Students attending for-profit colleges wind up with much higher student-loan debts, are less likely to be employed after graduation and generally earn less than similar students at public or private nonprofit schools, according to a recent paper from the National Bureau of Economic Research.
The study, conducted by a group of Harvard researchers, examines a bevy of federal data tracking student graduation rates, federal loan repayment rates and student success in securing jobs. The researchers ask one central question: Are for-profit colleges "nimble critters" responding to higher demand for college degrees, or "agile predators" that target low-income students with the intent of reaping profits through federal student aid dollars?
For-profit colleges have been conspicuous beneficiaries of the Great Recession, with tens of thousands of unemployed Americans seeking college education just as government funding for public higher education has contracted. But the last two years have brought unprecedented scrutiny to the industry, amid evidence of controversial recruiting tactics and disproportionate levels of federal student loan defaults.
The team of Harvard professors sheds new light on the differing fates of students who attend for-profit colleges and those who attend traditional institutions by directly comparing students of similar socioeconomic and demographic backgrounds.
The study finds that a sample of students enrolling at for-profit colleges in 2004 were making, on average, between $1,800 to $2,000 less annually than students attending other types of institutions. Six years after entering college, for-profit students are also more likely to be unemployed -- and to be unemployed for periods longer than three months.
To the credit of for-profit colleges, the report finds that the industry does a better job than traditional universities of retaining students through the first year of a college program. And students at for-profit schools are more likely to attain a short-term certificate of two years or less than students at community colleges. But for bachelor's degree programs -- a fast-growing segment of the industry -- students at for-profit colleges fare much worse than students at traditional universities.
"[For-profit colleges] do better in terms of first-year retention and the completion of shorter certificate and degree programs," according to the report. "But their first-time postsecondary students wind up with higher debt burdens, experience greater unemployment after leaving school and, if anything, have lower earnings six years after starting college than observationally similar students from public and non-profit institutions.
"Not surprisingly, for-profit students end up with higher student loan default rates and are less satisfied with their college experiences."
Penny Lee, managing director of the Coalition for Educational Success, a for-profit industry trade group, pointed to the favorable statistics on graduation rates for short-term degree programs. She also cited a recent Government Accountability Office report that found for-profit students had similar earnings to students from other sectors of higher education.
"Particularly in these difficult economic times, we believe all institutions of higher education, regardless of a school's tax status, should be focused on offering students an education that makes them 'job ready' and puts them on the pathway toward a career," Lee said in a statement.
Although the GAO study cited by Lee showed similar earnings across different sectors of schools, the report also found higher rates of unemployment among for-profit school graduates. Brian Moran, the interim chief executive and president of another trade group, the Association of Private Sector Colleges and Universities, also focused on the graduation rates for short-term degrees and certificates, saying in a statement that the report "mentions a few of the many positive aspects" of for-profit schools.
Enrollment at for-profit colleges has spiked dramatically over the last decade, increasing to 13 percent of all college students nationwide in 2009, up from just 5 percent in 2001. The rapid growth of the industry, which includes small trade schools and publicly traded giants such as Kaplan University, has brought heightened scrutiny and increased government regulation in recent years.
Students attending for-profit colleges default on federal student loans at significantly higher rates than those in other sectors of higher education, prompting state attorneys general and federal regulators to question whether such schools are preparing students for jobs that will allow them to keep pace with debts.
The for-profit college lobby has long argued that its students default on loans at higher rates than students at traditional schools because for-profit institutions serve a higher proportion of low-income, first-generation college students without a track record of academic success. The National Bureau of Economic Research report deconstructs that argument by adjusting for demographic differences and family income for students enrolling at such schools.
The report finds that even students who borrow similar amounts to pay for college end up defaulting at much higher rates at for-profit institutions. For example, 26 percent of for-profit students who took out between $5,000 and $10,000 in student loans ended up defaulting, compared to 10 percent of students taking out that much at community colleges and 7 percent at four-year schools. And 16 percent of for-profit students taking out between $10,000 and $20,000 in loans ended up defaulting, compared to 3 percent who took out that much money at community colleges and 2 percent at four-year schools.
The researchers credit for-profit schools, however, with playing "a critical role in expanding the supply of skilled workers in an era of tight state budgets and stagnating appropriations to public sector schools."
"Regulating for-profit colleges is a tricky business," the report concludes. "The challenge is to rein in the agile predators while not stifling the innovation of these nimble critters."
The report is a working paper from the National Bureau of Economic Research, and has not been subject to peer review by the organization.