US for-profits leave students worse off

'Agile predators' deliver increased debt and lower pay, Harvard study suggests. Simon Baker reports

January 12, 2012

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As advertised? 'Nimble' for-profits can boost innovation, but others may not aid those enrolled there, say researchers

First-time students pursuing degrees at for-profit colleges in the US are more likely to end up unemployed and to default on state loans, even allowing for the fact that more come from low-income backgrounds, an academic study has concluded.

The paper by three Harvard University researchers, which comes at a time of heightened concern in the UK about the potential impact of for-profit providers, found that first-time students at such institutions in the US ended up with higher debt burdens and lower earnings than "observationally similar" students at public or non-profit institutions.

Although the higher rate of default on state loans by for-profit graduates in the US has been widely publicised, one defence cited by commercial providers is that their students are more likely to come from poorer backgrounds.

However, in the paper, "The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators?", the Harvard researchers used methods including regression analysis to try to make a like-for-like comparison of different types of institution.

Analysing statistics from an existing longitudinal study of students in post-secondary education, the academics found that for-profits were better at retaining students in their first year and for the completion of shorter courses below bachelor's level.

But when looking at longer programmes, comparisons with public and not-for-profit institutions were less favourable.

"Their first-time post-secondary students wind up with higher debt burdens, experience greater unemployment after leaving and, if anything, have lower earnings six years after starting college than observationally similar students from public and non-profit institutions," the paper says.

"Not surprisingly, for-profits' students end up with higher student loan default rates and are less satisfied with their college experiences."

Although the authors note that their analysis is not perfect - significantly, it would not have included returning mature students - the research has been seized on as further evidence of problems associated with commercial providers.

It follows a string of lawsuits brought against US for-profit firms over alleged fraudulent marketing, an investigation by a Congressional committee into their practices, and concern about the amount of defaulted federal debt associated with their graduates.

As a result, the US government is seeking new laws to tie state loan access to employment outcomes.

The authors, Lawrence Katz and Claudia Goldin, of Harvard's economics department, and David Deming, of its Graduate School of Education, said such measures should "increase transparency" but also warn they may not be enough to "contain an agile predator".

But they are also keen to stress the success of for-profits in innovative provision and widening participation.

"The challenge is to rein in the agile predators while not stifling the innovation of these nimble critters," says the paper, which was published by the National Bureau of Economic Research.

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