Financial aid and for-profit colleges: Does aid encourage entry?

Concerns over rising college tuition and slow economic growth have brought renewed attention to the role of federal and state financial aid programs in opening access to education. Despite a large body of literature examining the effects of grant aid on four-year and public two-year college enrollment, for-profit colleges-particularly the vast majority that offer two-year degrees and certificates-have largely been ignored. Using panel data methods and a new administrative data set of for-profit colleges operating in California between 1989 and 2003, I assess the impact of the federal Pell Grant program, the G.I. Bill, and California's Cal Grant program on the net number of for-profit colleges per county. The results suggest that for both Pell and Cal Grants, increases in the per-student maximum award encourage for-profit entry. This relationship is particularly strong in counties with high adult poverty levels, where more students are eligible for aid. Further, these gains in the private sector do not appear to come at the expense of the public sector. Rather, public community colleges also experience enrollment gains as the generosity of Pell and Cal Grants increases, although this reaction appears to be weaker than the reaction of for-profits. © 2010 by the Association for Public Policy Analysis and Management.