Returns to For-Profit Higher Education

By  •  Monday August 27, 2012 11:35 AM PDT  •  2 Comments

The for-profit higher-education sector is routinely smeared in the media and established universities as low-brow, unproductive, pedestrian, a scam. Of course, the University of Phoenix isn’t Yale, and doesn’t pretend to be. But Hyundai belongs in the automobile market as much as Mercedes, and the market for higher education is no different — at least, it wouldn’t be any different if it weren’t massively subsidized and controlled by government.

A new NBER working paper attempts to estimate the economic gain, to students, of attending private two-year colleges and technical institutes, and finds that a) there is a modest gain, and b) there is no statistically significant difference between this gain and the gains from attending a public two-year community college. My reading of this evidence suggests that for-profit schools do at least as good a job, at a lower cost, as their taxpayer-funded counterparts.

Here’s the paper:

The Labor Market Returns to a For-Profit College Education
Stephanie Riegg Cellini, Latika Chaudhary
NBER Working Paper No. 18343, August 2012

A lengthy literature estimating the returns to education has largely ignored the for-profit sector. In this paper, we offer some of the first causal estimates of the earnings gains to for-profit colleges. We rely on restricted-use data from the 1997 National Longitudinal Survey of Youth (NLSY97) to implement an individual fixed effects estimation strategy that allows us to control for time-invariant unobservable characteristics of students. We find that students who enroll in associate’s degree programs in for-profit colleges experience earnings gains between 6 and 8 percent, although a 95 percent confidence interval suggests a range from -2.7 to 17.6 percent. These gains cannot be shown to be different from those of students in public community colleges. Students who complete associate’s degrees in for-profit institutions earn around 22 percent, or 11 percent per year, and we find some evidence that this figure is higher than the returns experienced by public sector graduates. Our findings suggest that degree completion is an important determinant of for-profit quality and student success.

Tags: Education

2 Comment(s)

  1. Dear Sir, you might want to do more research before you selectively quote articles. The subject of returns from for profit colleges have been extensively studied in a academic journals. And much of it concludes negatively against for-profits. Its not hard to see why, when school’s offer 5 year MBA program for $60,000 without internship placement.

    Stephanie Cellini has published volumes of data about for-profits and how even though they account for less than 12% of the student enrollments, are half of all defaults.

    Again, if you were to do research into the industry defense, you would see they hide behind inflated data from short term diploma programs for things like Cosmetology. Of course you have a great graduation rate when you program is less than a year. Took a look at Cellini’s data for the horrifying statistics on for-profit bachelor’s degree programs.

    Only reason for-profits like EMC and ITT Tech exist is due to government subsidization of education. Without it, for profits would lose 80% of their revenue.

    But I dont think that it would fit into the bias of your organization to espouse those kind of views.

    Beaver, William. “Fraud in For-Profit Higher Education.” Society 49.3 (2012): 274-78. Web. 20 Oct. 2012.

    Cellini, Stephanie R. “For-profit Higher Education: An Assessment of Costs and Benefits.” National Tax Journal 65.1 (2012): 153+. Academic OneFile. Web. 20 Oct. 2012.

    Deming, David J., Caludia Goldin, and Lawrence F. Katz. “The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators?” American Economic Association 26.1 (2012): 139-64. JSTOR. Web. 23 Oct. 2012.

    Douglas, John. ” The Rise of the For-Profit Sector in US Higher Education and the Brazilian Effect ” European Journal of Education 47.2 (2012): 242-59. Web. 5 Nov. 2012.

    Fail | Nov 27, 2012 | Reply

  2. Thanks for the references. I know the Deming et al. piece (you have the cite wrong BTW) but am unfamiliar with the other authors. Of course, it’s correct that the for-profit schools are subsidized, indirectly through student loan programs. But you might have noticed that the non-profit universities receive just a teeny-weeny bit of government aid.

    Peter Klein | Nov 27, 2012 | Reply

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