How Students Fare at For-Profits

Where does the truth about for-profit colleges lie?

Is it in the harshly critical investigative reports that stitch together one damaging anecdote after another to suggest that the institutions prey on academically underprepared, low-income students, leaving them with huge student loan debts and few job prospects?

Or, as the colleges' officials themselves assert, is there a different (and more favorable) truth to be found in the huge numbers of underrepresented students who are flocking to the institutions in ever-growing numbers and emerging with credentials that help them enter the job market, to their own satisfaction and that of their employers?

Both supporters and critics of the for-profit higher education sector have tended to agree that the only way to really get at the reality of the institutions' performance is by laying uncontested data about their students and graduates alongside those of other colleges, to directly compare their results with those of other types of institutions.

“Without credible data done by independent researchers, there is an existential threat to the operation of the sector,” Harris Miller, president of the Career College Association, the sector’s main advocacy group, said last fall at a meeting on just this topic. “The overriding suggestion is that we’re overselling or underdelivering. The only way we can ultimately combat that is with high-quality, independent research on outcomes. The big questions are, are they getting good jobs and are they able to repay their student loans?”

Some for-profit colleges have vowed to make their data available for independent researchers to mine, but so far, at least, no such work has emerged. This week, though, one of the country's largest for-profit providers of higher education, Corinthian Colleges, is releasing a study it commissioned that its officials say begins to fill the information gap.

The study, which was conducted by the Parthenon Group, a strategic consulting firm that has worked with some for-profit colleges but also with major city school districts in Chicago and Boston, uses Education Department data to paint a picture that compares the sector's institutions favorably to public community colleges.

The report can be roughly summarized in the following way, portraying for-profit colleges as:

• Expanding their enrollments at roughly four times the rate of their public two-year college counterparts.
• Enrolling greater proportions of students who are academically at risk than are public two-year colleges.
• Providing education at a cost roughly comparable to that at community colleges, once all state and public subsidies are lumped in with students' own tuition payments.
• Producing outcomes that are roughly comparable to (if not somewhat better than) those of public two-year colleges, in terms of transfer or completion of associate degrees or certificates.
• Improving the socioeconomic standing of students, to an extent roughly comparable to the boost provided by community colleges.
• Leaving graduates with debt that is manageable in relation to the income they earn.

“We’re trying to answer the claim, with data instead of anecdotes, that students enroll in these schools and they don't get anything out of it except debt," says Mark Pelesh, executive vice president for government and regulatory affairs at Corinthian. "We all believe education is a good investment, and this shows it."

Experts on student aid and higher education finance who reviewed the report do not question the legitimacy of its data, but challenge some of its assertions and conclusions. Sandy Baum, a senior policy analyst at the College Board, says that the report may, as Pelesh suggests, put in more favorable context the stories suggesting that the typical for-profit student is left drowning in debt and worse off than before.

But while the report may show that the students' "lives are not ruined," it does not answer the question of whether "their lives are better than they would be if they'd gone to a community college," spending $10,000 a year less, Baum says. "Just saying, 'It's not a terribly onerous debt burden' isn't really enough. Why is it worth their having done that? Did they get something they otherwise could not have gotten? I don't see it."

High Stakes Questions

The debate about whether for-profit (or "private sector," as the institutions themselves prefer to call themselves) colleges are successfully educating and training students is no small matter. The companies themselves are worth billions of dollars to investors, and from a public policy standpoint, steadily increasing amounts of federal financial aid dollars are flowing to the colleges through their rapidly increasing numbers of students.

The most recent federal data show that for-profit colleges enrolled about 8 percent of all postsecondary students in 2007, a figure that has almost certainly swelled to close to 10 percent by now. The fact that students at the institutions pull in a disproportionate amount of Pell Grant aid -- nearly a quarter in the most recent federal accounting -- has become a source of significant concern for some policy makers, as have the comparatively high rates at which students who attend for-profit colleges default on their student loans. Many of the leading for-profit colleges derive as much as 88 percent of their revenue from federal financial aid funds (a law requires that proportion to fall below 90 percent).

With those facts in mind, the Education Department has engaged in recent months in a high-profile review of the need for new regulations designed to ensure that colleges in the sector are not taking advantage of students -- and that the ever-growing federal money flowing to the colleges is producing outcomes of value.

It is in that context that Corinthian contracted with Parthenon to conduct a study comparing how students in associate degree or certificate programs fare at different types of institutions, says Pelesh. "There is so much being written and said about our institutions, and it is driven by anecdote," he says. "We wanted to see if we could come at the issue in a much more systematic way."

