New York Fed: Jury Still Out on For-Profits

By Staff

Last week, the New York Fed released a set of data and charts that leveled significant criticism of for-profit colleges: students borrow more, earn less, default more often and are less likely to be employed than their counterparts at public and private nonprofit colleges. The study’s authors, however, caution that the schools should not be written off, writing, “While student outcomes at for-profits have not been too rosy, and the gap in student loans with comparable publics has been a persistent source of concern and debate, it is too early to pass judgment on the sector.”

According to the study, Higher education is pivotal in our society—yet, its landscape is changing. Over the past decade, the private, for-profit sector of higher education has seen unprecedented growth, and its market share is at an all-time high. While we know much about traditional four-year public and private non-profit institutions, the for-profit sector seems more opaque.

In performing their analysis, the authors sought to answer the following questions: What services does the for-profit sector provide? Who enrolls at for-profits, and how has their enrollment changed during the Great Recession? What are their tuition levels? How about their net prices and student loans? And do their students succeed?

The study shows that the vast majority of for-profit institutions concentrate on short programs (two years or less), and offer certificates below bachelor’s and associate’s degrees. This makes for-profits more comparable to public community (two-year) colleges and public undergraduate certificate programs (less than two years) than to traditional four-year programs. Yet, while public community colleges and certificate programs often focus on academics or General Educational Development (GED) test preparation, for-profits are primarily trade schools, where enrollees can learn specific skills such as hairdressing, massage, welding, mechanics, or network and computer systems administration.

Between 2000 and 2011, for-profit enrollment in less-than-two-year institutions more than doubled, with 52 percent of this growth taking place in the three years after the onset of the Recession. During the same period, enrollment in public less-than-two-year institutions actually fell by 3 percent. The post-recession increase was in part fueled by increasing enrollment of students aged twenty-five or older, suggesting that for-profits might have been utilized by displaced workers looking to retool their skill set after a job loss, and by young adults looking to gain a tradable skill set.

Although for-profit student entrants have relatively lower incomes, tuition at for-profits has also been on the rise. In 2012, the average sticker price of a for-profit program was more than $14,300, up almost 100 percent from 2000. Despite availing themselves of higher Pell Grants, students at for-profits pay considerably higher net prices than those at public colleges, partly due to the absence of state and institutional grants. The high net price of for-profit programs has forced students to take out large loans to finance their education. In 2012, 60 percent of for-profit students not in four-year colleges took out subsidized student loans, at an average of $3,445 per loan; by contrast, just 15 percent of comparable public college students took out loans, with an average size of $3,096.

Around 60 percent of students at for-profits complete their program within 150 percent of the normal time. But while graduation rates are respectable, graduates of for-profits are more likely to earn less, default more, and experience unemployment more than their counterparts at public and non-profit institutions.

For-profits’ remarkable enrollment growth during the Great Recession suggests that for-profits have allowed laid-off workers to train in new skills, and young adults to receive a college degree, which they may not have otherwise accomplished. As the economy evolves and recovery takes hold, it remains to be seen how the increase in enrollment will affect human capital formation and, by extension, our economy. Stay tuned for future posts exploring this increasingly important part of the higher education landscape.