Graduates of For-Profits Lag Behind Their Peers in Earnings and Employment, Study Finds

February 22, 2012

For-profit colleges do a good job of retaining students in their first year and getting them to finish, but over time these students also tend to fare worse than similar students at community colleges and public and private nonprofit institutions, according to a new study.

Six years after they enter college, students from for-profit institutions are employed at lower rates and earn less than their peers, according to a study by three scholars from Harvard University. The scholars are affiliated with the Center for Analysis of Postsecondary Education and Employment, a collaboration of universities that is led by the Community College Research Center at Columbia University's Teachers College.

The study, "The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators?," appears in the winter issue of the Journal of Economic Perspectives.

The researchers, David J. Deming, a doctoral candidate in public policy, and Claudia Goldin and Lawrence F. Katz, professors of economics, based their findings on their analysis of longitudinal data, collected by the federal government, for a group of first-time undergraduates. While other studies have noted that for-profit colleges often enroll large numbers of underserved students and that they produce higher rates of retention than nonprofit colleges, the authors of this report sought to make apples-to-apples comparisons between for-profit and nonprofit institutions. They compared students who attended for-profit colleges with those who had similar characteristics but attended community colleges or other public or private nonprofit institutions.

The higher retention percentages at for-profit colleges were attributable to lower rates of remediation at these institutions, the authors wrote. Despite their relative success during college, the students attending for-profit institutions had higher default rates when they left.

For example, among students in the data set who had racked up between $5,000 and $10,000 in cumulative student-loan debt by 2009, 26 percent of those from for-profit colleges had defaulted, while 10 percent of those from community colleges and 7 percent of those from nonprofits had done so. As the level of debt increased to $20,000, the discrepancies grew wider: The default rate among for-profit-college students was 16 percent, compared with 3 percent for community-college students and 2 percent for those from four-year colleges.

Average earnings were $1,800 to $2,000 lower for students who had attended for-profit colleges, though this gap was attributable, in part, to their lower rates of employment. When confining the analysis to groups of students with similar characteristics, those at for-profits were between 4.8 and 6.7 percentage points more likely than those at the other two types of institutions to be unemployed.

Yet students who attend for-profits are considered crucial to meeting increased demands for an educated work force. Steve Gunderson, president of the Association of Private Sector Colleges and Universities, said in a statement that the country will need a larger pool of workers who have some level of postsecondary education, and that for-profit colleges must play an important role in increasing access to higher education. "When anyone makes suggestions for improvement," he said, "everyone in postsecondary education should take them seriously."

The study's authors took note of the for-profit sector's contribution to work-force goals and described how these institutions had expanded the supply of skilled workers in an era of austere state appropriations for public higher education. "They have provided educational services to underserved populations. Their innovative use of Web services has further allowed them to accommodate nontraditional students," the authors wrote. "The vast majority of their students are satisfied with their programs."

But the high default rates create increased costs to taxpayers, they continued. "The challenge is to rein in the agile predators while not stifling the innovation of these nimble critters."