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

101 Pages Posted: 13 May 2019 Last revised: 31 Mar 2020

See all articles by Charlie Eaton

Charlie Eaton

University of California, Merced

Sabrina Howell

New York University (NYU) - Leonard N. Stern School of Business

Constantine Yannelis

University of Chicago Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 4, 2019

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.

Keywords: Private equity, education, incentive alignment

JEL Classification: I22, I23, G34, G38

Suggested Citation

Eaton, Charlie and Howell, Sabrina and Yannelis, Constantine, When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education (April 4, 2019). NYU Stern School of Business. Available at SSRN: https://ssrn.com/abstract=3371413 or http://dx.doi.org/10.2139/ssrn.3371413

Charlie Eaton

University of California, Merced

P.O. Box 2039
Merced, CA 95344
United States

Sabrina Howell (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
212-998-0913 (Phone)

HOME PAGE: http://www.sabrina-howell.com

Constantine Yannelis

University of Chicago Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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