When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education

Abstract

We study how private equity buyouts create value in higher education, a sector with opaque product quality and intense government subsidy. With novel data on 88 private equity deals involving 994 schools, we show that buyouts lead to higher tuition and per-student debt. Exploiting loan limit increases, we find that private equity-owned schools better capture government aid. After buyouts, we observe lower education inputs, graduation rates, loan repayment rates, and earnings among graduates. Neither school selection nor student body changes fully explain the results. The results indicate that in a subsidized industry, maximizing value may not improve consumer outcomes.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.