In recent years, U.S. states have drastically reduced funding for education, and public community colleges and universities are particularly hard hit (Phelan, 2014). Proprietary schools (also known as for-profit schools) have been growing dramatically over the last decade, filling a gap in demand for postsecondary education, particularly for low-income and nonwhite individuals. The vast majority of students in this sector pursue vocational qualifications such as certificates and associate’s degrees in areas of study including health, transportation, and trades (i.e. construction, etc.).
Between 2000 and 2012, postsecondary enrollment trebled in proprietary schools and increased by 27 percent in public schools. In 2012 nearly 9 percent of all postsecondary students were attending proprietary schools (U.S. Department of Education, 2013). In response to concerns about false promises to students of future earnings and employment opportunities, states and the federal government have increased oversight of the industry. However, lawmakers have little hard evidence on whether and to what extent these schools improve labor-market outcomes.
In our paper, we provide evidence of the returns to proprietary school using administrative data. Specifically, we match schooling data with quarterly earnings data for nearly 70,000 students who enrolled in the universe of proprietary schools in one U.S. state between 2005 and 2009. We compare students’ earnings after attending proprietary schooling to their own earnings before they enrolled. This method is appropriate because the vast majority of students are over 20 years of age when they first attend, and we have earnings data for at least five years before enrollment.
We find sizable earnings returns to proprietary school attendance relative to the period more than a year before enrollment. We use this time period for reference because many people enter proprietary schooling due to adverse labor-market events such as layoffs in the year before they enroll. The two figures below illustrate the increase in earnings, measured in log points, relative to the comparison time period mentioned above. The top figure is for men, and the bottom figure is for women. In each figure, the solid line is for students who pursue an associate’s degree, which typically takes approximately two years of full-time study, and the dashed line is for students who pursue a certificate, which is a shorter duration.
Figure 1 – Effect of Attendance on Earnings by Quarter and Program Type, Men
Figure 2 – Effect of Attendance on Earnings by Quarter and Program Type, Women
By 5 years after entering proprietary schools, men have higher earnings of 35 to 40 percent (0.30 to 0.35 log points), and women have higher earnings of slightly less than 30 percent (0.23 to 0.26 log points). The increases in earnings are quite similar for associate’s degree programs and certificate programs. We also find a positive relationship between proprietary school attendance and employment, with gains in employment of 5 to 10 percentage points. Even though proprietary schools have much higher tuition than public schools, our findings strongly suggest that the students in our sample have recouped these costs through improvements in earnings and employment.
We also look at how the benefits of proprietary school vary across field of study. The largest increases in earnings are for individuals studying computers, trades, and the “other” category, whereas the earnings increases for health, a field where women are much more likely than men to study, are considerably lower.
Given the differences in earnings between men and women, as well as across fields of study, we investigate the extent to which the higher earnings gains for men can be attributed to differences in field of study. For both certificates and for associate’s degrees, we find that, indeed, differences in field of study between men and women can completely explain gender differences in earnings gains associated with proprietary schooling. In other words, women have lower returns to proprietary schooling because they are more likely to choose fields of study that have lower returns. Men and women in the same field of study, such as computers, have similar labor-market returns.
A final caveat to bear in mind is that these results are for students entering proprietary schooling in one U.S. state between 2005 and 2009. We have made the underlying assumption in economics that “all else is equal.” This equality assumption would not hold if, for example, there was a large expansion in the proprietary schooling sector, and our results provide little information about labor-market outcomes if a proprietary schooling sector were introduced in another location such as the UK. But they do refute the commonly-held notion that these for-profit institutions charge high tuition and offer little more than high debt in return.
Christopher Jepsen, University College Dublin and IZA; Peter Mueser, University of Missouri-Columbia and IZA; and Kyung-Seong Jeon, University of Missouri-Columbia
Jepsen, Christopher, Peter Mueser, and Kyung-Seong Jeon. 2016. The Benefits of Alternatives to Conventional College: Labor-Market Returns to Proprietary Schooling. IZA Discussion Paper Number 10007.
Phelan, Daniel J. 2014. The Clear and Present Funding Crisis in Community Colleges. New Directions for Community Colleges, 2014(168): 5–16.
U.S. Department of Education, National Center for Education Statistics. 2013. 2013 Digest of Education Statistics, Table 303.10, Washington, D.C.: U.S. Department of Education.