Returns to For-Profit Higher Education

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.

Peter G. Klein is a Research Fellow, Associate Editor of The Independent Review, and Member of the Board of Advisors of the Center on Culture and Civil Society at the Independent Institute.
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