The US is facing a child care crisis. In 2024, child care for two young children cost nearly $30,000 annually, and many families are struggling to find care that meets their needs and their children’s needs.

To bring down costs and optimize choices for families, several states and cities, including New York City and Washington, DC, have implemented or are exploring policies that provide free, universal child care, prekindergarten, or both. Others, like Massachusetts, have increased public funding to bolster the child care sector.

While Massachusetts’s added investment isn’t as revolutionary as New Mexico’s first-in-the-nation universal child care program, the state’s 2024 policy did include a novel requirement: It limits the amount of public funding large, for-profit providers can access.

This is designed to target the rise of private equity–backed child care providers. Despite the decades-long presence of private equity in the national child care ecosystem, little research has explored the relationship between  private equity ownership of early care and education and supply, cost, quality, and other outcomes for centers, workers, and families.

With so much attention on child care funding and costs nationally, more evidence is needed about private equity’s role in child care, including its effects on childhood outcomes and the effects of regulations like those in Massachusetts.

What do we know about private equity’s role in child care?

In the past few decades, private equity has ballooned across many major US industries, including health care, housing, and business development. Private equity firms offer capital to companies in exchange for a controlling stake, with the goal of increasing the company’s value, and in some instances, selling the business for a profit. Yet, limited research exists on why private equity has grown so quickly, with some hypothesizing that the lack of regulation is one reason.

In child care, private equity firms have purchased stakes in large-capacity chains with franchises in multiple states. These include 8 of the 11 largest US child care chains, such as KinderCare, Bright Horizons, Goddard Schools, and others. Though publicly available data are limited, the Congressional Research Service estimates 15 of the 16 largest early childhood care and education chains receive some funding from private equity. The total amount of funding from private equity in the child care ecosystem remains unknown.

These large-capacity chains make up a small but growing share of child care centers nationwide. In 2019, 4 percent of the more than 120,000 total centers were franchises (PDF), whereas about half of centers (47 percent) were nonprofits, 35 percent were independent and privately owned, and 15 percent were operated by government agencies. While exact numbers are unknown, some estimate that about 1 million of the more than 9 million children who attended center-based child care (PDF) participate in these types of centers.

What are the concerns about private equity investment in child care?

So far, it’s unclear why and to what end private equity has invested in child care. Some suggest private equity firms use their investment to make operations more efficient, resulting in higher revenues, reduced costs, and greater stability. However, most child care centers operate on razor-thin margins (PDF), raising questions about how private equity can raise revenues or cut costs and whether its role adversely affects quality and market competition, which could limit parent choice and drive up prices.

We do know child care center revenues mainly come from parents’ tuition payments (68 percent of total revenue), even though public child care subsidies and other public funds like state-funded preschool offset some of these costs. Given that private equity firms seek to increase profits and that most revenue comes from tuition, questions exist about whether private equity ownership leads to higher tuition prices in markets across the US, as some believe increasing tuition offers the clearest path to increasing profits. Already, one  news article suggests large-capacity chains don’t serve many families with low incomes because wealthier families can pay higher tuition, and subsidies for families with lower incomes don’t cover the cost charged by chains.

As for cutting costs, private equity firms have been known to reduce staff, eliminate services, and sell off facilities and assets. Research on other industries has found that private equity investment is associated with decreasing quality of the service across health care, nursing homes, hospice care, and jails and prisons.

Given these trends in other sectors, some fear that private equity investment will make child care less affordable for families while sacrificing service quality. But policy must be informed by evidence, not fears based on small and limited studies.

A comprehensive research agenda is needed

Little research has explored the intersection of child care and private equity specifically, but one study from 2007 did find that large, for-profit chains had lower program quality on average than nonprofit or independent programs. However, more research is needed to address the following questions:

• What constitutes private equity investment? Any research agenda first needs to set clear definitions delineating between private equity and other types of private ownership. From there, researchers can begin to answer questions such as: Does it make a difference if private equity firms are sole owners? To what degree do private equity firms acquire and consolidate child care providers? Are those providers owned by private equity loaded with debt and/or later resold for profit?
• How do private equity owners make a profit? Anecdotal evidence indicates that private equity is interested in child care because working parents offer a source of consistent demand. Some private equity business strategists theorize that private equity could improve efficiency through marketing and technology or by bringing in additional investment to turn a profit. Already, some child care chains with private equity investment, such as KinderCare and Bright Horizons, have become public companies. But do private equity firms actually report consistent profits? If so, how? Do they create operational efficiencies? Do they loosen child-to-educator ratios? Is private equity ownership profitable in states with stricter child care regulations and licensing requirements? How much public funding are these firms using?
• How does private equity ownership affect prices and outcomes? Educators in for-profit centers have the lowest hourly wages compared with other child care educators, which some speculate means for-profit center operators prioritize cost savings over quality. But quasi-experimental and experimental studies are needed to understand the ways private equity investments affect the stability of the child care market, the number and quality of child care options available to parents, the cost of care, and the educational outcomes for children.
• What can policymakers do to regulate private equity and stabilize child care supply? The national child care market is broken, with providers struggling to stay open and parents paying high prices. The industry desperately needs solutions that account for the benefits and risks of private equity backing, but we need more research to know what works. Any policy proposals that seek to regulate private equity should acknowledge that not all privately owned centers are run by private equity firms. Small mom-and-pop owners also play an important role in the child care ecosystem, and broadly applied restrictions could hurt their ability to operate.

Already, the US faces the very real risk of the child care industry collapsing. Without clear answers to these questions, greater private equity ownership without regulation, monitoring, or data could heighten that risk. In Australia, ABC Learning, the world’s largest child care provider at the time, took on large amounts of debt to expand quickly at the behest of private equity backers. When ABC Learning collapsed in 2009, the government had to bail it out to avoid the total loss of child care for families across the country.

Some researchers are beginning to address a subset of these questions about private equity in child care, but moving forward, researchers and policymakers must work together to develop a clear and systematic research agenda. As states and cities invest in child care and seek strategies to maximize quality child care options, more evidence is needed about the role of private equity and how regulation can improve or impede supply, quality, and outcomes for children, families, and communities.