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

Charlie Eaton, Sabrina Howell and Constantine Yannelis

No 24976, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies 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.

JEL-codes: G24 G38 H52 I2 J01 (search for similar items in EconPapers)
Date: 2018-08
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Published as Charlie Eaton & Sabrina T Howell & Constantine Yannelis & Francesca Cornelli, 2020. "When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education," The Review of Financial Studies, vol 33(9), pages 4024-4060.

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Journal Article: When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education (2020)
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