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Facing a Higher Climb

A look at how the credentials of graduates from for-profit institutions fare in today's competitive job market

October 3, 2014
illustration of two college graduates with one facing a very high climb

Earlier this year, when the Obama Administration announced a set of proposals that would stop the flow of federal funds to career-training colleges that couldn’t show that they were adequately preparing students for gainful employment, critics said that for-profit colleges were being unfairly targeted, and that low-income and nontraditional students would lose opportunity. Similar proposals were debated and ultimately blocked by lawmakers and the courts in 2011 in 2012.

A new study by educational economist and Associate Professor David Deming is not likely to quell the controversy. Deming, whose work has chronicled the whirlwind growth of for-profit colleges and raised significant questions about their recruitment efforts, effectiveness, and dependence on taxpayer dollars, set out to measure the value of for-profit credentials in the labor market.

Outcomes matter, of course, because unlike public institutions, for-profit colleges are funded mostly by federal Title IV funding (Pell Grants and Stafford Loans). These colleges account for about a quarter of all Title IV dollars, and 7 of the 10 largest Pell grantees are for-profits, says Deming. Federal law requires that institutions meet “gainful employment” requirements in order to receive the aid, and for-profit schools often describe themselves as uniquely responsive to employer needs and as a valuable pathway toward a career. But the Obama Administration has said that many students leave for-profit colleges with more student-loan debt than they can repay, citing default rates and income levels of graduates.

To find evidence about employment outcomes, Deming and his research team undertook what’s called a resumé audit study. They created fictitious resumés populated with real work histories, taken from an online job board, and they randomly assigned postsecondary credentials from a sample of public and for-profit institutions. They then used these resumés to “apply” to real job vacancies posted on another job board.

“The point was to send realistic resumés that would be similar in every way except for the type of school attended — for-profit or public,” Deming says. The goal was to find out whether employers were more or less likely to express an interest in an applicant with a particular kind of postsecondary credential.

The Findings

The most significant result, Deming says, was that for business jobs that required a bachelor’s degree, an otherwise identical resumé with a degree from a for-profit online school was 22 percent less likely to get a callback than a resumé with a degree from a nonselective public school.

His team also found that for jobs where employers don’t require you to have a degree, there wasn’t much advantage to having one, including from a public institution.

The Takeaway

“The primary lesson is that the employers in our study did not seem to have a very high opinion of degrees from for-profit colleges,” Deming says. “Given that these colleges are also more expensive, it is hard to argue that they are a better investment than other choices.”

That doesn’t mean that for-profit colleges should be shuttered, Deming says. “It’s not productive to consider the for-profit sector in isolation. The growth in for-profit colleges is the result of a choice we’ve made about how to fund higher education in this country. As long as the demand for highly educated workers continues to grow, and as long as state and local funding continues to decline, it will be hard for public colleges to produce enough graduates to meet the needs of employers. We need to have a conversation in this country about how we are going meet the skill requirements of the modern workforce, and I hope our results will move this conversation forward.”

Illustration by Robert Neubecker

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