Many For-Profit Colleges are Not What They Seem

Blog Post
April 27, 2017

Last year, the large for-profit college corporation ITT Technical Institute closed its doors. Sanctions imposed by the U.S. Department of Education (ED), spurred by the chain’s deceptive marketing campaigns and falsified job placement rates, as well as actions taken by the college’s accreditor, proved insurmountable. But ITT Tech was not an isolated incident. Many of the hundreds of for-profit colleges that operate in the U.S. leave students hamstrung, bearing large debt loads but with a worthless degree. Unprepared for the workforce as promised, maxed out on their federal student loans and devoid of any further grant eligibility, students are sometimes even unable to start anew elsewhere.

In the recently published Mobility Report Cards study (MRC) by Stanford economist Raj Chetty and his colleagues, few of these poor outcomes are evident. For several reasons, the study’s underlying data make it hard to discern how well for-profits really serve low-income students.

Given the glut of negative press that for-profit colleges have received over the past decade, the new findings in the MRC data have led some to question whether the for-profit sector has been unfairly scrutinized. On the surface, the study seems to suggest that for-profit institutions offer a viable path to the top rungs of the income ladder for students from low-income families (defined in the study as a college’s “success rate”). And as the charts below demonstrate, many of the large for-profit corporations even appear to perform better than, or at least on par with, the average public community college in this regard.* Without a heavy dose of context, however, these findings could be largely misinterpreted.

While the study offers a helpful glimpse into how well some universities promote economic mobility, it falls prey to two major blind-spots with respect to open enrollment institutions like for-profits and community colleges. First, few of the students who attended open enrollment or non-selective institutions were included in the study’s preferred estimates. For-profit colleges tend to attract older, adult students. But at the institution level, the primary MRC data only include outcomes for students who attended college between the ages of 19 and 22 in the early 2000s. Since 60 percent of students at for-profits in 2000 were above the age of 22, only a sliver fell into this age group.* Needless to say, the success rates at for-profit colleges hardly offer a full picture of how well they have served many of their students.

To be sure, the MRC data can still be used to identify some of the worst performing institutions. This is because traditional-aged students usually face fewer hiccups in pursuing a degree than their older peers. If a college fails to promote even those who are generally the easiest to educate, it follows that the more vulnerable, older students unreflected in the data are probably not faring well either. But the reverse isn’t true; it’s hard to say that a school is serving its students well based only on an unrepresentative fraction, particularly when the students included are likely the highest performing.

Recent findings from the U.S. Department of Education demonstrate a more complete view of how well students of any age are managing: Close to one-third of those who graduated from a for-profit certificate program earned less annual income than a full-time minimum wage worker in 2015. Meanwhile, only about one in seven of those graduating with a certificate from a community college faced the same difficulties.   

In addition to presenting data from an unrepresentative age group, a second major blind spot in the MRC study involves a lack of general context about for-profit colleges, which tend to enroll more low-income students, have higher costs, and result in greater levels of student indebtedness. Although for-profit colleges typically charge students significantly more, the average success rate for traditional-aged students at these schools is similar to the success rate at community colleges. If students graduate with less debt, their net income is higher than it would be if they were making larger (or any) loan payments every month. Simply put, two colleges with identical success rates in the Chetty data but with significantly different prices could actually have very different practical rates of economic mobility.

Despite their prices, defenders of the for-profit sector often argue that these colleges provide important opportunities for low-income students to access higher education. According to the MRC data, this much is true. But while the average two-year for-profit college takes in more students from the lowest economic quintile than any other sector of higher education, that’s not necessarily a good thing. During the early 2000s (the time span over which the authors studied student enrollment), many for-profit corporations engaged in unscrupulous recruitment practices like enrolling students from homeless shelters and government housing just to take advantage of their financial aid eligibility. Furthermore,  these colleges tend to offer little support after students have signed up for classes, and the degrees they award are often valueless. More than 10 years after the students in the MRC data were enrolled, these colleges still have the highest proportion of low-income students: Nearly 75 percent of students at for-profit colleges receive a Pell Grant, for instance, which is 20 percentage points higher than at community colleges.

Access Rate (Student Enrollment from Bottom Income Quintile) Success Rate (Percentage of Students with Families in Bottom Quintile who Enter Top Quintile) Mobility Rate (Percentage of Entire Student Body with Families in Bottom Quintile who Enter Top Quintile)
Nonselective Four-year public 15.6% 14.2% 2.1%
Nonselective Four-year private not-for-profit 11.7% 18.6% 1.9%
Two-year public 16.6% 10.9% 1.7%
Four-year for-profit 17.9% 11.2% 1.7%
Two-year for-profit 23.4% 9.9% 2.0%

In the MRC data, the significant percentage of low-income students enrolled at for-profit colleges may inflate their mobility rates slightly, fueling glib claims about how they perform better than public colleges. Although these data offer a clear look into how four-year public and private nonprofit colleges balance access and success for low-income, traditional-aged students, they require far more context when comparing for-profit colleges, and community colleges, to other sectors of higher education.

*Methodology: The success rates for large for-profit college corporations were constructed by assigning individual institutions to the companies that operate them. We then created a weighted average for each company using the success rate and the student count for the individual institutions they own. Calculations of total student enrollment above the age of 22 were derived from the 2000 National Postsecondary Student Aid Study (NPSAS).

This is the sixth post in a series we are running about new, groundbreaking research that looks at how effective different colleges are in providing social mobility to their students. To see previous posts, click here.