For-Profit Postsecondary Schools

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Students at the for-profit schools leave school with considerably higher debt, and they default on their loans at a higher rate.

Between 2000 and 2009, enrollment in private, for-profit, postsecondary degree granting institutions grew from 4.3 to 10.7 percent of all postsecondary enrollments among institutions eligible for Department of Education student financial aid under Title IV. In The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators? (NBER Working Paper 17710), David Deming, Claudia Goldin, and Lawrence Katz study the schools, students, and programs in the private for-profit sector and then compare the outcomes for first-time for-profit students to those of first-time students who attended community colleges or other non-profit institutions.

Using data on a sample of first-time students who are in their first, third, and sixth years since entering an undergraduate institution in the fall of 2003-4, the researchers find that the for-profit students have a higher probability of finishing the first year of a program. This early persistence, and the fact that for-profit students are less likely to report taking remedial courses in their first year, appears to translate into a one-or-two-year certificate program completion rate that is 9 percent higher than that of similar community college students. However, the for-profit students are 5 percent less likely to complete longer undergraduate programs than students at non-selective non-profit schools.

Students at the for-profit schools also have "higher sticker-price tuition and pay higher net tuition than comparable students at other institutions." They leave school with considerably higher debt, and they default on their loans at a higher rate, even after controlling for a detailed set of student characteristics and their pre-enrollment academic record. By 2009, the default rate for students with $5,001 to $10,000 in cumulative federal student loans was 26 percent for students enrolling at for-profits, 10 percent for those enrolling in community colleges, and 7 percent for those enrolling in 4-year public and nonprofit schools. Students at for-profit schools also had modestly lower earnings, and were less likely to be working or to still be enrolled in school six years after starting college.

--Linda Gorman