Who profits from privatization of education in Texas?

(Editor's Note: The following chapter, "Who Profits From Privatization," is published with the author's permission. It is a selection from a pre-release edition of the new non-fiction book, Power Play: Billionaires, Politics, and the Battle for Texas Public Education by C. C. Rowe.)

The full ebook can be purchased on Amazon here: Power Play Amazon Link.

The print release will be available in the coming weeks.

TL;DR: Beyond ideology, specific industries and individuals stand to gain financially from education privatization—from testing companies and real estate developers to religious organizations and tax-advantaged donors who benefit from redirecting public education funds.

When privatization advocates make their case for vouchers and Education Savings Accounts, they typically frame their arguments in terms of principle and outcomes: parental freedom, educational quality, and student success. What's rarely discussed—at least publicly—is the significant financial opportunity that education privatization represents. Behind the philosophical arguments and impassioned rhetoric lies a simple economic reality: redirecting the flow of education dollars creates winners and losers in a marketplace worth billions.

Whenever significant political capital is being spent on an issue where public opinion is lukewarm at best, following the money reveals the true story.

The privatization of Texas education isn't just about ideology or politics—it's also about profit. A complex ecosystem of businesses, organizations, and individuals stands to benefit financially from the diversion of public education funds to private alternatives. Understanding these economic incentives helps explain the persistence and intensity of the privatization push beyond mere philosophical conviction.

The Financial Incentives Behind Privatization

Education in Texas represents an enormous financial ecosystem. The state spends over $60 billion annually on K-12 education for its 5.4 million students. That's roughly $11,000 per student—a substantial sum that currently flows primarily through public institutions. Privatization would redirect a significant portion of that funding to different recipients, creating new profit opportunities for a variety of interests.

The current debate fundamentally concerns control over education resources. The traditional public education model operates primarily as a public good with constraints on profit-making. Alternative models that introduce market mechanisms potentially create opportunities for various entities to capture portions of that same funding at different points in the system.

The financial stakes are enormous. If Texas were to implement a universal voucher program worth $10,000 per student and just 10% of students participated, that would redirect $6 billion annually from public schools to private alternatives. If participation eventually reached 20%—a figure voucher advocates suggest is possible—the redirected funding would approach $12 billion annually.

This isn't just a hypothetical redistribution.

In states that have implemented universal voucher programs, significant portions of public education budgets are now flowing to private entities. In Arizona, which enacted universal Education Savings Accounts in 2022, the program is expected to cost $900 million in its first full year of implementation—money that previously would have funded public schools.

The economics are straightforward. Every dollar that flows to a private school or homeschool family through a voucher is a dollar that no longer flows to a public school district. But that's just the beginning. The real story is who captures value along the way.

The Testing Industrial Complex: How Assessment Companies Drive Policy

Among the most significant financial beneficiaries of education privatization are the companies that develop, administer, and score standardized tests. These corporations have been instrumental in building the infrastructure of high-stakes accountability that provides the rationale for privatization.

Since 2000, Texas has spent over $1.25 billion on standardized testing contracts. The primary beneficiaries have been major testing corporations:

Pearson Education held Texas's testing contract from 2000 to 2015, earning approximately $468 million over that period.
Educational Testing Service (ETS) held the contract in 2016, earning roughly $280 million.
Cambium Assessment, Pearson, and other testing-adjacent companies have secured hundreds of millions in related assessment contracts since 2021.

These testing giants aren't merely service providers—they actively shape education policy through lobbying, advisory roles, and strategic partnerships with the same organizations pushing privatization.

The education accountability ecosystem reveals a cyclical pattern: Organizations involved in testing and assessment often support research and advocacy promoting test-based accountability systems. These systems identify underperforming schools, which generates demand for intervention programs and additional assessment tools. This creates a continuous cycle where assessment companies provide both the measurement tools and the supplementary materials designed to improve measured outcomes.

The testing industry's fingerprints are evident throughout Texas education policy. When the state developed its A-F accountability system, testing companies provided technical assistance and helped design the algorithms. When the STAAR test was redesigned to be more rigorous, testing companies created both the new exams and the preparation materials schools would need to adapt.

