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Elizabeth Warren’s latest private equity target: for-profit colleges

Amid rising congressional scrutiny of the industry, Sen. Elizabeth Warren sent out letters to six private equity firms that back for-profit colleges. And she’s demanding answers.

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Private equity, take note. Elizabeth Warren isn’t going anywhere.

On Tuesday, Sen. Elizabeth Warren (D-MA) and Rep. Mark Pocan (D-WI) announced that they had mailed letters to six private equity firms with current or recent holdings in for-profit colleges. KKR, Sterling Partners, Altas Capital Partners, Vistria Group, Leeds Equity Partners and Apollo Global Management all received the letters, which requested information about the firms’ management of for-profit colleges and universities.

Specifically, the lawmakers ask for data that would clarify any role the firms might have in tuition hikes, declines in education quality and other issues exacerbating the student loan crisis plaguing young Americans. Private equity-owned for-profit schools are the “most frequent offenders” in terms of deceptive and illegal marketing practices that have long persisted in the for-profit education arena, the senator and representative wrote.

The letters also cite a National Bureau of Economic Research study that found when a private equity firm acquires a for-profit higher-education institution, “student outcomes deteriorate … and reliance on federal aid and guaranteed loans increases.’'

The lawmakers have asked the firms for responses by September 24. Apollo declined to comment on the letters; the other five firms did not respond to requests for comment.

The Apollo Education Group (which held the Apollo name before the similarly named PE firm bought it) provides a glimpse into the deals Warren so despises. The for-profit company owns the University of Phoenix, which has faced multiple legal struggles and lawsuits that predate private equity backing. In 2015, the Federal Trade Commission launched an investigation into the Apollo Education Group and the University of Phoenix over “deceptive or unfair” marketing practices, per a legal filing. Private equity got involved in 2017, when Apollo Global, along with other investors including Najafi Companies and Vistria, took the higher-ed conglomerate private for $1.14 billion.

Apollo Global has also previously invested in Laureate Education, exiting before the company purchased several for-profit schools in the US, including Walden University in Minneapolis, and the NewSchool of Architecture & Design in San Diego. In February, Altas Partners acquired the University of St. Augustine for Health Sciences for $400 million. And Sterling Partners paid a reported $15 million for the Florida Coastal School of Law in 2004, a for-profit law school that just last week was sued by a student alleging that administrators had “negligently misrepresented requirements for education and graduation,” per the Jacksonville Daily Record.

The letters are the latest sign that the private equity industry could be in for a reckoning if Warren is elected as president. In July, Warren and Pocan, along with several other democrats, introduced the Stop Wall Street Looting Act. The bill would unleash a slew of new regulations on private equity, including the elimination of tax loopholes and the splitting of commercial banks from their retail counterparts.

“Far too often, the private equity firms are like vampires—bleeding the company dry and walking away enriched even as the company succumbs,” Warren wrote in a July Medium post that outlined her “economic patriotism” agenda for Wall Street.

That same month, Warren teamed up with Rep. Alexandria Ocasio-Cortez (D-NY) to send a letter to Sun Capital Partners demanding answers after the firm “looted” Shopko—allegedly causing the discount retailer’s bankruptcy and subsequently breaking severance promises to laid-off employees. Sun Capital took Shopko private for about $1.1 billion in 2005. Earlier this year, it closed 350-plus stores upon bankruptcy and fired approximately 14,000 workers after nearly six decades in business.

The Massachusetts senator’s first major private equity pushback went down last fall. Warren, who specialized in bankruptcy law while teaching at Harvard Law School, pressed the firms behind Toys R Us’ liquidation to contribute to a severance fund for affected employees. She targeted Vornado Realty Trust and five hedge funds that had provided bankruptcy financing to the toy seller, along with two private equity firms who acquired the company in 2005: Bain Capital, KKR.

In tandem with activist group United for Respect (fka Rise Up Retail), Warren successfully lobbied Bain Capital and KKR to each contribute $10 million to the severance fund, per CNBC. Vornado reportedly didn’t participate.

The Democratic presidential candidate is far from private equity’s only congressional critic. On Monday, the US House Energy and Commerce Committee launched an investigation into surprise medical billing from medical providers backed by private equity. It sent letters to KKR, Blackstone and Welsh, Carson, Anderson & Stowe—all of which invest in third-party healthcare providers.

This article was updated on Sept. 20 to correct the nature and year of the FTC’s investigation into Apollo Education Group, as well as to clarify Apollo Global’s ownership of Walden University and the NewSchool via Laureate Education.

Featured image via Jeffrey Zeldman/CC by NC 2.0

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    Written by Eliza Haverstock
    Eliza Haverstock was a PitchBook writer covering venture capital, startups, and private equity.

    A graduate of the University of Virginia where she majored in history and economics, she’s also a native of the Washington, DC, area. Previously, Eliza worked as a news editor for her college paper, The Cavalier Daily, and interned as an industrials reporter for Bloomberg in New York.
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