High Costs, Low Resources, and Missing Information: Explaining Student Borrowing in the For-Profit Sector

Abstract

This article examines the borrowing behavior of students enrolled in for-profit colleges, asking how and why their borrowing differs relative to students pursuing postsecondary education in other sectors. We employ statistical decompositions to understand the extent to which variation in borrowing across sectors can be attributed to observed characteristics of students and of higher education institutions. Drawing on nationally representative data on undergraduate students, we show that college costs of attendance are the primary observed driver of the large differences in borrowing between students in for-profit institutions and those in other sectors. However, a substantial portion of borrowing differences remains unexplained by these high costs, low student financial resources, and variation in college attendance patterns. Further, there is little evidence that changes in these characteristics can explain the rise in student borrowing in the for-profit sector over time. We discuss how these findings present challenges to regulation of the for-profit sector, and the extent to which policymaking can encourage prudent borrowing and college choice decisions.