This cycle creates a nearly perfect business model: companies help design systems that measure failure, provide the tools to measure that failure, then sell solutions to address the failure they've helped define. All while maintaining the appearance of objective, arm's-length assessment.

What some education scholars refer to as the "testing industrial complex" represents an interconnected system where financial interests and policy development have become closely aligned. For instance, when Texas developed its STAAR 2.0 redesign in 2021, the same companies who helped design the new standards and assessments—Educational Testing Service (ETS) and Pearson—also created supplemental materials and intervention programs that districts must purchase to help students meet those standards.

Another example: Cambium Assessment, which provides Texas's online testing platform, is owned by the same parent company (Cambium Learning Group) that sells intervention curricula through its Voyager Sopris subsidiary—programs often purchased by districts with low test scores.

Did You Know? Testing corporations like Pearson and ETS have spent over $3.5 million on lobbying activities in Texas since 2010, maintaining as many as 15 registered lobbyists during peak legislative sessions. In 2019 alone, ETS spent $585,000 on Texas lobbying—just before securing a three-year, $193 million contract extension for STAAR testing.

The financial interest extends beyond testing itself to a broader "intervention market." When schools receive low accountability ratings, they're required to implement improvement plans that typically involve purchasing services and materials from private vendors—often subsidiaries or partners of the same companies that provide the tests. This creates another profit center dependent on the continued identification of "failing" schools.

Testing companies directly benefit when policies expand assessment requirements. After Texas added STAAR redesign requirements in 2019, ETS received a $193 million contract extension, while Pearson secured an additional $15.6 million for test prep materials. When the state added writing components to reading assessments in 2021, it triggered an additional $7.2 million in scoring costs. Each time cut scores or performance standards change, districts purchase new aligned curriculum and intervention materials, creating a ripple effect of revenue opportunities throughout the testing ecosystem. These same accountability policies are frequently cited as evidence when advocating for alternative education models.

Real Estate Angle: Charter Schools, Development, and Facilities

A less visible but equally significant financial interest in education privatization involves real estate and facilities—particularly in the charter school sector. While traditional public schools typically own their buildings or finance them through voter-approved bonds, charter schools often use alternative arrangements that create lucrative opportunities for developers, investors, and related entities.

Charter schools receive per-student funding from the state but must separately arrange for facilities. This has created a specialized market where private developers purchase, renovate, or construct buildings specifically to lease to charter schools. These arrangements typically involve long-term leases that guarantee steady returns for the property owners—often at rates significantly higher than comparable commercial properties.

The real estate arrangements around charter schools create a distinctive investment opportunity in the commercial property market. The appeal lies in the stability of government funding streams and the fact that once established in a location, educational institutions typically maintain long-term occupancy. This creates predictable returns that are attractive to property investors.

In some cases, the business relationships extend beyond arm's-length transactions. In 2020, a Texas charter school (Legacy Preparatory) paid over $1.2 million in rent to a real estate entity with direct ties to its governing board. At Meridian World School, another Texas charter, more than $900,000 in annual lease payments went to a corporation controlled by the school's founder. Similarly, Riverwalk Education Foundation (operating campuses in San Antonio) directed its facilities payments to an LLC managed by the same individuals who serve on the charter's board. These arrangements raise questions about transparency and fair market pricing.

The financial opportunity is substantial. Some Texas charter schools spend 15-25% of their annual budgets on facilities—far more than the 10-12% typically allocated in traditional public schools. For example, IDEA Public Schools, Texas's largest charter network, spent over $42 million on facilities in 2022 alone, representing 17% of its operating budget. Harmony Public Schools, another major charter network, allocated $31 million (19% of its budget) to facilities costs. International Leadership of Texas spent nearly 22% of its budget on facilities-related expenses. In dollar terms, this means millions flowing annually to private real estate interests rather than to classrooms.

One of the most significant structural differences in education systems involves facilities funding. In traditional public districts, capital expenditures typically result in community-owned assets. In alternative models where schools lease rather than own facilities, comparable funding may instead generate returns for private property owners while not building public equity in those physical assets.

