When Wall Street heads to the classroom, the results aren’t great.

That’s the takeaway from a working paper distributed this week by the National Bureau of Economic Research. The study, conducted by researchers at New York University’s Stern School of Business and the University of California-Merced, took a look at what happens when private equity firms buy up for-profit colleges. The results: students are worse off and the college’s reliance on federal student loans and grants goes up.

“Private equity-owned schools are better at capturing government aid and that is coming at the expense of student outcomes,” said Sabrina Howell, a finance professor at NYU Stern and one of the authors of the study.

The findings come as policy makers debate the future of the for-profit college industry. Betsy DeVos’s Department of Education has proposed rolling back rules developed during the Obama era aimed at holding for-profit colleges accountable for certain outcomes and making borrowers whole when they’ve been misled by their schools.

“ ‘It demonstrates that having colleges that are controlled by people who are able to profit by spending less on students and charging them more has a negative impact on the outcomes in federally funded higher education.’ ” — Bob Shireman, a senior fellow at the Century Foundation

That battle comes after years of challenges in the for-profit college sector. Over the last few years, Corinthian Colleges and ITT Technical Institute collapsed amid allegations they lured students with misleading graduation and job-placement rates. The study distributed this week highlights the role an extreme profit motive can play in the behavior among for-profit colleges that’s most troubling to regulators and borrower advocates.

The researchers find that after a for-profit college is bought by a private equity firm, graduation rates drop by six percentage points on average and students borrow about $600 more in student loans on average. These colleges also rely more on government subsidies to stay afloat. After a private equity buyout, a college’s share of revenue coming from federal financial aid dollars averages slightly above 80%. That’s a jump from a share of between 60% and 70% before the buyout.

A combination of the typical desire of private equity firms to maximize profits and the strange nature of the higher education market leads to these outcomes, the researchers suggest. When students attend a college they bring with them federal student loan and grant dollars. For-profit colleges can rely on this government aid for up to 90% of their revenue.

Unlike in other markets where a drive for increased profits could lead to a cheaper product for consumers, the high level of government subsidy in the higher education market means that colleges can take steps to make more money that aren’t connected to benefits for students.

“It demonstrates that having colleges that are controlled by people who are able to profit by spending less on students and charging them more has a negative impact on the outcomes in federally funded higher education,” Bob Shireman, a senior fellow at the Century Foundation, a left-leaning think tank, said of the study’s findings.

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The researchers find private equity-owned colleges increase profits at the expense of students in multiple ways. The first is by reorienting resources away from education and towards sales and marketing. Private equity-owned colleges have two times the share of employees working in sales than other for-profits, the study found. After a buyout, the schools also raise tuition, the study found, which helps them capture more federal financial aid dollars.

“In this sector where you have this heavy public subsidy it creates these misaligned incentives between the students and the school,” Howell said. Realigning those incentives requires a change in policy, said Shireman, who has observed the for-profit college industry for decades through various roles in government, including serving as deputy undersecretary of education during the Obama administration.

Right now, for-profit colleges are required to receive a minimum of 10% of their revenue from a source other than federal financial aid. But some schools still draw that 10% from a different government source — Department of Defense benefits like the GI bill, which helps veterans pay for college.

What’s more, government probes have uncovered evidence of for-profit colleges pushing their tuition beyond the maximum amount students could borrow through the federal loan program and then steering students into their own private loan programs to pay for the difference. That allowed colleges to capture the private loan revenue to count towards the 10% needed to stay in line with government regulations and to get students’ federal loan dollars at the same time.

Shireman says changes to the so-called 90/10 rule could help to push for-profit colleges to deliver better outcomes. He suggests lawmakers change the rule so that GI Bill benefits count towards the 90% and so the regulation applies to the share of students, not revenue. “If you want federal money, you need to show that someone is willing to buy that education without federal aid,” he said.