October 15th, 2019



On the returns to for-profit colleges

As student debt grows and the labor market stagnates, a growing body of research seeks to answer questions about the worthiness of college. What characterizes the schools and populations for whom college is worth it? What does worthiness mean—financial, intellectual, for individuals, for society as a whole? A key way to examine these questions is to find evidence on the financial returns to college. Douglas Webber examines the question along lines of ability, major, and debt, and explores the question for marginal students; JFI’s Sidhya Balakrishnan and Barry Cynamon looked at the way that returns vary based on the type of financing (loans, IDR, ISAs).

A new paper from STEPHANIE CELLINI and NICHOLAS TURNER uses administrative data to examine the returns to public college vs. for-profit college certificate programs. The key finding is that “for-profit certificate students experience lower earnings and employment post-college than their public sector counterparts,” but the richness of the data allows for many more surprising conclusions as well: one is that for-profit college may actually have worse returns than no college whatsoever; another is that for-profits may have worse effects for women than for men. From the paper:

“Across the board, our results show that despite the much higher costs of attending a for-profit institution, the average for-profit certificate student experiences lower earnings effects relative to public sector students. For-profit colleges outperform public institutions in only one of the top ten for-profit fields—cosmetology. Further, students in online and chain for-profit institutions appear to fare worse than students in more traditional campus-based and independent institutions. Our institution-level regressions reveal that the weak performance of the for-profit sector is not limited to a few poor performing institutions, rather the majority of schools appear to have negligible average earnings effects.”

The full paper is available in the Journal of Human Resources here.

  • Scott Cunningham wrote a substantial tweet-thread summary, available here. “I’d include this paper when sorting through the human capital vs signaling debate. This is arguably pure credentialing… So why are the returns so bad if it’s also a credential? I’d be curious how proponents of the ‘education is only signaling’ hypothesis reacted to this study.” For more on that debate, see our previous JFI letter.
  • How can for-profit colleges be held accountable for poor returns to the educations that they provide? A 2016 report from Davids J Deming and Figlio explains the successes and failures of Obama’s Gainful Employment Act, and suggests the importance of financial “skin in the game” for all kinds of institutions. Link.
  • A new data explorer from the Urban Institute brings together an array of education data sets. Link.
  • Cellini and Turner’s piece examines certificate programs at for-profits. For more on certificate programs, see our March letter on the work of Di Xu and Madeline Trimble, and our May letter on the many non-Title-IV certificates, certifications, and credentials about which there is almost no data.
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July 8th, 2019

Model of a Cabin


Examining the college premium

Higher education is widely understood to be a major driver of intergenerational mobility in the United States. Despite the clear (and growing) inequalities between and within colleges, it remains the case that higher education reduces the impact that parental class position has on a graduate's life outcomes.

In an intriguing paper, associate professor of economics at Harvard XIANG ZHOU scrutinizes the implied causal relationship between college completion and intergenerational mobility. Specifically, Zhou uses a novel weighting method "to directly examine whether and to what extent a college degree moderates the influence of parental income" outside of selection effects, seeking to distinguish between the "equalization" and "selection" hypotheses of higher ed's impact on intergenerational mobility.

From the paper:

"Three decades have passed since Hout’s (1988) discovery that intergenerational mobility is higher among college graduates than among people with lower levels of education. In light of this finding, many researchers have portrayed a college degree as 'the great equalizer' that levels the playing field, and hypothesized that an expansion in postsecondary education could promote mobility because more people would benefit from the high mobility experienced by college graduates. Yet this line of reasoning rests on the implicit assumption that the 'college premium' in intergenerational mobility reflects a genuine 'meritocratic' effect of postsecondary education, an assumption that has rarely, if ever, been rigorously tested.

In fact, to the extent that college graduates from low and moderate-income families are more selected on such individual attributes as ability and motivation than those from high-income families, the high mobility observed among bachelor’s degree holders may simply reflect varying degrees of selectivity of college graduates from different family backgrounds."

In sum, Zhou finds that the "selection" hypothesis carries more weight than the "equalization" hypothesis. One implication of this finding is that "simply expanding the pool of college graduates is unlikely to boost intergenerational income mobility in the US." Link to the paper.

  • A 2011 paper by Michael Bastedo and Ozan Jaquette looks at the stratification dynamics affecting low-income students within higher ed. Link. A paper from the same year by Martha Bailey and Susan Dynarski surveys the state of inequality in postsecondary education. Link.
  • An op-ed by E. Tammy Kim in the Times argues for higher-education as a public good. Link.
  • Marshall Steinbaum and Julie Margetta Morgan's 2018 paper examines the student debt crisis in the broader context of labor market trends: "Reliance on the college earnings premium [as a measure of success] is that it focuses primarily on the individual benefit of educational attainment, implying that college is worthwhile as long as individuals are making more than they would have otherwise. But in the context of public investment in higher education, we need to know not only how individuals are faring but also how investments in higher education are affecting our workforce and the economy as a whole." Link.
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