community colleges vs for-profit colleges

Please excuse my persistence, but I am posting a second portion of the interview with Harvard economist Claudia Goldin. The interviewer asked Professor Goldin why, in the United States, is there such a proliferation of for-profit colleges? Ms Goldin explained that the for-profits have advantages over community colleges that permit them to charge higher tuition charges and still attract students. These advantages are very important for poorly prepared, poorly funded, working students.

If you go to a community college, you may encounter various barriers; the courses you want are all full, or they’re only offered at times when you can’t attend because you have to work. Plus, many students arrive unprepared and might not have taken (or understood) algebra, for example. So they have to take remedial courses; they have to pay for these courses and find time to attend them, and yet they get no credit for them toward graduation.

But if they walk across the street to the school they’ve seen advertised on public transportation or on late-night TV, they will find a school that is going to help them apply for their Pell Grant and a student loan. It’s going to provide career counseling and it’s not going to make them take remedial courses. For-profits really know how to get people in the door. But students end up with very big bills, and those loans have to be paid off at some point.

But, do graduates of for-profit schools do well in the job market? Goldin’s finding is precisely what I would expect (No!), so is not very interesting, at least to me. What is interesting is the design of the research project set up to answer the question. Here is the intuition, in the words of Ms Goldin.

We don’t have IRS [income tax] records matched with where a person earned their degree. So what I did with David Deming, Noam Yuchtman, Amira Abulafi, and Larry Katz was to conduct an audit study. We sent out resumes designed to look like real resumes, but we varied them by where the person went to college, either a for-profit college (online or brick-and-mortar), a nonselective public college (where the students in many ways are indistinguishable from the ones who go to for-profit colleges), or a selective public college. We sent them out for two major types of jobs, business jobs and health jobs, and within those types, to jobs requiring or not requiring degrees. We then compared callback rates. Callback rates aren’t perfectly mapped onto what people eventually earn, but if people don’t get called back they’re not going to do well in the job market. We found the callback rates for business jobs were considerably lower for the candidates from the for-profit schools, particularly the online ones.

Interview/Claudia Goldin“, Federal Reserve Bank of Richmond, Econ Focus (Fourth Quarter 2014), pp. 24-28.

The research that Professor Goldin summarizes is circulating as NBER Working Paper No. 20528, issued in September 2014.

There is more of interest in the full interview, which I recommend you download and read.

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4 Responses to “community colleges vs for-profit colleges”

  1. Susan ST John says:

    “We find that a bachelor’s degree in business from a for-profit “online” institution is 22 percent less likely to receive a callback than a similar degree from a non-selective public institution.

    “We found the callback rates for business jobs were considerably lower for the candidates from the for-profit schools, particularly the online ones.”

    My reaction without reading the full paper is to worry that if the call back rate is already low then a 22% improvement is not so impressive

  2. Susan, the point is that paying high tuition does not lead to MORE interviews. In fact it leads to fewer interviews, not even the same number of interviews. Whether 22% is larger or small doesn’t matter. What matters is that the coefficient is negative, not how negative it is. It has been a while, but I did skim the full paper and recall that the difference impressed me – in addition to the fact that the effect was negative. Now some of this effect is due to the type of student attracted to for-profit schools, without doubt. It is difficult to control for this.

  3. To summarize, paying tuition at a for-profit college does not increase the chances of a job interview. It actually decreases them, compared to gaining entry into a low-tuition public college.

  4. My head is not functioning well today. The researchers DO control for attributes other than college attended. The applications are fake, “designed to look like real resumes, but we varied them by where the person went to college”. The results suggest that employers think, other things equal, graduates of for-profit colleges are worse than graduates of taxpayer-funded colleges. This might be a pure signalling effect. For-profit schools may not necessarily teach poorly …. but they do have lower standards of admission, and possibly lower standards for graduation as well.