Questions of Quality

Students at for-profit colleges typically have less money and academic preparation than do their peers at other institutions. Those and other risk factors muddy the debate over the sector's performance, and make it hard to compare with public and private nonprofit colleges.

Existing data sources are too thin to create a definitive comparative analysis of for-profits, said David J. Deming, an assistant professor of education and economics at Harvard University’s Graduate School of Education. But some clarity emerges in a forthcoming study by Deming and Claudia Goldin and Lawrence F. Katz, two prominent Harvard economists.

Those findings, although mixed, do not paint a flattering portrait of the commercial colleges.

Deming presented the draft research paper at an event held in September by the Federal Reserve Bank of Atlanta. In the paper, he and his co-authors give a broad, historical view of the for-profit industry and its recent growth. They also describe substantial differences among the approximately 1,700 for-profit institutions, which are a “varied group.”

The study’s most novel contribution, however, is its attempt to adjust for differences between for-profits and other types of institutions. As a result, it gives a better picture of student performance than would just comparing “mean outcomes across the sectors,” Deming said.

“For-profits disproportionately attract minority, older, independent and disadvantaged students,” according to the study, which assessed student outcomes after factoring in observable differences in populations who have attended different types of colleges. (A final version of the paper is slated to run in The Journal of Economic Perspectives in early 2012. Its key findings will remain unchanged, said Deming.)

The research found that for-profits have some competitive strengths, such as in first-year student retention rates compared to community colleges. But the adjusted data showed for-profits lagging behind other types of colleges in areas such as employment outcomes, student satisfaction with academic offerings, debt levels and loan default rates -- gaps that probably cannot be fully explained, the researchers say, by the greater propensity of students at the colleges to have prior risk factors.

For example, six years after enrolling at for-profit colleges, students are more likely to be unemployed than a similar cohort that attended other types of institutions. They also earn less money on average – about $1,800 to $2,000 less, or 8 to 9 percent of their predicted annual incomes.

A statistical sample used by the researchers included detailed background variables for first-time undergraduates. The study was able to control for student demographics, financial aid received and institutional characteristics, comparing similar cohorts across sectors. It did not, however, capture older students.

The vast majority of students at for-profit colleges expressed satisfaction with their courses of study and academic programs. But the study found that they report “significantly lower satisfaction than observably similar students” at other institutions.

“Students who began in for-profit colleges are also less likely to state that their education was worth the amount they paid and are less apt to think their student loans were a worthwhile investment,” according to the study.

The findings on debt loads and default rates are perhaps not as noteworthy, given widespread scrutiny of the relatively high average net tuition rates of for-profits, at least compared to community colleges and four-year, nonselective public institutions. But after controlling for various factors, the research found substantially worse student debt burdens and default rates among students who attend for-profits.

'Less Encumbered' than Nonprofits

Deming said the study is far from the final word on the complex questions it attempts to address. Given the constraints of the data, it’s more of a “conversation starter.” Even so, the research raises difficult questions about the for-profit industry’s quality and cost.

“It could’ve gone the other way,” Deming said, noting that he and his co-authors were unsure if accounting for student risk factors would put for-profits on equal footing with other institutions.

The study’s authors do not issue a clear answer to the question in its title: “The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators?”

For-profits have strong business models that often allow for a quicker response to changing labor markets than their nonprofit competitors, according to the study’s authors. For example, the sector currently produces 51 percent of associate degrees in computer and information services. And for-profit offerings in health and medical fields, where demand is high, are growing faster than at nonprofits.

“For-profits are less encumbered than public and nonprofit schools by physical plant, alumni and tenured faculty,” the study said.

As a result, at for-profits "you can expand very quickly," Deming said. "And you can shut down very quickly."

The study notes that the federal government has recently tightened regulation of the industry, such as with gainful employment rules. But more may need to be done to control problematic for-profits.

“Regulating for-profit colleges is tricky business,” said the study. “The challenge is to rein in the agile predators while not stifling the innovation of these nimble critters.”