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For-Profit Schools: Less Bang for Your Buck?

The Exchange

The fast-growing for-profit education sector has been an object of scorn over the past few years. Studies have found that students at for-profit schools end up with higher unemployment rates and lower earnings than do comparable students from other schools, and that they have higher student debt burdens and default rates on their loans.

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Just last month Sen. Tom Harkin, a Democrat from Iowa, released a highly critical report on for-profit colleges. "Federal taxpayers are investing billions of dollars a year, $32 billion in the most recent year, in companies that operate for-profit colleges. Yet more than half of the students who enrolled in those colleges in 2008-9 left without a degree or diploma within a median of 4 months," the report said.

Amid the criticism, one new research paper, "The Labor Market Returns to a For-Profit College Education", sheds a sliver of positive light on the sector. The working paper, published on the National Bureau of Economic Research's Web site, found that a degree from a for-profit school can pay off as much as a comparable degree from a community college. But the findings come with some important caveats (more on those later).

The researchers, Stephanie Riegg Cellini, associate professor of public policy and economics at George Washington University, and Latika Chaudhary, assistant professor of economics at Scripps College, compared the before and after earnings of the same individuals who attended community colleges and for-profit colleges. Students who enroll (that's just enroll, without necessarily completing the degree) in associate's degree programs in for-profit colleges see earnings gains between 6% and 8% on average -- no different from those of students in public community colleges, the paper says. The earnings comparison covered approximately five years before and after enrollment.

Another Reason to Complete Your Degree

For-profit students who completed their associate's degrees boosted their earnings by around 22%, a figure on par with those of students in other sectors and levels of education, says the paper. "In some specifications, these returns appear to be significantly higher than those of community college graduates. Moreover, for-profit graduates also appear to work more hours and be more likely to work full-time after graduation than public sector alumni," the paper says. The numbers, however, should allow for a large margin of error because "the completers could be a self-select group — you could say they're more motivated," Cellini says.

But for-profit students who don't complete their degrees lag compared with their not-for-profit counterparts, the study found.

Students who leave school without a degree actually see their earnings slip by 2.6% on average, the study found. Cellini speculates that this might be because "employers don't recognize the courses or reputation of a for-profit school, but they know of a community college... And dropouts may have to find lower-paying jobs in whatever new field they are trying to enter," she says.

Annual tuition at for-profit institutions was about $15,000 for an AA (Associate's degree) program and $13,000 for a certificate program in 2010—11, according to a study from February. Compare that with tuition at two-year public schools, which was $7,703 for the 2009-10 year, according to the National Center for Education Statistics.

Cellini's research shows there are certainly benefits of completing a degree with a for-profit school, "but we don't know how that compares to the cost of getting the degree," she says. If you're getting similar returns, it might make sense to go the cheaper route, community college. Cellini says, "You get the same bang for fewer bucks."

Despite the criticism, it doesn't look like the for-profit sector will suffer an exodus of students anytime soon. Enrollment in for-profits increased from 0.2% to 9.1% of total enrollment in degree-granting schools from 1970 to 2009, according to the National Center for Education Statistics.

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