Should we take for-profit colleges seriously?

The for-profit college is a relatively new animal in U.S. higher education. But it is rapidly making its presence known: The proportion of students enrolled in for-profit schools grew from less than one percent in 1970 to more than nine percent in 2009. Harvard economists David J. Deming, Claudia Goldin, and Lawrence F. Katz say it remains to be seen whether these new institutions are “nimble critters” using innovative methods to bring a needed service to an underserved population or “agile predators” picking the pockets of guileless students.

The three economists compared the educational and vocational status of students at for-profit colleges, community colleges, and other nonselective nonprofit institutions in the 2003–04 academic year. For-profit schools performed better than their competitors at enrolling students who normally struggle to see the inside of a college classroom, such as single parents, low-income students, and GED holders. For-profit schools also did a slightly better job at retaining students in short-term certificate and associate’s degree programs, posting modestly higher completion rates than nonprofit two- or four-year colleges.

But negative stereotypes about for-profit schools were also borne out. Students at these institutions carried larger debt burdens, reflecting the higher sticker price of tuition. In the 2010–11 academic year, the average undergraduate tuition at for-profit colleges was around $15,000, about $8,000 more than in-state tuition at public four-year institutions. (Half of the undergraduates at for-profit colleges receive federal Pell Grants, reserved for the neediest students, to help cover the cost.) More troubling is that three years out of school, a staggering 25 percent of these students had defaulted on their loans. By contrast, among students who had matriculated at private and nonprofit schools the default rates were eight and 11 percent, respectively.

The financial misfortunes of the graduates of for-profit schools could be linked to their struggles in the job market. Even after adjustments were made for the fact that they started with more disadvantages, they were much more likely to be unemployed six years after enrollment, and those who did have jobs were being paid eight percent less than their peers who had attended traditional schools.

Seventy-nine percent of students from for-profit institutions said that they were satisfied with their program, and 65 percent said that their education was worth the cost—the lowest percentages of the groups surveyed. Even so, the authors point out, the majority of attendees were satisfied. In any event, new U.S. Department of Education regulations are going to make it tougher to get federal financial aid to attend for-profits with questionable track records. “The challenge,” the authors write, “is to rein in the agile predators while not stifling the innovation of these nimble critters.”

THE SOURCE: “The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators?” by David J. Deming, Claudia Goldin, and Lawrence F. Katz. Journal of Economic Perspectives, Winter 2012.

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