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Department of Education funds provide a massive subsidy to PE-owned colleges

From report “Private equity’s failing grade: Private equity investment in for-profit colleges

(Written jointly by Private Equity Stakeholder Project and Americans for Financial Reform)

Private equity-owned for profit colleges, like other for profit colleges, are heavily dependent on US Department of Education Title IV funds including federal student loans and grants such as the Pell Grant. On average, Department of Education Title IV funds accounted for around 80% of revenue at private equity-owned for profit colleges.[i]

For-profit colleges owned by private equity firms drew more than $5 billion in US Department of Education Title IV funds in the academic year ended 2015[ii], and hundreds of millions of dollars more in Post 9/11 GI Bill and US Department of Defense Tuition Assistance funds.

Some PE-owned for profit college chains have been particularly aggressive in utilizing US Department of Education Title IV funds.

To take just one example: Southern Careers Institute, a Texas-based chain of vocational schools, is owned by private equity firm Endeavour Capital[iii].  During the academic year ended June 2015 (SCI fiscal year ended December 2014), Southern Careers Institute violated the US Department of Education’s 90/10 Rule[iv] by deriving more than 98% of its revenue, $32.4 million out of $33.0 million, from federal government (Title IV) sources, the highest of any for profit college.[v]

10 years after they had started school, former students of Southern Careers Institute’s Austin campus earned just $20,500 on average[vi], almost $5,000 less than the average Austin resident with just a high school diploma.[vii]  Just 18.9% of Southern Careers Institute-Austin students had paid back any of their federal student loans three years after leaving school, compared to the national average of 46.4%.[viii]

 

[i]Proprietary School Revenue Percentages Report for Financial Statements with Fiscal Year Ending Dates Between 07/01/14 –06/30/15, US Dept of Education.

[ii]Proprietary School Revenue Percentages Report for Financial Statements with Fiscal Year Ending Dates Between 07/01/14 –06/30/15, US Dept of Education.

[iii]endeavourcapital.com/team/dietz-fry/, endeavourcapital.com/team/chad-heath/, endeavourcapital.com/ec/tall-oak-learning/, accessed Oct 21, 2017.

[iv]“New Analysis Finds Many For-Profits Skirt Federal Funding Limits,” US Dept of Education, Dec 21, 2016.

[v]Proprietary School Revenue Percentages Report for Financial Statements with Fiscal Year Ending Dates Between 07/01/14 –06/30/15, US Dept of Education.

[vi]VA GI Bill Comparison Tool profile for Southern Careers Institute-Austin, accessed Oct 22, 2017.

[vii]Based on estimated earnings of $25,437 in for a high school graduate in Austin, Texas, US Census Bureau American Community Survey 2015.

[viii]VA GI Bill Comparison Tool profile for Southern Careers Institute-Austin, accessed Oct 22, 2017.

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