For-Profit Higher Education: An Assessment of Costs and Benefits

This paper provides a summary and analysis of the economics of the two-year, for-profit higher education sector. I highlight studies that have contributed to our understanding of this sector and assess its social costs and benefits. I generate a rough estimate of the annual per student cost to taxpayers of federal and state grant aid, appropriations, and contracts flowing to these institutions, as well as the cost of defaults on federally-subsidized student loans. I also estimate the out-of-pocket educational expenses and foregone earnings of for-profit students. I find that for-profit, two-year colleges cost taxpayers roughly $7,600 per year for a full-time equivalent student. Students bear most of the cost of their education, in the form of foregone earnings, tuition, and loan interest amounting to $51,600 per year. I contrast these costs with similar estimates for public community colleges, including the direct subsidization of the sector by state and local taxpayers. I find that community colleges cost taxpayers more than for-profits — about $11,400 per year — but students incur costs of only about $32,200 per year of attendance. Considering both public and private costs, community colleges are thus roughly $15,600 less expensive. For-profit college attendance would result in net benefits for students if earnings gains exceed 8.5 percent per year of education, while students in community colleges require minimum earnings gains of 5.3 percent per year of education to reap positive net benefits.