When we left off, college football recruiting was relatively violation-free, because there really weren't any rules to violate. More precisely, conferences set their own rules (I assume independents did as well). Ivy League schools favored no athletic scholarships and no special jobs for players. Big 10 and PCC (precursor of the PAC-10) schools had no scholarships, but would provide jobs, with limits on pay.
SEC and SWC schools had athletic scholarships, jobs for players, and all were funded by the boosters. Athletes that were eligible for the GI Bill stood to make out even better- per a 1966 Sports Illustrated article by Bear Bryant, GIs returning from the war were still given the money for tuition and living, despite the GI Bill also paying for that.
The northern schools were really dismayed by this situation. In the immediate post-war period, many of the players they lost to the military were returning to finish college at other schools, down south. They found that they could not recruit new players when they had to compete with schools that were more generous in their benefits. The schools in the Ivy League, the Big 10, and the PCC had better reputations academically, but that was not enough to overcome the cash on the barrel head that the southern schools offered potential players, many of whom had no intention of pursuing careers outside their home states.
The thing to note here is that each school or conference is espousing a vision of college football recruiting that puts themselves at an advantage. If, as the Ivy League proposed, there were absolutely no benefits for football players, and they were drawn from a pool of students that would all be enrolled anyway, the Ivy League schools would be formidable recruiters. If college football were limited to 1250 SAT types from middle class and up families (paying their own way), the Ivy League schools would definitely out-recruit Oklahoma or Alabama.
The Big 10 and PCC schools, with academic reps not as good (although still very good), needed to offer a little more, and that's what they proposed. The southern schools, less established and in poorer regions, were ready to recruit players from a talent pool that included all economic and academic strata, and they were willing to pay what it took to get all of those recruits signed up. If there were no limits on recruiting, they would get all of the players they wanted.
This is the fundamental point to keep in mind when viewing cheating in recruiting- when you limit inducements to defined packages, the offers from different schools vary in value. The value of a degree is higher at some schools than others, the cost of tuition varies, and some locations are more sought after than others. Extra inducements can be seen as a way to equalize the value of the different schools' offers.
Of course, the trouble was that some athletes were good enough to create bidding wars, and with no rules there were no limits on the bids. A 1952 Time magazine article notes that one halfback was offered tuition, books, room, board, $300 per month spending money (equivalent to $2K/month now), and $5K upon graduation.
So, in 1948, the northern schools found themselves at a recruiting disadvantage to the southern schools. How could they address that, given that regional conferences set standards, without stooping to the southern schools' level? The answer was to have the NCAA, to then a relatively powerless body as far as regulation went, assume a role as national regulator of recruiting. In the 1948 NCAA convention, the "Sanity Code" was instituted. This instituted a policy that no athletic scholarships were allowed, but off-season jobs were allowed, as long as the pay was limited to NCAA standards.
Then, a curious thing happened. Seven schools, on a follow-up questionnaire, noted that they were continuing to offer scholarships.
The issue of these schools, dubbed the "Sinful Seven" (Virginia, Maryland, V.M.I., V.P.I., The Citadel, Boston College and Villanova) was brought to the 1952 NCAA convention (per the rules at the time, the convention addressed violations, not the current committee). In a 130 - 60 vote, the NCAA decided to not punish them. At that point, the "Sanity Code" was dead.
A year with no NCAA rules (or at least no NCAA enforcement) ensued.
During this time, schools had to do a lot of soul-searching about what they could live with, and how badly they wanted to participate at the highest level of football. Remember- the era of televised games was beginning and schools didn't yet know what that meant (the money and exposure was nice, but would it hurt the take at the gate?). The NCAA reconvened, and ruled that schools could offer athletic scholarships.
The PCC tried to forgo offering scholarships, but had an ugly scandal immediately when it was discovered boosters were paying players on the side. The Ivy League decided to step back from D-1A, and not offer athletic scholarships or jobs (then, as now, the Ivies still offered preferred admissions consideration for prospective players, which definitely has a value). Almost immediately, teams from this once-powerful conference started getting pummeled by teams like William and Mary. By 1968, it was noteworthy for this league (which as recently as 1948 had players like Chuck Bednarik) to have a player, Calvin Hill, talented enough to be a NFL prospect.
So now there were rules. Next, we'll look at cheaters.