The Case for Limiting Federal Student Aid to For‐profit Colleges

Abstract

INTRODUCTIONPrivate for-profit colleges (FPCs) receive a disproportionate share of funding through federal student aid programs. At its peak in 2010, the sector accounted for 23 percent ($33 billion) of federal student aid under Title IV of the Higher Education Act while enrolling just 11 percent (2.4 million) of students. 1 Enrollment and aid have fallen slightly since (to 17 percent of aid for 9 percent of students as of 2014), but FPCs continue to generate much of their revenue through federal student aid. On average, Title IV-eligible FPCs in the United States receive 70 percent of their total revenue through federal student aid and are allowed to receive up to 90 percent. 2 Not counted in these figures is funding that flows from the GI Bill and other programs administered through the Department of Veteran's Affairs and the Department of Defense.Under the Obama administration, FPCs received renewed attention with several high-profile federal investigations and regulations. The "Gainful Employment" (GE) rule for the first time holds FPCs accountable for student outcomes, requiring that graduates meet specific debt-to-earnings ratios. The Department of Education also restricted federal aid to several large FPCs charged with using fraudulent practices to increase student enrollment. As a result, for-profit giants Corinthian and ITT Tech both closed and their accreditor's authority was revoked. Today, the future of the GE regulations is in doubt and many analysts predict a renewed surge in the for-profit sector under the current administration.In this article, we argue in favor of the policies put in place during the previous administration and suggest that even further restrictions on federal student aid flowing to FPCs would be beneficial for both students and taxpayers. Our argument is predicated on the lack of evidence that federal subsidies to FPCs via student aid programs are a worthwhile investment. Research drawing on various data sources and methodologies consistently finds that FPC students have similar or worse labor market outcomes relative to comparable public college students. Coupled with disappointing student outcomes is the high cost of a FPC education: Tuition and fees at FPCs are more than four times those charged by public community colleges. 3 As a result, students who attend FPCs are much more likely to borrow, and borrow more, than their public college counterparts. With labor market outcomes that are similar at best (and likely worse), and more borrowing, it is unsurprising that FPC students are more likely to default on their student loans than students in other sectors. 4

The Fast Track to New Skills: Short-Cycle Higher Education Programs in Latin America and the Caribbean

“…Seeking to protect the substantial federal resources devoted to higher education financial aid as well as students' and families' own resources, the US government has attempted to regulate HEIs. a For-profit institutions have been a particular concern because they cost more yet generate lower earnings, higher debt, and lower loan repayment rates than comparable programs at other institutions, even after controlling for confounding factors (Cellini and Koedel 2017;Armona, Chakrabarti, and Lovenheim 2020;Cellini and Turner 2019;Gaulke, Cassidy, and Namingit 2019;Cellini and Chaudhary 2014;Cellini, Darolia, and Turner 2020).…”

Veteran Educators or For‐Profiteers? Tuition Responses to Changes in the Post‐9/11 GI Bill

“…6 In 2014, 70 percent of for-profit schools' overall revenues came from Title IV sources, compared to 30 percent for non-profit schools. Approximately 20 percent of for-profit schools receive between 85 and 90 percent of their revenue from Title IV sources, demonstrating their reliance and thus likely responsiveness to financial aid changes (Cellini & Koedel, 2017). Given their exemption, veteran benefits become attractive targets for for-profit colleges given the relatively large number of schools that are at or approaching the 90 percent cutoff.…”

The Benefits of Alternatives to Conventional College: Comparing the Labor-Market Returns to For-Profit Schools and Community Colleges

“…Notwithstanding the federal position, the continued criticism of for-profit schools by elected officials and other policy makers, as well as recent research reporting low or even negative returns to attending a for-profit school (Cellini and Koedel, 2017;Cellini and Turner, 2019), 6 The most prominent recent paper in this area is by Cellini and Turner (2019). They use administrative data from the U.S. Department of Education to study labor-market returns to certificates in for-profit colleges among the subset of students who receive federal aid under Title IV of the Higher Education Act of 1965.…”