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For-Profit Higher Education: An Assessment of Costs and Benefits

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  • Cellini, Stephanie Riegg

Abstract

This paper provides a summary and analysis of the economics of the two-year, for-profit higher education sector. I highlight studies that have contributed to our understanding of this sector and assess its social costs and benefits. I generate a rough estimate of the annual per student cost to taxpayers of federal and state grant aid, appropriations, and contracts flowing to these institutions, as well as the cost of defaults on federally-subsidized student loans. I also estimate the out-of-pocket educational expenses and foregone earnings of for-profit students. I find that for-profit, two-year colleges cost taxpayers roughly $7,600 per year for a full-time equivalent student. Students bear most of the cost of their education, in the form of foregone earnings, tuition, and loan interest amounting to $51,600 per year. I contrast these costs with similar estimates for public community colleges, including the direct subsidization of the sector by state and local taxpayers. I find that community colleges cost taxpayers more than for-profits — about $11,400 per year — but students incur costs of only about $32,200 per year of attendance. Considering both public and private costs, community colleges are thus roughly $15,600 less expensive. For-profit college attendance would result in net benefits for students if earnings gains exceed 8.5 percent per year of education, while students in community colleges require minimum earnings gains of 5.3 percent per year of education to reap positive net benefits.

Suggested Citation

  • Cellini, Stephanie Riegg, 2012. "For-Profit Higher Education: An Assessment of Costs and Benefits," National Tax Journal, National Tax Association, vol. 65(1), pages 153-179, March.
  • Handle: RePEc:ntj:journl:v:65:y:2012:i:1:p:153-79
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    References listed on IDEAS

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    1. Darolia, Rajeev, 2013. "Integrity versus access? The effect of federal financial aid availability on postsecondary enrollment," Journal of Public Economics, Elsevier, vol. 106(C), pages 101-114.
    2. David J. Deming & Claudia Goldin & Lawrence F. Katz, 2012. "The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators?," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 139-164, Winter.
    3. Christopher Jepsen & Kenneth Troske & Paul Coomes, 2014. "The Labor-Market Returns to Community College Degrees, Diplomas, and Certificates," Journal of Labor Economics, University of Chicago Press, vol. 32(1), pages 95-121.
    4. Jacobson, Louis & LaLonde, Robert & G. Sullivan, Daniel, 2005. "Estimating the returns to community college schooling for displaced workers," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 271-304.
    5. Dee, Thomas S., 2004. "Are there civic returns to education?," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1697-1720, August.
    6. Stephanie Riegg Cellini, 2010. "Financial aid and for-profit colleges: Does aid encourage entry?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 29(3), pages 526-552.
    7. Lance Lochner & Enrico Moretti, 2004. "The Effect of Education on Crime: Evidence from Prison Inmates, Arrests, and Self-Reports," American Economic Review, American Economic Association, vol. 94(1), pages 155-189, March.
    8. Chung, Anna, 2008. "The Effects of For-Profit College Training on Earnings," MPRA Paper 18972, University Library of Munich, Germany, revised May 2009.
    9. Stephanie Riegg Cellini, 2009. "Crowded Colleges and College Crowd-Out: The Impact of Public Subsidies on the Two-Year College Market," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 1-30, August.
    10. Card, David, 2001. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," Econometrica, Econometric Society, vol. 69(5), pages 1127-1160, September.
    11. W. Norton Grubb, 1993. "The Varied Economic Returns to Postsecondary Education: New Evidence from the Class of 1972," Journal of Human Resources, University of Wisconsin Press, vol. 28(2), pages 365-382.
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    Cited by:

    1. Rajeev Darolia & Cory Koedel & Paco Martorell & Katie Wilson & Francisco Perez‐Arce, 2015. "Do Employers Prefer Workers Who Attend For‐Profit Colleges? Evidence from a Field Experiment," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 34(4), pages 881-903, September.
    2. Stephanie R. Cellini & Rajeev Darolia & Lesley J. Turner, 2016. "Where Do Students Go when For-Profit Colleges Lose Federal Aid?," NBER Working Papers 22967, National Bureau of Economic Research, Inc.
    3. Gilpin, Gregory A. & Saunders, Joseph & Stoddard, Christiana, 2015. "Why has for-profit colleges’ share of higher education expanded so rapidly? Estimating the responsiveness to labor market changes," Economics of Education Review, Elsevier, vol. 45(C), pages 53-63.
    4. Cellini, Stephanie Riegg & Chaudhary, Latika, 2014. "The labor market returns to a for-profit college education," Economics of Education Review, Elsevier, vol. 43(C), pages 125-140.
    5. Samuel Natale & Anthony Libertella & Caroline Doran, 2015. "For-Profit Education: The Sleep of Ethical Reason," Journal of Business Ethics, Springer, vol. 126(3), pages 415-421, February.
    6. Jacqmin, Julien, 2014. "The Emergence of For-Profit Higher Education Institutions," MPRA Paper 59299, University Library of Munich, Germany.
    7. repec:eco:journ3:2017-02-43 is not listed on IDEAS

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