Will a For-Profit Degree Get You a Job?
Even if it does, the benefit will likely be diminished by high student debt.
Philosophy majors at liberal-arts colleges used to have the best claim to unemployable — or at least underemployable — futures. But students at for-profit colleges and universities are also finding that their degrees too often fail to translate into well-paying jobs. New data from the Education Department suggest that for-profit schools usually don't deliver on their promises to prepare students for successful careers. Of the more than 5,000 career programs for which the agency has recent earnings data, 72 percent offered by for-profits produce graduates who earn less than high school dropouts. (The comparable figure for programs at public institutions is 32 percent.)
As it prepares to regulate career programs, the federal agency has collected and published average post-graduation earnings and student-debt information for relevant associate's degrees and lower-level certificates. The data don't include other factors that influence employment, like student demographics, the strength of the local economy, or prior work experience. But they may provide the most detailed picture yet of which career credentials are valuable to employers and affordable for students. It turns out that the short-term programs that for-profit students are most likely to complete are also the most likely to fail the Education Department's proposed "gainful employment" measures.
"You've got a bunch of graduate programs that by and large look OK. You've got some bachelor's programs that look OK. Where you see the high failure rate is the associates' and certificate programs," says Ben Miller, senior policy analyst in the education policy program at the New America Foundation, referring to for-profit education.
The graduates who are hampered by the worst post-graduation earnings are those who attain credentials not required by law or by industry standards — a certificate in massage therapy, for example. Students fare best when they complete programs for required credentials, such as a nursing degree. The catch is that those higher-level degrees associated with greater income also weigh down students with more debt.
Here's one example from the Education Department's data: In San Antonio, Texas, holders of licensed practical-nurse certificates from for-profit Kaplan College can expect to earn $36,730 and owe $1,759 in student-loan payments per year, on average. Holders of the same credential from St. Phillips College, a public two-year institution, can expect to earn $42,760 and owe $382 per year.
Despite typically higher costs and levels of student debt, for-profit education institutions make up a fast-growing sector that serves 13 percent of college students, most of whom are seeking a certificate or associate's degree. They range from small outfits like the Flint Institute of Barbering in Michigan to massive publicly traded companies like the University of Phoenix.
In the student population they serve and the programs they offer, for-profits most resemble community colleges. Sixty-three percent of students attending for-profit institutions have low enough incomes to qualify for federal Pell grants, according to the Congressional Budget Office. The sector also enrolls disproportionate numbers of African-American and Hispanic students.
But for-profits charge tuition like private not-for-profits, while offering less institutional financial aid. Low-income students who might pay nothing out-of-pocket at a public institution, thanks to grant aid, pay about $8,000 in tuition at a for-profit school, according to a 2011 report from The College Board. Students take out loans to make up the difference. According to the Education Department, for-profit students account for about 31 percent of all student loans and nearly half of all loan defaults.
Legislation dating to the 1960s compels the Education Department to make sure that federal financial-aid dollars only flow to career programs that result in "gainful employment." The standard — which has never been defined — applies to almost all programs offered by for-profit institutions and to certain associate's degrees and certifications at public and private not-for-profit institutions.
The Obama administration has been particularly alarmed by the high student-debt and loan-default rates associated with for-profit colleges. It wants to define "gainful employment" using two measures: the share of a graduate's income that goes to student loan payments, and the rate at which graduates default on their federal loans.
"In some sense, the for-profits need to be doing better to be as good of a deal," says David Deming, an assistant professor at the Harvard Graduate School of Education. "Because if you're borrowing three times as much money, and you're getting the same outcome, well then it's worse, right?"
So far, say researchers, we don't know much about the earnings payoff associated with for-profits. Most independent research on the sector has relied on survey data, and comparing for-profits to other sectors is tricky because for-profits often offer degrees that aren't available elsewhere. A 2012 study co-authored by Deming found that graduates of for-profits — after controlling for student characteristics — earn less than comparable graduates of other schools, mostly because for-profit graduates are less likely to be employed. And a 2013 Boston University study found little payoff to certificates from any kind of institution, expect for those credentials required for certain jobs.
Stephanie Rigg Cellini of George Washington University and Latika Chaudhary of Scripps College have calculated that for-profit associate's degrees give students a 4 percent increase in earnings per year of education. But students would need an increase of 9 percent to make their degrees worth the cost.
The for-profit industry says it's being unfairly targeted. "If the regulation were applied to all of higher education, programs like a bachelor's degree in journalism from Northwestern University, a law degree from George Washington University Law School, and a bachelor's degree in social work from Virginia Commonwealth University would all be penalized," Steve Gunderson, president and CEO of the Association of Private Sector Colleges and Universities, said in a statement.
All types of colleges are increasingly under pressure to prove that they're worth rising tuition prices. From the Obama administration's proposed college-rating system to state performance-funding formulas, policymakers are pushing to make sure taxpayer resources go to institutions that graduate students in a reasonable amount of time, at a reasonable cost, and with a reasonable chance of getting a decent-paying job.
The Education Department's proposed gainful employment standard may never come into force. Rule-making has dragged on for years, delayed in part by federal court cases. But legislative efforts are increasingly making public statistics like post-graduation earnings for a wide range of institutions. That's the kind of information prospective students in search of well-paying jobs sorely need to know.