Private equity buyouts of for-profit colleges: higher enrollment and profits, worse educational results

This paper uses private equity buyouts to study a transition from lower- to higher-powered profit-maximizing incentives in higher education, a sector heavily dependent on government subsidy. Private equity owners have especially high-powered incentives to maximize profits. In a subsidized industry, this could intensify focus on capturing government aid at the expense of consumer outcomes.

Employing novel data on 88 private equity deals and 994 schools with private equity ownership, the study finds that private equity buyouts lead to higher enrollment and profits, but also to lower education inputs, higher tuition, higher per-student debt, lower graduation rates, lower student loan repayment rates, and lower earnings among graduates. Neither changes to the student body composition nor a selection mechanism fully explain these results.

Another finding: The private equity-owned schools are better able to capture government aid.