"How Does the Elimination of State Aid to For-Profit Colleges Affect Enrollment? Evidence from California’s Reforms

76 Pages Posted: 14 Nov 2021

See all articles by Oded Gurantz

Oded Gurantz

University of Missouri at Columbia - Truman School of Public Affairs

Ryan Sakoda

University of Iowa College of Law

Shayak Sarkar

University of California, Davis - School of Law

Date Written: November 11, 2021

Abstract

This paper examines how financial aid reform based on postsecondary institutional performance impacts student choice. Federal and state regulations often reflect concerns about the private, for-profit sector’s poor employment outcomes and high loan defaults, despite the sector’s possible theoretical advantages. We use student-level data to examine how eliminating public subsidies to attend low-performing for-profit institutions impacts students’ college enrollment and completion behavior. Beginning in 2011, California tightened eligibility standards for their state aid program, effectively eliminating most for-profit eligibility. Linking data on aid application to administrative payment and postsecondary enrollment records, this paper utilizes a difference-in differences strategy to investigate students’ enrollment and degree completion responses to changes in subsidies. We find that restricting the use of the Cal Grant at for-profit institutions resulted in significant state savings but led to relatively small changes in students’ postsecondary trajectories. For older, nontraditional students we find no impact on enrollment or degree completion outcomes. Similarly, for high school graduates, we find that for-profit enrollment remains strong. Unlike the older, nontraditional students, however, there is some evidence of declines in for-profit degree completion and increased enrollment at community colleges among the high school graduates, but these results are fairly small and sensitive to empirical specification. Overall, our results suggest that both traditional and nontraditional students have relatively inelastic preferences for for-profit colleges under aid-restricting policies.

Keywords: financial aid reform, postsecondary education, gainful employment, consumer protection

JEL Classification: I22, I23, I21, I28

Suggested Citation

Gurantz, Oded and Sakoda, Ryan and Sarkar, Shayak, "How Does the Elimination of State Aid to For-Profit Colleges Affect Enrollment? Evidence from California’s Reforms (November 11, 2021). Available at SSRN: https://ssrn.com/abstract=3962254 or http://dx.doi.org/10.2139/ssrn.3962254

Oded Gurantz (Contact Author)

University of Missouri at Columbia - Truman School of Public Affairs ( email )

101 Middlebush Hall
Columbia, MO 65201
United States

Ryan Sakoda

University of Iowa College of Law ( email )

Melrose and Byington
Iowa City, IA 52242
United States

Shayak Sarkar

University of California, Davis - School of Law ( email )

Martin Luther King, Jr. Hall
Davis, CA CA 95616-5201
United States

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