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Where Do Students Go when For-Profit Colleges Lose Federal Aid?

Author

Listed:
  • Stephanie R. Cellini
  • Rajeev Darolia
  • Lesley J. Turner

Abstract

Recent policy debates have focused on whether restricting for-profit institutions’ access to federal student financial aid could reduce student loan defaults without restricting prospective students’ access to higher education. We examine the effects of similar restrictions imposed on over 1,200 for-profit colleges in the 1990s. Using variation in the timing and magnitude of sanctions linked to student loan default rates, we estimate the impact of the loss of federal aid on the enrollment of Pell Grant recipients in sanctioned institutions and their local unsanctioned competitors. On average, sanctioned for-profit colleges experience a 40 percent decrease in annual enrollment in the five years following sanction receipt. Enrollment losses due to for-profit sanctions are offset by enrollment increases within local community colleges. For-profit sanctions also produce negative enrollment spillovers on unsanctioned for-profit competitors, and we provide evidence that these effects are likely due to improved information about local higher education options and/or reputational spillovers to for-profit institutions offering similar programs. Given these offsetting effects, we estimate that within the average county, the public sector absorbs 40 to 60 percent of the total enrollment decline generated by an additional for-profit sanction. Overall, market enrollment declines by just 3 percent. Finally, we provide suggestive evidence that students induced to enroll in community colleges following a for-profit competitor’s sanction are less likely to default on their federal loans.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:22967
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    References listed on IDEAS

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    1. Jeffrey T. Denning, 2017. "Born Under a Lucky Star: Financial Aid, College Completion, Labor Supply, and Credit Constraints," Upjohn Working Papers and Journal Articles 17-267, W.E. Upjohn Institute for Employment Research.
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    4. 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.
    5. Neil S. Seftor & NSarah E. Turner, 2002. "Back to School: Federal Student Aid Policy and Adult College Enrollment," Journal of Human Resources, University of Wisconsin Press, vol. 37(2), pages 336-352.
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    1. Armona, Luis & Chakrabarti, Rajashri & Lovenheim, Michael, 2017. "How does for-profit college attendance affect student loans, defaults, and labor market outcomes?," Staff Reports 811, Federal Reserve Bank of New York, revised 01 Sep 2018.

    More about this item

    JEL classification:

    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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