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How does for-profit college attendance affect student loans, defaults and labor market outcomes?

Luis Armona, Rajashri Chakrabarti and Michael Lovenheim ()

No 7561, CESifo Working Paper Series from CESifo

Abstract: For-profit providers are becoming an increasingly important fixture of US higher education markets. Students who attend for-profit institutions take on more educational debt, have worse labor market outcomes, and are more likely to default than students attending similarly-selective public schools. Because for-profits tend to serve students from more disadvantaged backgrounds, it is important to isolate the causal effect of for-profit enrollment on educational and labor market outcomes. We approach this problem using a novel instrument combined with more comprehensive data on student outcomes than has been employed in prior research. Our instrument leverages the interaction between changes in the demand for college due to labor demand shocks and the local supply of for-profit schools. We compare enrollment and postsecondary outcome changes across areas that experience similar labor demand shocks but that have different latent supply of for-profit institutions. The first-stage estimates show that students are much more likely to enroll in a for-profit institution for a given labor demand change when there is a higher supply of such schools in the base period. Among four-year students, for-profit enrollment leads to more loans, higher loan amounts, an increased likelihood of borrowing, an increased risk of default and worse labor market outcomes. Two-year for-profit students also take out more loans, have higher default rates and lower earnings. But, they are more likely to graduate and to earn over $25,000 per year (the median earnings of high school graduates). Finally, we show that for-profit entry and exit decisions are at most weakly responsive to labor demand shocks. Our results point to low returns to for-profit enrollment that have important implications for public investments in higher education as well as how students make postsecondary choices.

Keywords: postsecondary education; for-profits schools; student loans; default; returns to education (search for similar items in EconPapers)
JEL-codes: I23 I26 J24 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-edu, nep-lma and nep-ure
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Working Paper: How does for-profit college attendance affect student loans, defaults, and labor market outcomes? (2018) Downloads
Working Paper: How Does For-profit College Attendance Affect Student Loans, Defaults and Labor Market Outcomes? (2018) Downloads
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