DOES REGULATING FOR‐PROFIT COLLEGES IMPROVE EDUCATIONAL OUTCOMES? RESPONSE TO CELLINI AND KOEDEL

Cellini and Koedel state that for-profit college (FPC) students “have similar (and likely worse) post-graduation labor market outcomes” and “accumulate more student debt and have higher default rates” (relative to public institutions), leading to their prescription of restricting federal lending. We differ somewhat in the interpretation of empirical evidence and while we do not advocate many of the lending regulations proposed by Cellini and Koedel, we agree that students—especially those from disadvantaged backgrounds—do not have access to accurate or complete information on college quality, costs, and financing. We support regulations that simplify and increase information for all students regardless of the institution they attend. We agree that the most compelling research finds that labor market outcomes are similar for FPC students and their public counterparts. We previously argued that given differences in student characteristics and degree fields across institutional types, it is difficult to know if returns are in fact sizably lower (“likely worse”) at FPCs for similar students in the same field, and that aggregating FPCs across degree levels obscures the relevant comparison. As noted, public community college returns are also not particularly high or well measured (Cellini & Chaudhary, 2014) and FPCs and public institutions have much sharper differences in student characteristics at the four-year and graduate levels than the sub-baccalaureate levels. Furthermore, enrollment growth in four-year and graduate levels at FPCs is relatively recent, limiting what we currently know about the comparison of post-baccalaureate labor market returns. What about the reported higher borrowing and default rates among FPC students? Here again, disaggregating the data to degree type provides a more nuanced view. “Cohort Default Rates” (CDRs) for FPCs do exceed those of other sectors in the aggregate. However, two-year FPC students currently have default rates that are lower than public community college students (see Table 1 below). Additionally, while FPC students rely on federal loans more than their public counterparts, loan balances among borrowers are more similar when comparing students at the same level of education. It is also worth noting that FPC students are 70 percent more likely to receive Pell Grants than their public counterparts. As Darolia (2015) notes, this raises the question of whether higher rates of borrowing have more to do with the institutions or the level of disadvantage of the students themselves. Consistent with this table, Looney and Yannelis (2015) find that two-year FPC students’ CDRs converged to their public counterparts by 2011, remaining slightly below the public rate since. Further, they conclude that much of the general upsurge in default rates is due to the post-recessionary period and is likely to return to lower levels. This again leads us to conclude that two-year students, whether at FPCs or public community colleges, are not particularly dissimilar, and in terms of default, FPC students now appear better positioned. Imposing new regulatory measures on borrowing right now may be a delayed response to a problem that has been mitigated in the postrecession period, at least at two-year institutions.