The Point

What You Earn Does Not Depend on Whether You Attend a For-Profit University or a Traditional, Not-for-Profit Institution

August 24, 2016

Young people respond to incentives like everyone else; and years of evidence showing that most well-paying jobs go to those with post-secondary degrees have been followed by rising numbers of young people attending college. The National Center for Education Statistics (NCES) reports that from 1995 to 2015, the share of Americans ages 25 to 29 with an associate’s degree jumped from 33 percent to nearly 46 percent, and the share with a bachelor’s degree rose from 25 percent to nearly 36 percent.

In recent years, a new debate has emerged over what type of higher education leads to a well-paid career. In particular, a number of commentators have claimed that a degree from a for-profit college or university produces much smaller income benefits than a degree from a traditional, public or private non-profit institution. To test this claim, I analyzed the first systematic data available on the incomes of young graduates based on where they earned their degrees.

Over the last decade, five states — Arkansas, Colorado, Florida, Texas and Virginia — have tracked the first-year incomes of graduates by their major fields of study, using state unemployment insurance records. Those data covered a total of 273 traditional, public and private not-for-profit colleges and universities. A leading for-profit institution, Kaplan University, agreed to provide comparable data on their graduates using the Department of Labor Wage Record Interchange System, and asked me to investigate.

In a new study released this week, I found not only that the graduates of the for-profit institution achieved much larger income gains than comparable young people without a degree. I also found that Kaplan University graduates with an associate’s or bachelor’s degree earned incomes generally comparable to the graduates from the 273 traditional, public and private non-profit institutions in those five states.

The data show, first, that a Kaplan University degree produced substantial income benefits. Six years after finishing an associate’s degree, Kaplan graduates earned an average of 82 percent more they did before entering Kaplan ($15,290 to $27,890), while their counterparts who did not pursue any degree are estimated to have earned barely 4 percent more ($15,290 to $15,964). Similarly, six years after earning a bachelor’s degree, Kaplan University graduates earned an average of 38 percent more than they did before starting ($30,358 to $41,947), compared to the estimated 4 percent gains of their counterparts with only a high school diploma ($30,358 to $31,698). (The difference in the earnings premiums for the two degrees is largely based on the low prior earnings of those who went on to earn an associate’s degree.) Indeed, the estimated gains are actually likely to be conservative, since the analysis excluded those programs in which the students’ median income before entering Kaplan University was less than a full-time minimum wage.

The first-year earnings of new graduates provide perhaps the clearest evidence of how employers view and value the institutions that their new employees attended. So, I compared the first-year earnings of the graduates of the traditional public and private institutions in the five states, by their major field of study, and the first year earnings of Kaplan University graduates in the same major fields. These data tell us that from an employer’s vantage, Kaplan University bachelor’s and associate’s degree graduates look and perform much like other graduates.

• In the first year following their graduation, young people with a Kaplan University bachelor’s degree, on average, earned more than their counterparts in the same major fields from traditional public and private institutions in three of the five states — Arkansas, Florida, and Virginia — and less than their counterparts from traditional institutions in Colorado and Texas.

• Kaplan University associate’s degree graduates had higher median first-year earnings than their counterparts from traditional institutions in the same major fields in two of the five states — Arkansas and Virginia — and lower median earnings than their counterparts from traditional institutions in Colorado, Florida and Texas.

• The data also show, however, that the average first-year earnings of Kaplan University master’s degree graduates were less than the average of their counterparts from traditional institutions in all five states.

The finding that Kaplan University bachelor’s and associate’s degree graduates do generally as well economically as graduates in the same fields from traditional colleges and universities is particularly striking, because the data provided by four of the five states tended to overstate their graduates’ average or median earnings. The data from Kaplan University and Texas covered all graduates with any earnings; but Arkansas, Colorado, Florida and Virginia provided data only on graduates who earned at least the equivalent of a full-time, year-round, minimum wage. In effect, four of the five states excluded graduates who worked only part-time or part of the year in their first year after graduating. Even so, the Kaplan University graduates, on average, out-performed the graduates of traditional institutions in three of those four states at the bachelor’s degree level, and in two of the four states at the associate’s degree level.

These results are heartening as Americans try to address issues of inequality, because minority and poor students comprise a substantially larger share of the student bodies of Kaplan University and other for-profit institutions, compared to traditional not-for-profit colleges and universities. NCES data show that in 2014, African-American, Hispanic and other minority students comprised 50.2 percent of all full-time students at degree-granting for-profit colleges and universities, compared to 28.3 percent of the full-time students at private not-for-profit institutions and 37.5 percent at public institutions. For-profit colleges and universities clearly provide disproportionate access to higher education for minority students.

This analysis carries certain caveats. It draws on income data for graduates from one major for-profit university and 273 traditional not-for-profit institutions in five states. The economic results of attending a for-profit institution certainly vary substantially across those institutions, as do the results of attending a traditional college or university. However, the data clearly show that the graduates of one leading for-profit institution derive economic value from their education and degrees generally comparable to the value derived by graduates from attending traditional, not-for-profit public and private institutions across five states.