The Rise of For-Profit Higher Education: A General Equilibrium Analysis

For-profit colleges have increased their share of the 4-year college market, particularly among nontraditional and online students, raising concerns about post-graduation outcomes. We set up and calibrate a general equilibrium model of college choice to analyze how for-profits compete with public and private nonprofit institutions. We quantify their response to changes in Pell Grant caps, public university subsidies, and gainful employment legislation linking federal funding to graduates' debt-to-earnings ratios. Lowering public sector subsidies increases the market share of for-profit colleges. For-profit institutions prefer to comply with gainful employment standards but do so by lowering tuition and instructional quality.