I'm no scholar of the history of American higher education, and I'm curious about when the idea that college is necessary for the creation of "fully-formed persons" or "effective citizens" (the usual arguments used to defend liberal arts education) became a dominant assumption. Was it an effect of the GI Bill?
I'm no scholar of the history of American higher education either, and my views are probably a bit more biased than most, but here are my thoughts.
The idea that higher education is necessary for the creation of "fully-formed persons" or "effective citizens" comes from John Calvin's Geneva. If every man is to read and understand the Bible for himself, then every man has a religious duty to study the humanities as much as possible so as to understand the Bible better. Furthermore, since Geneva was an oligarchic theocracy, at least the burghers ought to understand the Bible well so that they would vote in line with the dictates of God.
In late Colonial times, a fairly broad swath of the wealthier half of Massachusettes society went to Harvard. (It should be noted though that the Harvard of those times was, at least based on its curriculum, more like a classical high school (e.g. 19th century German Gymnasium) than a university.)
When New England abolitionists went into the Midwest to fight the spread of slavery, one of the first things they did was to set up liberal arts colleges, because they thought a liberal arts education would help produce effective and moral citizens, and they had faith that the abolitionist position was the right one to which all educated people could be convinced. That's why there are so many liberal arts colleges in Ohio and Illinois and Iowa, and comparatively fewer in the South and the West.
It's a uniquely American practice, and one shaped by the very strong influence of Harvard and other liberal arts institutions on the (precursors of the) ABA and AMA in the late 19th century, that law and medicine can be studied only at the graduate level after a bachelor's degree. Just about everywhere else, law and medicine are courses of study one begins as soon as one enters higher education. The argument was that society needed its "leading men," and professionals in law and medicine would certainly be "leading men" in their local community, to be effective citizens and not just proficient at their craft.