New data was just released on the earnings of college graduates from career college programs. This is part of the Department of Education’s “gainful employment” (GE) rule that went into effect last year. It requires colleges receiving federal funds to demonstrate that their students earning certificates have high incomes in relation to the student loan debt they have accumulated. The GE rule applies to both public and private colleges.
The press release from the Department of Education showed that there is a $9,000 average earnings gap between students who completed certificates from public and for-profit colleges. The Department released this information with the assertion that “public colleges pay off”.
These average earnings do not tell the entire story when it comes to for-profit colleges. The Department of Education has unequal regulatory standards and applies much more scrutiny to for-profit colleges than it does to public colleges. Many for-profit schools outperform the average public school so neither sector should be treated as a monolith.
One of the most important things to note about this data is that it only refers to students that earned certificates since the Department of Education is not allowed to release data on the income of dropouts. While it is true that students earning certificates from public schools do on average earn more, statistically students who attend public colleges are much less likely to finish their programs than students attending for-profit schools.
The Beginning Postsecondary Students Longitudinal study shows that only 45 percent of students at public school completed their certificates three years later. Meanwhile, nearly 70 percent of students in comparable for-profit schools had completed their certificates.
This data indicates that rather than one being better than the other, there is a trade-off with public and for-profit schools. While you are likely to earn a higher income if you graduate from a public university, you are statistically less likely to graduate. If you attend a for-profit school you are likely to graduate but you will earn a lower income.
It seems for-profit colleges have a lower criteria for graduating students than public colleges, allowing a higher rate of students with low income earning potential to earn their certificate. And since the GE data only looks at students who have graduated, two programs that are identical in quality could have different average earnings because one program has a higher standard for graduating its students. The program with higher standards allows fewer students with low income earning potential to graduate, which raises the average earnings of those who do.
For-profit schools have more motivation to admit students with low income earning potential. Both public and for-profit colleges are heavily subsidized but for-profit schools generate most of these subsidies through Pell Grants and student loans. Public schools get a large share of revenue from government appropriations. So to increase revenues, for-profit schools must bring in more students while public schools can lobby the state legislature for increased funds.
This creates a catch-22 for for-profit schools because while federal aid encourages them to enroll as many students as possible, the GE rule encourages them to graduate as few as possible so only the highest potential income earners can earn their certificate. This encourages colleges to keep a mediocre student from graduating so his low earnings will not negatively impact the GE data.