Newswise — ITHACA, N.Y. – Attending for-profit colleges causes students to take on more debt and to default at higher rates, on average, compared with similarly selective public institutions in their communities, according to new research from Cornell University.
Worse financial outcomes, researchers argue, are not a consequence of for-profits tending to serve students from more disadvantaged backgrounds, a correlation established in prior research. Rather, more expensive for-profits lead students to take out more loans, which they then struggle to repay because they’re less likely to find jobs, and the jobs they get tend to pay lower wages.
To better understand how for-profit enrollment affects student finances, the economists developed a new analytical approach utilizing five publicly available sources, including census information and data on colleges, loans, and employment. They compared how student outcomes changed across cities that experienced similar economic downturns, or “shocks” – conditions that increase the demand for college enrolment – based on differences in their relative supply of for-profit versus public schools (two- and four-year) between 2000 and 2018.
The analysis initially provided new insight into how students choose schools: They’re much more likely to go to a for-profit college in areas where there are more of them, compared to areas with fewer for-profits, when a negative economic shock occurs.
That’s an important finding because it highlights students’ sensitivity to the local schools they can access, which impacts workforce development, according to study co-author Michael Lovenheim, professor in the Jeb. E. Brooks School of Public Policy and the School of Industrial and Labor Relations.
The analysis found the higher debt load was consistent with for-profits’ higher tuition – about $3,300 for four-year students, with the likelihood of defaulting increased by 11 percentage points. Employers also did not value for-profit degrees as highly.
The findings suggest a range of policy opportunities, including regulation to minimize harmful loans, increased funding for public postsecondary schools and more information for students choosing between programs that could help launch meaningful careers – or saddle them with debt and ruined credit.
The study, “Student Debt and Default: The Role of For-Profit Colleges,” was published in the April issue of the Journal of Financial Economics.
For additional information, see this Cornell Chronicle story.
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