The latest issue of the Monthly features a piece by Kevin Carey, “Asleep at the Seal,” about how college accreditation fails to ensure that American colleges are any good. More on that: There was a fascinating item by Daniel Golden in Bloomberg News yesterday about another part of the accreditation game. Ever wonder how online schools get accreditation? Increasingly, they buy it. According to the article:

ITT Educational Services Inc. paid $20.8 million for debt-ridden Daniel Webster College in June. In return, the company obtained an academic credential that may generate a taxpayer-funded bonanza worth as much as $1 billion.

Key to tapping that money is Webster’s regional accreditation…. Daniel Webster’s accreditation was its “most attractive” feature to ITT Educational, said Michael Goldstein, an attorney at Dow Lohnes, a Washington law firm that has represented the company.

By purchasing Daniel Webster College, a tiny New Hampshire school next to the Nashua Municipal Airport, ITT also bought the school’s accreditation. So now ITT is accredited by the New England Association of Schools and Colleges and can now potentially enroll thousands of new students only able to continue their education through federal loans.

While online, proprietary schools make some money enrolling students who pay out-of pocket, the key to making big money is enrolling lots of students with federal financial aid, the student loans subsidized and guaranteed by U.S. taxpayers. Only students enrolled in accredited schools can access federal financial aid. According to the Golden article:

The nation’s for-profit higher education companies have tripled enrollment to 1.4 million students and revenue to $26 billion in the past decade, in part through the recruitment of low-income students and active-duty military. Now they’re taking a new tack in their quest to expand. By exploiting loopholes in government regulation and an accreditation system that wasn’t designed to evaluate for-profit takeovers, they’re acquiring struggling nonprofit and religious colleges — and their coveted accreditation. Typically, the goal is to transform the schools into online behemoths at taxpayer expense.

It didn’t used to work this way. Before 2006 colleges that enrolled more than 50 percent of their students in online programs couldn’t use federal financial aid. But then regulation changed the rule and colleges only needed to be accredited to get federal financial aid cash. And so in the last six years for-profit education companies have bought almost 20 traditional colleges to take advantage of regional accreditation.

Just because they’re accredited doesn’t mean they’re doing very well, however. “When these institutions are bought, they are not at the moment successful in the financial sense or they wouldn’t be for sale,” said Barbara Brittingham, director of the Commission on Institutions of Higher Education.

Which is actually precisely what makes situations like Daniel Webster College and ITT so odd. If the school was so struggling that it had to merge with proprietary institution, why was it good enough to be accredited?

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer