Crowding Out For-Profit Colleges

Study finds taxpayer-supported bond initiatives shift students from area proprietary institutions to community colleges, boosting enrollment at these already crowded public institutions.
October 8, 2009

Taxpayers who vote in favor of bond referendums for facilities improvements at their local community college may also be inadvertently hurting enrollments at nearby for-profit institutions, according to a new study.

Stephanie Riegg Cellini, professor of public policy and economics at George Washington University, recently completed a study of successful bond initiatives for California community colleges and their influence not only on the enrollment at those institutions but also at nearby proprietary institutions, many of which compete for the same students. The results of the study appear in the latest edition of the American Economic Journal: Economic Policy.

Community college boards in California, as in many states, can ask voters to consider bond measures to fund facilities or other needs. If such measures are approved, the bonds are typically funded by additional taxes on property. Most often, community college bonds are to be used only for capital improvements; this is the case in California. Last November, for example, a significant number of these bond referenda were on ballots across the country as community colleges faced record enrollment, mostly as a result of the recession.

Cellini studied the impact of the 101 community college bond referendums that were considered by California voters between 1995 and 2002. These bonds ranged in value from $8 million to $658 million.

There were 109 community colleges in California during the frame of this study; these colleges served about 2.5 million students or 1.1 million full-time equivalent students. Each of these institutions enrolls an average of around 10,000 full-time equivalent students. In 2002-3, the full-time, full-year tuition at a California community college was the lowest in the country, at $330 per year.

By contrast, Cellini discovered that the 3,827 for-profit institutions in California were much smaller and cost much more than their public counterparts. The average proprietary college had an enrollment of about 350 students and charged anywhere between $3,000 and $10,000 for a year’s tuition.

Using data from the now-defunct California Bureau for Private Postsecondary and Vocational Education – a body for monitoring proprietary institutions that was disbanded by Gov. Arnold Schwarzenegger in 2007 – Cellini found that successful community college bond referendums negatively impacted enrollment at for-profit institutions. She writes in the report that “about 700 sub-baccalaureate students per county, or about 2 percent, are diverted from the private sector to the public sector for every $100 million increase in direct funding to community colleges.”

Cellini also notes that community college enrollments see a net gain of about 700 students per every $100 million bond. She argues that “these results suggest that bond passage may cause students at the intensive margin to shift from the private to the public sector.”

Still, Cellini notes that it is not clear if this “direct substitution between the private and public sector … persists in subsequent years” after the passage of these bond referendums. Two to three years after bond passage, she reports, community college enrollments “may actually decrease” as “some classrooms become inaccessible as they are upgraded” or “colleges may be forced to cut back their course offerings in the near term.” She speculates, though, that community college enrollments likely increase 5 to 10 years after bond passage, but that time frame was beyond the score of her study.

Fortunes for proprietary institutions, however, do not appear to change in the near term following a bond passage. Two and three years later, their enrollments continue to fall. Cellini suggests that “because proprietary schools are notorious for their dependence on student tuition and financial aid, it may be that short-term enrollment shocks wreak financial havoc on these institutions, making medium-run sustainability infeasible.”

Cellini suggests in her study that these findings could influence state legislators to consider public and for-profit entities together when “designing effective policies in the two-year college market.”

“If proprietary schools and community colleges offer education and training of equal quality, particularly in vocation fields where programs exhibit the greatest overlap, then the case could be made that public investment in sub-baccalaureate education should focus on promoting the transfer option in community colleges, while allowing the private sector to address the demand for vocation skills,” Cellini writes. “Under certain conditions, such a change may enhance efficiency.”

In an interview, however, Cellini said her recommendation came with one major caveat.

“Maybe the private sector can accommodate the need for vocational training to some extent, but we don’t really know a lot about the quality of these institutions,” said Cellini, noting the disappearance of California Bureau for Private Postsecondary and Vocational Education as a major barrier to further research of this nature in the state. “My real plea for policy makers, not just in California but everywhere, is that they, please, start tracking this data at for-profits: enrollment, application data, how many students have jobs after graduation, how many complete their degree on time, etc. We don’t know if these schools are good or bad, and we’re letting the bad ones – if they do exist – go unchecked.”

Cellini said she was unsure if the shift from proprietary institutions to community colleges observed in her study was a positive for the “sub-baccalaureate” sector or not. Still, she added that for-profit operators should take note of her research.

“For them, it means, ‘Hey, you’ve got competition,’” said Cellini, noting that the shift she observed could be even more severe following a bond passage in today’s recession. “A lot of people are just waking up to the fact that there’s a low-cost option that they didn’t see before. People don’t always think about their local community college or hear about it. But today, with Obama highlighting public community colleges, it’s having an effect.”

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