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Private Equity in Higher Education: A Full Ride at Student and Taxpayer Expense?

Summary:
This May, millions of new graduates found themselves torn between triumph and trepidation, as looming obligations to begin repaying student loans tempered celebrations nationwide. Still others had no cause to celebrate, having accrued debt without obtaining their desired degree or certification. Many of those in the latter group attended a for-profit college or university; students ...

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This May, millions of new graduates found themselves torn between triumph and trepidation, as looming obligations to begin repaying student loans tempered celebrations nationwide. Still others had no cause to celebrate, having accrued debt without obtaining their desired degree or certification. Many of those in the latter group attended a for-profit college or university; students at these schools tend to accumulate more educational debt, and make up a disproportionate share of indebted dropouts. On average, they also have poorer educational and labor market outcomes than students who attend nonprofit institutions. Adding insult to injury, for-profit enterprises tend to target students from disadvantaged backgrounds.[1]

Closer examination reveals that private equity plays a pernicious and outsized role in generating these discrepancies. Private equity-owned colleges and universities have accounted for most of the increase in the for-profit share of student loan defaults since 2000. A groundbreaking new study examining the effect of private equity buyouts in higher education found substantial declines in graduation rates, earnings, and loan repayment rates after buyouts took place. These declines were accompanied by increases in per-student borrowing and receipt of federal grants. In some respects, such as student loan repayment rates, other for-profit colleges more closely resembled community colleges than they did their private equity-owned peers.

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