For Profit Vocational Education Has Negative Value

The notion that the for profit sector is always better in quality and value than the governmental sector is patently false when it comes to higher education.

Public community college vocational programs materially improve their students' economic well being, but comparable for profit vocational programs, with narrow exceptions, actually leave students less economically well off than they were before starting the programs.

Students who earned vocational certificates from for-profit colleges made an average of $900 less annually after attending the schools than they did before, according to a new study, leaving those who took out loans hard-pressed to pay them back. By contrast, students who received similar certifications from public community colleges earned $1,500 more than they did before attending school. . . .

The discrepancies are even more striking because students at for-profit colleges are more likely to complete their programs. For those who finish, the advantages of having attended a community college are even greater. 

A major exception was cosmetology, in which for-profit schools seemed to do modestly better for their students. Cosmetology is very popular at for-profit schools – about 19 percent of students seeking certificates at a for-profit school were in a cosmetology program in the federal data. (Various medical programs accounted for much of the rest.) . . . .

The disparities in earnings between for-profit college students and community and community college students were especially pronounced for men, who made nearly $2,200 more on average each year after attending a public community college than they had before.

It isn't clear how much of the gains in earnings from for profit cosmetology programs are consumed with excessive for profit college tuition bills, particularly relative to the gains received from such programs at public community college programs.  Non-medical vocational programs produce lower economic returns than medical ones to start with, and since both public and private cosmetology programs produce gains and the differences in the gains are modest, it may take many years for the additional for profit sector tuition cost to pay off.

Public community college vocational programs, in addition to conferring more value on students, are very inexpensive and pay for themselves with higher future earnings within the first year out of college. In contrast, for profit vocational programs which are more than 1100% higher, impose a crushing debt loan on students who have no economic gains.

The NBER paper analyzed data for 567,000 students who pursued vocational certificates at for-profit schools between 2006 and 2008. More than 4 in 5 of them carried student loan debt. Of the 278,000 who earned similar certificates from public community colleges, just 25 percent were indebted, adjusting for demographic differences between the groups. 

In 2014, the average tuition for certificate students at for-profit colleges was $8,118, compared with $712 for demographically similar students at community colleges. In 2014, average annual tuition at two-year, for-profit colleges was about $14,200, quadruple what students at community colleges paid.

It also bears noting that community college programs generally have the lowest per student government funding of any part of the public sector higher education system, which lavishes resources on flagship research universities, but gets stingier as one moves down the academic prestige scale.

The abstract of the study cited above states:

We draw on population-level administrative data from the U.S. Department of Education and the Internal Revenue Service to quantify the impact of for-profit college attendance on the employment and earnings of over 1.4 million students. We characterize both the within-student earnings effects and joint distributions of earnings effects and increases in student debt. Our descriptive analysis of degree-seeking students suggests that on average associate’s and bachelor’s degree students experience a decline in earnings after attendance, relative to their own earnings in years prior to attendance. Master’s degree students and students who complete their degrees appear to experience better outcomes, with positive earnings effects. Our difference-in-difference analysis of certificate students suggests that despite the much higher costs of attendance, earnings effects are smaller in the for-profit sector relative to the effects for comparable students in public community colleges—a result that holds for all but one of the top ten fields of study. In absolute terms, we find no evidence of improved earnings post-enrollment for students in any of the top ten for-profit fields and we can rule out that average effects are driven by a few low-performing institutions.

Another NBER paper from 2015 on returns to community college vocational education explained (emphasis added):

This paper estimates the earnings returns to vocational, or career technical, education programs in the nation’s largest community college system. While career technical education (CTE) programs have often been mentioned as an attractive alternative to four-year colleges for some students, very little systematic evidence exists on the returns to specific vocational certificates and degrees. Using administrative data covering the entire California Community College system and linked administrative earnings records, this study estimates returns to CTE education. We use rich pre-enrollment earnings data and estimation approaches including individual fixed effects and individual trends, and find average returns to CTE certificate and degrees that range from 12 to 23 percent. The largest returns are for programs in the healthcare sector; among non-health related CTE programs estimated returns range from five to ten percent.

The Obama Administration has taken meaningful steps to end wasteful government support for these for profit vocational programs, although perhaps not yet strong enough ones:

In 2014, Barack Obama’s administration instituted new rules limiting the amount of debt students can take on in career-training programs. Although no schools were named in the study, some of the biggest for-profit colleges – including DeVry University and the University of Phoenix – have faced federal lawsuits or investigations that suggested they deceived students about the likelihood of finding jobs in their fields of study and how much they would earn.

Basically, federal funds used for grants and loans to attend for profit post-secondary institutions are a waste of money that make both the students and the public less well off.

There are a handful of circumstances where for profit institutions do add value, and it turns out that Master's Degree programs at for profit institutions, like the for profit Master's Degree program in financial planning where I was once an associate professor, do add value.

The study also doesn't rule out the possibility that there may be a handful of for profit post-secondary institutions that do add value, but it is pretty clear that most, and in particular, most of the larger chains, do not.

OFF TOPIC BUT RELATED: A significant share of the benefits of higher education are due to sorting effects and attending and attempting to graduate from college is not a wise choice for everyone.  Also, a significant share of the benefits of higher education are in the form of better health outcomes rather than higher earnings.

Tall people make more money than short people, especially at low end jobs.