Where Do Students Go when For-Profit Colleges Lose Federal Aid?

Stephanie R. Cellini, Rajeev Darolia and Lesley Turner

No 22967, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Recent policy debates have focused on whether restricting for-profit institutions’ access to federal student financial aid could reduce student loan defaults without restricting prospective students’ access to higher education. We examine the effects of similar restrictions imposed on over 1,200 for-profit colleges in the 1990s. Using variation in the timing and magnitude of sanctions 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 unsanctioned competitors. On average, sanctioned for-profit colleges experience a 40 percent decrease in annual enrollment in the five years following sanction receipt. Enrollment losses due to for-profit sanctions are offset by enrollment increases within local community colleges. For-profit sanctions also produce negative enrollment spillovers on unsanctioned for-profit competitors, and we provide evidence that these effects are likely due to improved information about local higher education options and/or reputational spillovers to for-profit institutions offering similar programs. Given these offsetting effects, we estimate that within the average county, the public sector absorbs 40 to 60 percent of the total enrollment decline generated by an additional for-profit sanction. Overall, market enrollment declines by just 3 percent. 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.

JEL-codes: H52 I22 I23 I28 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-edu
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Citations: View citations in EconPapers (12)

Published as Stephanie R. Cellini & Rajeev Darolia & Lesley J. Turner, 2020. "Where Do Students Go When For-Profit Colleges Lose Federal Aid?," American Economic Journal: Economic Policy, vol 12(2), pages 46-83.

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Related works:
Journal Article: Where Do Students Go When For-Profit Colleges Lose Federal Aid? (2020)
Working Paper: WHERE DO STUDENTS GO WHEN FOR-PROFIT COLLEGES LOSE FEDERAL AID? (2017)
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