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WHERE DO STUDENTS GO WHEN FOR-PROFIT COLLEGES LOSE FEDERAL AID?

Stephanie Cellini, Rajeev Darolia and Lesley Turner
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Stephanie Cellini: George Washington University

No 17-12, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Recent federal investigations and new regulations have resulted in restrictions on for-profit institutions’ access to federal student aid. We examine the enrollment effects of similar restrictions imposed on over 1,200 for-profit colleges in the 1990s. Using variation in regulations linked to student loan default rates, we estimate the impact of the loss of federal aid on the enrollment of Pell Grant recipients in sanctioned institutions and their local competitors. Enrollment in a sanctioned for-profit college declines by 53 percent in the five years following a sanction. For-profit sanctions result in negative spillovers on unsanctioned competitor for-profit colleges in the same county, which experience modest enrollment declines. These enrollment losses in the for-profit sector are offset by gains in enrollment in local community colleges, suggesting that the loss of federal student aid for poor-performing for-profit colleges does not reduce overall college-going but instead shifts students across higher education sectors. Finally, we provide suggestive evidence that students induced to enroll in community colleges following a for-profit competitor’s sanction are less likely to default on their federal loans.

Keywords: Financial aid; for-profit colleges; student loans; college choice (search for similar items in EconPapers)
JEL-codes: H52 I22 I23 I28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-edu
Date: 2017-05-04
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Working Paper: Where Do Students Go when For-Profit Colleges Lose Federal Aid? (2016) Downloads
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