Pelesh says Corinthian selected Parthenon's Education Center for Excellence from among several bidders for the research project because the consulting firm's leaders "thought they could mine [federal] data in a way that hadn't been done before." Robert Lytle, who heads the firm's education practice and was lead researcher on the project, says that Parthenon -- which has done significant consulting work with private sector colleges -- had conducted its study in ways that were fully replicable, so that any researchers who might question its findings could repeat it.

"We tried to leave as clear an audit trail as we could," Lytle says. "People have free rein to go at it."

The Findings

The basic narrative that Corinthian and Parthenon hope to tell with the report they've produced is that for-profit colleges are successfully fulfilling a national need that many other postsecondary institutions have ignored: providing a viable path to a college credential for the growing numbers of academically and financially high-risk students that the U.S. must educate to achieve President Obama's college completion goals.

Using three federal longitudinal data sets -- the Beginning Postsecondary Students (BPS) survey, the Integrated Postsecondary Education Data System (IPEDS), and the National Postsecondary Student Aid Study (NPSAS) -- the researchers build a set of arguments designed to make that case, focused on students enrolled in postsecondary programs of two years or less in duration. (Two-year or less students make up less than a third of all enrollments at for-profit colleges; Parthenon researchers say they focused on two-year and less programs because the BPS data set "covers five years of time," making it "useful for short programs ... but not relevant for the four-year student.")

Enrollments in two-year or less programs grew by 6.2 percent in private sector colleges from 2005-2008, and by 1.2 percent at public colleges, the research shows. At a time when policy makers have concluded that the country must add at least 5 million college completers in the next decade, "it's the private sector that's been adding seats, because the government just can't afford to," says Parthenon's Lytle.

Not only are for-profit colleges enrolling more students, but they are enrolling the sort of at-risk students that the American higher education system has historically done the worst job of educating. About 36 percent of the students enrolled in public and independent two-year colleges in 2004 were considered "high risk" (meaning that they had at least three of seven risk factors, such as having no high school diploma, being enrolled part time, being single parents, or being financially independent), compared to 54 percent at private sector institutions.

"If we're going to get to the president's goals, it's going to have to come out of this group" of high-risk students, says Pelesh. "It's about who is serving this group, or making inroads with them."

The Corinthian/Parthenon study defines the institutions' relative educational success with their respective pools of students by looking at how students fared five years after enrolling. As seen in the table below, nearly three in five students who enrolled at the private sector colleges in 2001 had earned either an associate degree or a certificate five years later, about twice the comparable proportion for public two-year institutions.

When students who had transferred out were included, the proportions grew closer. About 62 percent of public two-year students had "positive outcomes" (defined as either earning a credential or transferring), compared to 69 percent at for-profit colleges. The figures held across different types of students (Pell Grant recipients, those whose parents did not attend college, etc.), the researchers found.

Outcomes for Students at 2-Year Public and For-Profit Colleges, 2001-6

The other major indicator that the study uses to show that students at private sector students fare as well or better than those at public community colleges is that of annual income post-graduation. The researchers find that two-year students who entered for-profit colleges between 2002 and 2005 did so with an average income of $14,700, and were earning $22,500 after they graduated, a gain of 54 percent. Comparable students at public two-year institutions, by contrast, started out at a higher pre-enrollment level -- $20,300 -- and ended up higher as well, at $27,600. The income gain for the latter group was $7,300, or 36 percent.

The Corinthian report presents a "basic analysis that would indicate that they are doing as good or better a job" in producing good outcomes for their students, says Sara Goldrick-Rab, an assistant professor of educational policy studies and sociology at the University of Wisconsin at Madison who specializes in students' access to higher education. But she and Baum of the College Board both say that the analysis leaves several important questions unanswered.

The for-profit colleges' strong student outcomes are largely built on the awarding of certificates rather than associate degrees or transfer to a four-year institution, Baum and Goldrick-Rab note, and "we don't know anything about the duration or quality of those certificates," Baum says. (Officials at Parthenon say that data were not available on the length or type of certificate programs.)

"It looks like the way you get to better completion rates is through the completion of certificates," Goldrick-Rab says. "The nice, meaty, difficult question that emerges is, is it better to lead a larger proportion of students to associate degrees and transfer and have some dropouts, as the community colleges do, or to have some dropouts and lots of terminal certificates?"

Given the academic underpreparation and high risk nature of the private-sector college students, Goldrick-Rab says, "these are kids who shouldn't be able to finish college on time. If they appear to graduate on time at higher rates at for-profit colleges, shouldn't that raise questions? Unless for-profits have developed some miraculous fast-track remedial instruction, it would seem like they're handing out degrees."