This real estate opportunity would likely expand under broader privatization. Voucher programs and ESAs that allow funds to flow to private schools could create similar real estate arrangements, particularly as religious schools expand to meet new demand or as entrepreneurs establish new schools to capture voucher dollars.

States that have implemented broad educational choice programs show clear patterns of real estate development tied to education privatization. In Arizona, after expanding its ESA program in 2022, at least seven new private schools opened within the first year, with five housed in properties acquired specifically by educational real estate investment groups. Florida saw 37 new private schools launch in the year following its 2019 Family Empowerment Scholarship expansion, creating a mini-boom in the educational property market. In Ohio, specialized REITs (Real Estate Investment Trusts) like EPR Properties now specifically target charter school facilities, generating returns of 8-10% annually from education-dedicated properties.

Tax Avoidance Strategies: How Scholarship Programs Benefit the Wealthy

Perhaps the least understood financial incentive behind education privatization involves tax advantages—particularly those available through "scholarship tax credit" programs that serve as voucher alternatives in many states.

While Texas has not yet implemented a scholarship tax credit program, such mechanisms are a key part of the privatization playbook. These programs allow individuals or corporations to receive tax credits—often dollar-for-dollar—for donations to scholarship organizations that fund private school tuition.

The financial implications are significant. Unlike conventional charitable donations that merely reduce taxable income, tax credits directly reduce tax liability. A dollar-for-dollar credit means that for every dollar donated, the donor saves exactly one dollar in taxes. This allows wealthy individuals and corporations to redirect what would have been tax payments to private schools of their choice.

Tax credit scholarship programs represent a significant shift in fiscal policy governance. These mechanisms effectively allow taxpayers to redirect what would otherwise be public revenue toward specific educational institutions of their choosing. This approach achieves similar funding redirection as direct voucher programs while potentially creating additional tax advantages for contributors.

In states like Arizona, Florida, and Pennsylvania, tax credit scholarship programs have created substantial tax advantages for wealthy donors. In Arizona's program, a married couple can redirect up to $2,435 in state taxes to private school scholarships, while simultaneously claiming federal charitable deductions—resulting in a total tax benefit that can exceed the original donation amount. In Pennsylvania's EITC program, a company donating $100,000 receives a $90,000 state tax credit plus approximately $21,000 in federal tax benefits (at a 21% corporate rate), creating a net gain of $11,000 for the "donation." Florida's tax credit program allows corporations to direct up to 100% of certain state tax obligations to private school scholarships, effectively giving corporations control over public education funds without legislative oversight.

While the IRS has attempted to limit this "double-dipping," creative accounting strategies continue to make these programs financially attractive beyond their stated charitable purpose.

The financial incentives extend beyond individual donors to corporations seeking to minimize tax liability. In Pennsylvania's Educational Improvement Tax Credit program, for example, corporations can redirect up to $750,000 in state tax obligations to private school scholarship organizations. This creates a form of corporate-directed education spending outside the normal democratic process.

Corporate support for certain education funding models often aligns with potential tax benefits. While presented as educational reform, these mechanisms can simultaneously serve corporate tax strategies while allowing businesses to direct support toward institutions that align with their organizational values or priorities.

If Texas were to implement similar tax credit mechanisms alongside ESAs, it would create significant financial opportunities for wealthy individuals and corporations—allowing them to redirect millions in potential tax revenue while simultaneously advancing the privatization agenda.

Religious Education Economics: The Financial State of Private Religious Schools

Religious schools stand to be among the largest beneficiaries of education privatization in Texas. These institutions—primarily Catholic, evangelical Protestant, and non-denominational Christian schools—already educate approximately 250,000 Texas students. Voucher programs would provide them with a substantial new revenue stream while potentially fueling significant expansion.

The economics of religious education in Texas reveal why privatization is so attractive to these institutions. The average tuition at religious schools in Texas ranges from $8,000 to $15,000 per year—with Catholic schools typically at the lower end and non-denominational Christian schools at the higher end.

Many of these schools operate with tight budgets, relying on church subsidies, fundraising, and volunteer work to supplement tuition revenue. A voucher worth $10,000 per student (as proposed in recent Texas legislation) would represent a financial windfall, allowing schools to increase enrollment, raise teacher salaries, upgrade facilities, or simply improve their financial stability.

