Panel Paper: The Labor Market Returns to for-Profit Education: Evidence From Students Who Started in Community College

Friday, November 8, 2013 : 10:25 AM
Washington Ballroom (Westin Georgetown)

*Names in bold indicate Presenter

Yuen Ting (Vivian) Liu, Columbia University and Clive Belfield, City University of New York
In the last two decades, enrollment at for-profit institutions has increased by 225% and reached 2 million in 2010, up from less than 0.4 million in 2000.  The rapid expansion of for-profit enrollment and little evidence of its effectiveness led to investigations from the Government Accountability Office (2010) and U.S. Senate Health, Education, Labor and Pensions Committee (2012). These reports draw attention of the public and the media to the malpractice of for-profits institutions, including deceptive marketing practices, over-priced tuition, reliance on deferral aid, high drop-out rates and high default rates of their students. This report has sparked numerous policy movements, including the push for the “Gainful employment” rule to ensure that taxpayer’s dollars are flowing to colleges that benefit their students. In spite of these attentions and policy actions, not much is known about the benefit or cost of earning a for-profit education. Thus far, only a handful of papers have attempted causal estimation of the returns to for-profit education. 

Our study estimates the returns to for-profit institutions for students who began their higher education at a community college, but transferred to enroll for at least some duration at a for-profit college, allowing us to control for prior ability. We use administrative transcript data from the North Carolina Community College System between 2001 and 2010, National Clearinghouse data with transfer information, and quarterly earnings data from Unemployment Insurance records.

Of the 810,000 students in the college system over this period, over 30,000 attended a for-profit college for some duration. We model the educational pathways of these students and their subsequent earnings trajectories up to nine years after first enrollment in community college. The paper has two main research questions: (1) who are the students that transfer to for-profits from community college? (2) What are the labor market outcomes of these for-profit graduates?

We begin by modeling selection into the for-profit system. We then use the Mincerian model to look at the linear effect of college’s sectors, student’s education, experience, and characteristics on their earnings. A major challenge in studying the returns to for-profits is selection bias. For-profits tend to attract minority and non-traditional students (Chung 2008; Deming, Goldin & Katz 2011), which are different from those choose non-profit or public colleges. Directly comparing the returns to degree across for-profit and non-profit students would underestimate the returns to for-profit degrees. Therefore, we also use a fixed effect model which allows us to control for individual-specific effect.

Our results have clear policy implications: (1) colleges should make more accommodations to non-traditional students, who are the most vulnerable and heavily recruited by for-profit colleges. (2) Policy makers should continue to push for quality control in the for-profit sector since getting a bachelor degree brings similar returns across all sectors, but great penalties persist for for-profit students that did not earn a bachelor degree.