Working Paper: NBER ID: w22967
Authors: Stephanie R. Cellini; Rajeev Darolia; Lesley J. Turner
Abstract: Recent policy debates have focused on whether restricting for-profit institutions’ access to federal student financial aid could reduce student loan defaults without restricting prospective students’ access to higher education. We examine the effects of similar restrictions imposed on over 1,200 for-profit colleges in the 1990s. Using variation in the timing and magnitude of sanctions linked to student loan default rates, we estimate the impact of the loss of federal aid on the enrollment of Pell Grant recipients in sanctioned institutions and their local unsanctioned competitors. On average, sanctioned for-profit colleges experience a 40 percent decrease in annual enrollment in the five years following sanction receipt. Enrollment losses due to for-profit sanctions are offset by enrollment increases within local community colleges. For-profit sanctions also produce negative enrollment spillovers on unsanctioned for-profit competitors, and we provide evidence that these effects are likely due to improved information about local higher education options and/or reputational spillovers to for-profit institutions offering similar programs. Given these offsetting effects, we estimate that within the average county, the public sector absorbs 40 to 60 percent of the total enrollment decline generated by an additional for-profit sanction. Overall, market enrollment declines by just 3 percent. Finally, we provide suggestive evidence that students induced to enroll in community colleges following a for-profit competitor’s sanction are less likely to default on their federal loans.
Keywords: For-profit colleges; Federal aid; Pell Grants; Enrollment; Student outcomes
JEL Codes: H52; I22; I23; I28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Sanctioned for-profit colleges (I23) | Decline in annual enrollment (I21) |
| Loss of federal aid (I28) | Decline in enrollment of Pell Grant recipients in sanctioned for-profit colleges (I23) |
| Decline in enrollment in sanctioned for-profit colleges (I23) | Increase in local community colleges' enrollments (I23) |
| Enrollment losses in sanctioned for-profits (I23) | Absorption of enrollment decline by public community colleges (I21) |
| Enrollment losses in sanctioned for-profits (I23) | Overall market enrollment decline (I21) |
| Transition to community colleges (I23) | Likelihood of default on loans (G33) |