Pelesh responds that many private sector colleges do have intensive and successful practices -- he calls them "high touch" -- designed to keep students engaged and on track toward graduation. "If a student misses a single day of classes, we're on the phone, asking, 'What's the problem, are you having child care or transportation issues, is there something we can do?' " The institutions too often get little credit for those practices, he says.

Baum says that without better information on the types of certificates awarded, the available data suggest to her that those coming out of community colleges end up better off, given that their incomes after earning the credentials are significantly higher.

If people are going to college to improve their financial situations, she says, "How much money you make [afterward] has nothing to do with how much you made before.... If the credentials [students receive from the two sets of institutions] are comparable, why it is that there's such a large difference in how much community college recipients make [compared to those from private sector institutions]? If you're going to get a certificate one place or the other, why are you going to make more money coming out of the public [institution]?"

Cost and Price

If all the preceding information in the Corinthian/Parthenon study is designed to make the case that students emerge from for-profit colleges with an outcome that has value, the last major set of data that the study presents is designed to combat critics' view that the price of those credentials is excessive.

The study comes at this two ways. First, it seeks to compare the full cost of producing a "positive outcome" for a typical student at both a public two-year college and a private sector institution, weighing all the sources of funds. For the private sector institutions, two main sources contribute to the $26,700 cost of producing a successful student: several thousand dollars in Pell Grant money and a significant amount (roughly $17,000) in student-paid tuition and fees. (A small amount of "other" money also factors in.)

At the community college, by contrast, a smaller amount of Pell Grant money and $3,000 or $4,000 in student tuition costs are supplemented by about $15,000 in state and local subsidy to cover the $25,300 cost of producing a successful outcome there. The point, says Pelesh of Corinthian, is that those who criticize the high tuitions at for-profit colleges compared to community colleges usually ignore the fact that taxpayers are paying to heavily subsidize the public institutions' low tuitions.

When considering the full cost of what it takes to produce a successful student at the two types of institutions -- "all the money that goes in the door," says Pelesh -- for-profit colleges look like a much better bargain to policy makers and taxpayers than critics typically concede, he asserts.

The way that the study looks at the "cost" of for-profits is by analyzing the average loan debt and payments that graduates of the institutions face afterward. The median graduate of a private sector institution accumulates about $8,300 in loans for a less-than-two-year credential and about $14,600 for an associate degree, according to the federal data used in the report. Using a standard 6 percent interest rate for student loans, the report asserts, those figures work out to average monthly payments of $92 for the less-than-two-year graduates and $162 for the two-year graduates -- "about the cost of a typical cable bill," says Parthenon's Lytle.

That works out to about 4.7 percent of the typical monthly income of $1,943 for a certificate holder and 7.6 percent of the $2,123 monthly income for an associate degree recipient from a for-profit institution, the report says. That outcome rebuts the idea that the typical graduate of these colleges is overwhelmed by debt, Pelesh says.

Skepticism Remains

The cost and price data leave Baum and Goldrick-Rab largely unpersuaded. While Pelesh and Corinthian are clearly (and admittedly) aiming their analysis at Education Department officials and other federal and state policy makers who might be inclined to impose price controls on for-profit institutions or otherwise crack down on their ability to tap into public financial aid dollars for their students, the only thing that matters to financial aid analysts is what students themselves pay.

"The societal cost per outcome slide is silly -- it's the tuition and fees that matter to students," says Goldrick-Rab.

And on that front, the report's data are questionable, says Baum. It would be virtually impossible for student in a two-year program to accumulate $14,600 in federal student loan debt given existing limits on how much students can borrow -- which means that that figure would almost certainly include meaningful amounts of non-federal (private) loan debt that would carry a much higher interest rate than 6 percent, she says. (Some alternative student loans have rates into the mid-teens.)

"I'd push back on the assumptions behind that $162 monthly payment," Baum says.

Even if the median figures were accurate, significant proportions almost certainly "end up having to pay more than they can afford," Baum says. (The College Board's show that 20 percent of two-year for-profit college students have borrowed more than $20,000, she says.)

"If they could have spent $10,000 a year less" by enrolling at a community college, might not they be better off? she says.

Baum and Goldrick-Rab and Pelesh and Lytle agree on at least one thing. As Pelesh puts it: "This is the starting point for a conversation. We'd love to see it built upon" by other research.

"I want to give them credit for thinking about evidence, and for trying to think about what are the important outcomes to measure," says Goldrick-Rab. "At the same time, we need to find better ways to get at the quality of the credentials that students are receiving."

Adds Baum: "I think they're raising important questions, and someone should do further analysis on a bunch of the issues they raise. I don't think just saying, 'These guys are bad guys' is the right answer. But nothing here convinced me of anything. At core, this is advocacy, not research."