nearly twice as many veterans chose vocational education and training over college, and, as a result, the number of proprietary schools rose markedly.

Early on, several studies and congressional hearings identified concerns over the practices of "fly-by-night" schools. In 1950, amendments were put into effect that banned the use of benefits for avocational or recreational courses; allowed the Veterans Administration to disapprove benefits to schools in existence less than one year; that set stricter criteria for schools where few students paid their own tuition; and eliminated benefits for “dying” trades or for programs where existing training was found to be adequate to demand.

National Vocational Student Loan Insurance Act: In 1965, the Johnson administration recommended that proprietary school students, along with college students, be made eligible for a new, low-interest, federally insured loan. Apparently concerned about problems with proprietary schools under the GI Bill, however, Congress in 1965 chose to separate proprietary schools from the Guaranteed Student Loan program and established a separate National Vocational Student Loan Insurance program.

The Higher Education Amendments of 1968: These amendments merged the National Vocational Student Loan program with the Guaranteed Student Loan program because, according to congressional committee reports, "the present two acts have resulted in parallel paperwork and duplicative efforts."

The Education Amendments of 1972: The Education Amendments of 1972 extended eligibility for proprietary schools to all higher education student aid programs, including the new Basic Educational Opportunity Grant program, now called Pell Grants.

Middle-Income Assistance Act (1978): This act included an unprecedented provision allowing trade schools to admit non-high school graduates whom they adjudged to have "ability to benefit from the training offered" by their educational program. Prior to that, colleges, but not trade schools, could admit “ability-to-benefit” students under open admissions plans.

1986 Higher Education Amendments: The 1986 higher education amendments sought to clarify and limit "ability-to-benefit" practices by requiring that "ability-to-benefit" students either: (1) be counselled by the school and complete a remedial education program or (2) pass a “nationally recognized, standardized or industry-developed test," subject to criteria developed by private accrediting associations recognized by the U.S. Education Department. It must be noted, however, that, under this definition, institutions remain free to select the specific test and the passing score and that the test need not be produced by the accrediting agency.

OVERSIGHT AGENCIES

To operate and receive vital federal funding, proprietary schools must be evaluated by three separate agencies.

1. Proprietary schools must be licensed by the state in which they operate. The state is the primary regulator of sound business practices and education. The methods the states use to regulate proprietary schools vary widely. In some, the governor appoints members to a special board that oversees the schools, which frequently include owners of the schools as well as state education officials. In other states, proprietary schools are monitored by a division of the state higher education coordinating board or its department of education. In still others, regulation is at the discretion of accrediting organizations.

2. Proprietary schools must also be accredited for their educational programs by a private accrediting agency recognized by the U.S. Secretary of Education. The four main accreditation bodies for proprietary schools are the Association of Independent Colleges and Schools (AICS); the National Association of Trade and Technical Schools (NATTS); the National Accrediting Commission of Cosmetology Arts and Sciences (NACCAS); and the National Home Study Council (NHSC).

3. Finally, to receive federal dollars, proprietary schools must be reviewed and approved by the Office of Postsecondary Education of the U.S. Education Department. The Department primarily examines financial records and student aid administrative procedures.

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PROPRIETARY SCHOOLS AND THE FEDERAL STUDENT AID PROGRAMS

Because proprietary schools depend almost entirely on tuitions to make a profit and because they enroll such large numbers of low-income students, student financial aid from federal and state sources is their lifeblood. Proprietary school students are eligible for each form of federal student aid; they are also eligible for state student aid in 30 states. As a result, in 1986-87:

about 84 percent of private career school students received some form of government student aid, compared to 45.5 percent of postsecondary students generally;

about 70 percent of proprietary school students received federal student aid as compared to 34 percent of all postsecondary students;

⚫ the total federal financial aid for full-time students at private career schools was about $3,630, compared to $2,973 for all postsecondary students and even more than the $3,525 available to students at private colleges; and

about 56 percent of proprietary school students received a grant, compared to 25 percent of all postsecondary students, and about 70 percent received a federal loan as compared to 23 percent generally.

The most pronounced trend in federal student aid in the 1980s was the staggering increase of monies going to the proprietary sector. In general terms, about 40 cents of every new federal grant dollar today will go to proprietary school students, while the proportion of loan dollars going to vocational students has quadrupled since the mid-1970s. Some of the individual program figures are just as striking.

Pell Grants: The Pell Grant program provides basic grants (up to $2,300 depending on financial need) to the neediest students in postsecondary education.

Between 1980 and 1987, Pell Grants to students at proprietary schools skyrocketed from $275 million to more than $1 billion, or an increase of 273 percent (compared to a 30 percent rise in the collegiate sector). The percent of Pell Grant money allotted proprietary schools is now over 25 percent, more than that allotted independent colleges (19.5 percent) and public two-year colleges (19.9 percent).

Between 1980 and 1987, the number of Pell Grant recipients rose 159 percent in the proprietary sector and declined 13 percent in the collegiate sector. During this period, the number of recipients declined at 4- to 5-year programs and rose dramatically at the one-year and six-month programs in which proprietary schools specialize.

The number of collegiate institutions participating in the Pell Grant program was relatively constant between 1980 and 1987: 3,760 in 1980 up to 3,840 in 1987. The number of proprietary institutions in the Pell Grant program increased during this same period from 2,133 to 3,042.

Campus-Based Aid: The federal government operates three programs that distribute aid to schools based on their proportion of needy students. These programs depend on professional financial aid officers at the schools to see that the money reaches the right students. One of these campus-based programs provides grants (Supplemental Educational Opportunity Grants or SEOG); one provides loans (National Direct Student Loans or NDSL); and one provides jobs (the College Work-Study program). Because participation in these programs requires an institutional contribution, proprietary schools generally have not been major participants. Even in these programs however, increases in proprietary school participation is notable. For example, while SEOGs increased between 8.8 percent and 20.5 percent in the collegiate sector from 1980 to 1987, proprietary school SEOGs rose over 60 percent during the same period. While work-study rose between 7 percent and 13.4 percent at four-year colleges during the same period, work-study funding rose 260 percent in the proprietary sector. Only in the Perkins Loan program did proprietary schools suffer losses (29 percent) comparable to the collegiate sector (29 to 44 percent).

Stafford Loans: Under the Guaranteed Student Loan program, now called Stafford Loans, about 13,000 lenders nationwide make low-interest loans (8 to 10 percent) to about 3.5 million students attending colleges and proprietary schools. Since 1986,