NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education

Charlie Eaton, Sabrina Howell, Constantine Yannelis

NBER Working Paper No. 24976
Issued in August 2018, Revised in April 2019
NBER Program(s):Corporate Finance Program, Economics of Education Program, Labor Studies Program, Productivity, Innovation, and Entrepreneurship Program

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.

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Document Object Identifier (DOI): 10.3386/w24976

 
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