Study: Link between tuition, amount of aid at for-profits

A recent study of for-profit post-secondary education institutions supports the belief that a connection exists between higher tuition costs at some of these institutions and the amount of federal grant-based financial aid available to students at the institutions.

These findings are important because many for-profits rely heavily on revenues from federal aid programs as a significant part of their business model – up to 90 percent of operational revenue in some cases. Additionally, the authors note that their paper is "the first (to our knowledge) to test the tuition response to federal student aid on a sample of for-profit institutions." Previous studies exploring the connection between increasing tuition charges and the availability of federal grant aid at public and private non-profit post-secondary institutions have had mixed results, but do not reveal a similar link.

The new study, conducted by researchers from Harvard and George Washington universities and published by the National Bureau of Economic Research, looked at data on comparable "sub-baccalaureate" programs (that is, associate's degree, certificate and non-degree programs) at comparable federal-aid-eligible and -ineligible for-profit institutions in five states.

It found that tuition at for-profit institutions eligible to receive federal aid is about 75 percent higher than tuition at institutions that are not federal-aid-eligible. In fact, the dollar value of the tuition difference is about equal to the amount of federal financial aid received by students. While the researchers acknowledge that their research design does not allow them to completely rule out other reasons for the tuition differences, they nevertheless can conclude that "aid-eligible institutions raise tuition to maximize aid."

Another important outcome of the study is that, because it looked at both aid-eligible and -ineligible for-profit institutions, it provides what the authors believe is the first comprehensive estimate of the size of the for-profit higher education sector in the United States.

Previous research on the for-profit sector has generally not included aid-ineligible institutions, which are also not included in official U.S. Department of Education counts. The authors conclude that "the number of for-profit institutions is double the official count and the number of students is between one-quarter and one-third greater." Specifically, they estimate that "7,549 for-profit institutions exist in the United States as of 2009. Our enrollment figures suggest that current counts of for-profit students ... miss about 670,000 students receiving education and training every year" at institutions that do not receive federal financial aid.

– Frank Waterous