Where Do Students Go When For-Profit Colleges Lose Federal Aid?

We examine the effects of federal sanctions imposed on for-profit institutions in the 1990s. Using county-level variation in the timing and magnitude of sanctions linked to student loan default rates, we estimate that sanctioned for-profits experience a 68 percent decrease in annual enrollment following sanction receipt. Enrollment losses due to for-profit sanctions are 60–70 percent offset by increased enrollment within local community colleges, where students are less likely to default on federal student loans. Conversely, for-profit sanctions decrease enrollment in local unsanctioned for-profit competitors, likely due to improved information about local options and reputational spillovers. Overall, market enrollment declines by 2 percent. (JEL H52, I21, I22, I23, I28)

Connecting Student Loans to Labor Market Outcomes: Policy Lessons from Chile

Rising student loan default rates and protests over debt suggest that many students make college enrollment and financing choices they regret. Policymakers have considered tying the availability of federally subsidized loans at degree programs to financial outcomes for past students. This paper considers the implementation of such a policy in Chile. We describe how loan repayment varied by degree type at baseline, the design of the loan reform, and how earnings-based loan caps change availability of loans and incentives for students and higher education institutions. We discuss the challenges facing policymakers seeking to link loan availability to earnings outcomes.

Messengers of Bad News or Bad Apples? Student Debt and College Accountability

Student loan debt and defaults have been steadily rising, igniting public worry about the associated public and private risks. This has led to controversial regulatory attempts to curb defaults by holding colleges, particularly those in the for-profit sector, increasingly accountable for the student loan repayment behavior of their students. Such efforts endeavor to protect taxpayers against the misuse of public money used to encourage college enrollment and to safeguard students against potentially risky human capital investments. Recent policy proposals penalize colleges for students’ poor repayment performance, raising questions about institutions’ power to influence this behavior. Many of the schools at risk of not meeting student loan default measures also disproportionately enroll low-income, nontraditional, and financially independent students. Policy makers therefore face the challenge of promoting the efficient use of public funds and protecting students while also encouraging access to higher education.

The Rise Of The Student As A Consumer Of Education

Data from the US Department of Education (2012) indicates that college education has become an expensive investment to the extent that an increasing number of students cannot pay for it, as they default on their loans. Student loan default rate have increased from 4.6% in 2005 to 9.1% in 2010.