Association for Public Policy Analysis & Management

The for-profit higher education sector has expanded significantly over the last two decades, rising from 4 percent of total enrollment in Title IV eligible institutions to nearly 11 percent in 2009 (Deming, Goldin, & Katz, 2013). As issues of the debt and employability of for-profit students has mounted, federal authorities have enacted regulations in order to monitor, and potentially close, low-performing schools (Cellini, Darolia, & Turner, 2016; Darolia, 2013). This paper examines student responses to the loss of institutional eligibility for California’s Cal Grant, the largest state need- and merit-based aid program in the nation. Prior to 2011-12, Cal Grant eligible students could use in-state aid at for-profit institutions, with the program subsidizing $9,708 in tuition payments per year for up to four years – a subsidy close to twice as large as the maximum Pell Grant award. Beginning with a small set of schools in the 2011-12 academic year, and then expanding to essentially all for-profit colleges in 2012-13, students were no longer allowed to use their Cal Grants at these colleges.

We utilize a difference-in-difference strategy to causally estimate the policy’s impact on student outcomes. The treatment group consists of students who listed a regulated for-profit institution on their FAFSA, with control students being those who do not list for-profits and are unaffected by the policy shift. FAFSA preferences are exogenous to the policy change as they occurred after students were required to submit the FAFSA by the March 2^nd deadline. We use individual-level data containing administrative records on Cal Grant payments and postsecondary attendance records from National Student Clearinghouse (NSC) data to estimate matriculation and completion effects (Cal Grant payment data allow us to estimate which for-profit institutions reliably report attendance to NSC data).

We find that the policy had its intended effect, decreasing aid payments at for-profit institutions by 30 percentage points for traditional high school graduates and 70 percentage points for non-traditional students, who apply under a separate program. Students who did not list for-profits or listed a for-profit unaffected by the policy were not impacted.

NSC data show that for-profit attendance among traditional students declined by roughly 10 percentage points, with roughly half of these students switching into community colleges. Associate degree completion declined roughly eight percentage points in for-profits, with no evidence of increases in community college associate degrees within four years. Older, non-traditional students exhibited more inelastic demand, with a drop in for-profit attendance of only 5 percentage points (off a baseline close to 80 percent), and much larger declines of 11 percentage points in associate degree completion. We find no evidence of substitution into four-year colleges for either group, though negative impacts on bachelor’s degree completion for non-traditional students in for-profit colleges. Overall, we find limited evidence that for-profit students shift enrollment toward alternative postsecondary sectors. Accordingly, policymakers looking to divert prospective students away from poorly performing for-profits should consider aid restriction’s potentially limited role.