NCPA - National Center for Policy Analysis

Do For-Profit Colleges Pay Off?

July 27, 2015

On average, college still pays -- even in light of the relatively high debt levels we see today. The lifetime earnings gains from attending public and non-profit four-year colleges and community colleges are high enough to outweigh the costs of attendance. Few studies have asked whether this is true in the for-profit sector.

In a recent paper, Latika Chaudhary and Stephanie Riegg Cellini assess the earnings gains to associate's degree programs in for-profit colleges. After carefully controlling for student background characteristics, they find that for-profit students who work both before and after attending experience a bump in earnings around four percent per year of education -- or 10 percent total -- relative to high school graduates who do not attend college.  The annual earnings gain increases to seven percent when we add in the slightly higher probability of being employed post-education.  We find suggestive evidence that those who complete their associate's degrees have higher returns -- around eight percent per year.

These numbers are smaller than the returns found in other sectors (upwards of 12 percent per year for community college associate's degree students) and suggest that many for-profit students would fare better in public community colleges, where tuition is less than a quarter of the price.

Some back-of-the-envelope calculations suggest that for-profit associate's degree students need at least an 8.5 percent annual earnings gain to cover the cost of tuition, foregone earnings, and debt service at a typical for-profit college. Our estimates fall short of this threshold, suggesting that for the average student, the earnings gains are too low to justify the cost and generate a positive return on investment.

Adding in costs to taxpayers in the form of federal student grant aid, loan defaults, and other sources of federal funding would require a 9.8 percent earnings gain to cover the cost to the individual and society.

Source: Stephanie Riegg Cellini, "Does a For-Profit College Education Pay Off?" Brookings Institution, July 16, 2015.

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