A new working paper from the National Bureau of Economic Research looked at students who exited for-profit colleges between 2006 and 2008 and found that many of them had failed to graduate, while few emerged with greater earnings potential—in fact, most saw their earnings decline:
Across nearly all degrees and certificates, our results reveal disappointing outcomes for for-profit students. Certificate, associate’s, and bachelor’s degree students generally experience declines in earnings in the 5 to 6 years after attendance relative to their own earnings in the years before attendance. These negative average effects are largely generated by the high proportion of students do not complete their program of study. … Separate analyses of the ten most popular fields of study reveal that for-profit students experience higher returns than public students in only one field (cosmetology), yet none of the top ten fields can be shown to generate positive total earnings gains for for-profit students.
For-profit colleges have also been embroiled in a series of scandals, lawsuits, and investigations in recent years, over allegations of false or misleading advertising and even fraud, and these institutions have been identified as a major contributor to the glut of student debt among young Americans. As attorney David Halperin warns at the Huffington Post, these controversies have implications for employers, as some of these for-profit colleges with the spottiest track records have partnered with major organizations to provide career training for their employees or help them earn degrees, whether as a reward or as part of a learning program.
It’s not just for-profit colleges that are producing lackluster results for students, however. “There are similar problems in nonprofit colleges, which enroll about 2.7 million students a year,” the Wall Street Journal’s Josh Mitchell adds:
A report released in May by Third Way, a nonpartisan think tank, revealed that among students who enrolled in 2005, on average only half graduated from such institutions within six years. On average, nearly four in 10 undergraduates at those schools who took on student debt earned no more than $25,000 in 2011, the same as the typical high-school graduate. Other research shows similar dropout rates at public colleges and universities.
Along with the weak job prospects, most of these students are now severely behind on their payments, damaging their credit and limiting their ability to borrow for homes and cars. More than a fifth of all student debt is at least 90 days delinquent, according to the New York Federal Reserve, and federal data show dropouts are three times more likely to default than degree earners.
These findings further underscore the point that colleges aren’t producing enough graduates with the skills today’s workforce needs, leading some analysts to question whether a college degree is still worth earning at all, given its rising cost and uncertain value. And the stakes are higher than any individual’s career; Mitchell relays fears from government officials that the student debt crisis will have catastrophic consequences:
Treasury Deputy Secretary Sarah Bloom Raskin compares the 7 million student-loan borrowers in default—and millions of others who appear on the same path—to homeowners who found themselves underwater and headed toward foreclosure after the housing crash. … Ms. Raskin worries these borrowers are at risk of having their financial positions spiral downward due to debt.
In this perfect storm, one wonders if we won’t see more employers eschewing degree requirements entirely and opting for new ways of differentiating entry-level candidates.