Looking on the Bright Side of For-Profit Colleges

There are many reasons to be skeptical of for-profit colleges: Their students graduate with higher levels of debt than do students of traditional colleges, and they default at higher rates (even when debt levels are equivalent) — suggesting that such institutions can be a seriously bad investment. One recent article, in the Journal of Economic Perspectives, notes that, for graduates with $10,000 to $20,000 of debt, the default rate among students who attended a for-profit university is 16%, versus a 3% rate for students who attended a community college, and 2% for those who attended a non-profit four-year college. Graduates of for-profit schools are more likely to be idle six years after enrolling in a program, and are more likely to have experienced at least three months of unemployment since graduation.

No surprise, then, that Congress wants to clamp down on the flow of federal student-loans to for-profit colleges.

However, the JEP article, by Harvard’s David J. Deming, Claudia Goldin and Lawrence F. Katz, does not paint an unremittingly bleak picture. For-profit colleges, it turns out, are better at getting their students through the first year of school than are traditional colleges, and this “translates into a higher probability of obtaining a degree or certificate in a one- or two-year program.” Such certificates can be highly important in some career paths.

What’s the reason for that counterintuitive result, given for-profit colleges’ overall bad record? They are less likely to steer students into remedial courses, where students often spin their wheels. Rather than languishing in such courses, students move directly into courses they feel are relevant.

This silver lining suggests that for-profit colleges should not be written off, write Deming, Goldin, and Katz, although the bad actors certainly need to be curbed. “The challenge,” they write, “is to rein in the agile predators while not stifling the innovation of these nimble critters.”


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