How PE could profit from federal school voucher programs while diminishing services

In September, the Connecticut Education Association (CEA) released a brief detailing private equity’s presence in K-12 education throughout the state and how firms may be well-positioned to profit from the Federal Scholarship Tax Credit (FSTC) program, while diminishing pedagogical, counseling, and therapeutic servicing. Citing various PESP reports, the brief walks through private equity’s troubling track record in healthcare, housing, retail, and other sectors, highlighting how the characteristics of private equity control may negatively impact education. The brief takes a closer look at two areas private equity is expanding into: tutoring and special education services.

In July 2025, President Trump signed the One Big Beautiful Bill, tax and spending legislation that includes several provisions that will benefit private equity firms. One such provision is the FSTC, a national school voucher program that funnels federal dollars into private schools, with some estimating the program could cost up to $101 billion. While some have claimed that this program could also benefit public school students, it is much more likely to increase existing inequalities and weaken public education.

While more than 30 states have decided to opt in to the program this year, others may choose to heed warning calls from teachers unions and other concerned groups. CEA urges Governor Ned Lamont to not participate, as “state participation in the federal voucher program risks statutorily solidifying privatization of public schools at an entirely new scale. Statutorily embedded revenue streams become potential dependable cash flow for private equity firms seeking to enter a new market or expand their footprint in it.”

The program works through a tax credit – households can contribute up to $1,700 for individuals or $3,400 per couple to a participating scholarship granting organization (SGO) and receive a corresponding reduction in tax liability. According to an analysis by the Institute of Taxation and Economic Policy, there is no other federally-funded program that offers a full reimbursement to taxpayers. SGOs include typical nonprofit organizations, as well as churches, universities, and public schools, some of which are connected to private equity executives. The organizations will dole out scholarships for children whose families make 300% or less of the area median income, meaning that in some places, families making more than $350,000 will be eligible.

Public schools will be at a disadvantage under this program as they generally cannot charge tuition, except in the case of transfer students. Students may be able to use scholarship funding for books, computers, and other school supplies, though this was not made clear in the regulations. Most likely, public school students will mainly be able to use scholarships for things like transportation, tutoring, after-school programs, and special education services beyond what is mandated by law.

However, a model bill by the America First Policy Institute (AFPI) may open doors to more paid services in school districts if adopted. Introduced in August 2026, AFPI’s model Education Freedom Account Act requires districts to “establish reasonable fees” for courses, programs, or other “a la carte services” and would exclude students using such services from being counted toward school funding from the state. AFPI, “Project 2025’s Cousin,” has been a stop on the way to the U.S. Department of Education for many, including Secretary of Education Linda McMahon. While some districts currently charge fees for services, states can expect the constitutionality of this practice to be challenged. Furthermore, fees can lead to students being punished or charged additional fees for missing payments, resulting in even greater impacts to low-income families. And in cases where things like art classes become a la carte services, some students will get scholarships, and others will be left out.

If Connecticut opts into the program, it could follow other states that allow vouchers to be used for tutoring. In Connecticut, the state manages a list of approved vendors for “high dosage tutoring,” which often takes place during the school day with virtual offerings. Several of the tutors are owned by private equity and venture capital firms, with a majority of the virtual-only organizations controlled by Wall Street. FEV Tutor was on this list until it abruptly shut down services in January 2025, less than three years after it was acquired by private equity firm Alpine Investors. This is a classic example of how private equity can signal the decline and eventual closure of a company; private equity owned companies file for bankruptcy at a much higher rate than other ownership structures.

Another firm entering the education space with a history of bankruptcies is Leonard Green and Partners. The CEA brief outlines Leonard Green’s impact on Prospect Medical Holdings, which operated three hospitals and dozens of clinics in the state. Under Leonard Green’s ownership, the safety-net Waterbury Hospital went into crisis, lowering the number of staff and risking the safety of patients. The company went bankrupt in 2025 while owing the State of Connecticut $127 million in taxes.

Leonard Green owns special education provider Stepping Stones Group, which staffs special education positions in many Connecticut districts. In a May 2026 contract with Hartford Public Schools, Stepping Stones included a clause^[1] that requires the district to pay a fee for directly hiring any previously contracted worker for two years after the contract ends (a review of Stepping Stones contracts in California found the same clause). This means that districts already struggling to fill vacant roles will have even less access to educators, making the educator shortage worse and locking districts into endlessly renewing contracts.

Regulations announced by the Treasury in October state that “scholarships for individual academic tutoring or special needs services at schools in low-income areas” will not require income verification, meaning that even the wealthiest families could use federal funding for these services. The regulations also encourage the use of digital wallets to track payments. Private equity-backed ClassWallet is a popular digital wallet for voucher programs. In 2019, Tennessee Education Commissioner, Penny Schwinn, former senior adviser and chief strategist to Linda McMahon, awarded a $2.35 million no-bid contract to ClassWallet to manage the state’s voucher program, drawing criticism from lawmakers on both sides of the aisle. States are prohibited from adding their own requirements or protections to the program, leaving all regulation to the federal government, whose guidelines are already proving to be unclear.

The brief offers a range of recommendations for how to protect public education from private equity, such as banning the use of non-solicitation clauses. In addition to opposing the voucher program, the brief recommends increased transparency and regulation of contracts between districts and private providers, protecting educator wages and strengthening district capacity, and restricting common private equity tactics like sale-leasebacks, in which a company sells the land it owns and rents it back. This common private equity practice essentially replaces mortgage payments (or no payments) with lease payments and strips companies of a valuable asset. CEA also calls on pension funds to adopt investment policy for private equity that includes anti-privatization language and labor standards.

CEA president Kate Dias sums up the potential danger of participating in the program in an op-ed. She writes that the “federal tax credit would privatize Connecticut’s public schools from the inside out. Chronic underfunding of our schools has made us vulnerable to private equity, and vouchers will only make private equity and its predatory practices a permanent feature of our education system.”

See CEA’s full policy brief and backgrounders here.

^[1] See “No Solicitation” clause, page 2