The Rise of For-Profit Higher Education: A General Equilibrium Analysis

Ciprian Domnisoru and Ioana Schiopu

No 9134, CESifo Working Paper Series from CESifo

Abstract: The growth of for-profit colleges has been historically aided by online instruction, and budget crunches at public institutions, circumstances which have resurfaced during the COVID-19 pandemic. We set up and calibrate a general equilibrium model of competition between public and for-profit institutions in the U.S. four-year college market. Our predicted levels of tuition, instructional spending and average student body ability match data counterparts well. In policy experiments, we vary the generosity of public support for higher education and we consider the effects of “gainful employment” legislation that would link access to federal funding for universities to their graduates’ debt-to-earnings ratios. We find that Pell Grant cap increases would benefit for-profit colleges, which flexibly decrease tuition and instructional spending to attract a higher number of low-income beneficiaries. Our simulations indicate for-profit colleges prefer to comply with gainful employment standards, but do so by lowering tuition and instructional quality.

Keywords: college choice; funding policies; non-traditional students; general equilibrium (search for similar items in EconPapers)
JEL-codes: D40 D58 I28 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-edu
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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