Do for-profit universities induce bad student loans?

• For-profit universities have default rates 5–6 percentage points higher.
• For-profit institutions encourage ill-advised loans.
• Moral hazard and student loans.

Despite its great social and financial importance, little of the prior empirical research on student-loan default focuses on the role of for-profit universities. This study finds a positive association between student loan default and an institution's for-profit status—even when controlling for previously identified important factors, including graduation rates, the percentage of students who are low-income and from minority groups, and whether the institution is two- or four-year. Overall, my results are consistent with for-profit institutions systematically encouraging ill-advised loans. The results are economically significant, with default rates generally 5–6 percentage points higher for for-profit institutions.