This opportunity explains why religious organizations have been among the most vocal supporters of privatization. The Texas Catholic Conference of Bishops, the Texas Pastor Council, and numerous evangelical organizations have actively lobbied for voucher programs. Their advocacy isn't purely ideological—it represents a significant financial interest.

The potential market expansion is substantial. Religious schools across Texas operate below their full enrollment capacity. The Texas Catholic Conference of Bishops reports that Catholic schools in the state currently have approximately 17,000 unfilled seats, representing over $170 million in potential annual revenue at $10,000 per student. The Texas Private Schools Association estimates another 20,000 empty seats across its affiliated evangelical and non-denominational member schools. Baptist General Convention of Texas schools report operating at only 78% of capacity on average. With voucher funding, these schools could quickly fill empty seats while generating millions in additional revenue without requiring significant capital investment.

Beyond existing institutions, vouchers would likely spawn new religious schools specifically designed to capture the newly available funding. This pattern has been observed in other states that implemented universal voucher programs.

This pattern is visible in Arizona, Florida, and elsewhere. Once voucher funding becomes available, entrepreneurial religious organizations quickly establish new schools calibrated to the voucher amount. It's essentially a market response to a new government-initiated funding opportunity.

While religiously affiliated schools must balance ministry goals with financial considerations, the economic incentives are undeniable. For many religious communities, vouchers represent both a mission opportunity and a financial lifeline—a rare combination that explains their sustained political support for privatization.

The Regulatory Arbitrage Opportunity

Beyond direct financial benefits, privatization creates profit opportunities through what economists call "regulatory arbitrage"—exploiting differences in how public and private schools are regulated to create competitive or financial advantages.

Public schools in Texas operate under extensive regulatory requirements governing everything from teacher certification and curriculum standards to facility specifications and student discipline procedures. Private schools face far fewer requirements—and under most voucher proposals, would continue to enjoy significant regulatory advantages even while receiving public funds.

This regulatory disparity creates a form of arbitrage where private schools can potentially:

Hire uncertified teachers at lower salaries
Operate in buildings that don't meet public school facility standards
Implement selective admissions practices that screen out costly-to-educate students
Avoid expensive special education service requirements
Use curriculum materials that wouldn't meet state standards

Regulatory compliance represents a significant operational cost factor in school budgets. When comparing institutions operating under different regulatory frameworks but receiving similar funding, those with fewer compliance requirements can effectively realize a financial advantage through reduced administrative and operational costs.

This regulatory arbitrage explains why voucher advocates so fiercely resist accountability measures. When Arizona implemented its universal ESA program in 2022, the legislation explicitly prohibited imposing additional regulations on participating private schools. Similar provisions appear in Texas's proposed voucher legislation.

Regulatory requirements carry substantial operational costs. For example, Texas public schools spend approximately $408 per student annually on state-mandated compliance reporting and documentation. Special education compliance alone costs public districts an average of $3,175 per special education student. Teacher certification requirements add $5,600-8,200 to the annual cost of each public school teacher compared to private school counterparts. Senate Bill 2, Texas's 2025 voucher proposal, explicitly protects private schools from these regulatory burdens, creating an estimated $970 per-student cost advantage for private providers receiving public funds.

This regulatory difference creates what economists call an "uneven playing field"—one that gives financial advantages to private institutions receiving public funds without public accountability. The result is effectively a subsidized competitive advantage fueled by taxpayer dollars.

The Scale of Potential Privatization Profit

Based on experiences in other states with universal voucher programs, participation rates typically reach 10-15% of eligible students within the first five years.

For Texas, the money generated via vouchers would flow to:

Private and religious school tuition payments
Homeschooling families for curriculum and services
Testing and assessment companies
Educational service providers
Facilities and real estate interests
Administrative entities managing the program

At each step, opportunities exist for profit extraction that doesn't occur in the public system. While traditional public schools typically spend 80-85% of their budgets on instruction and instructional support, private education providers typically operate without such requirements. This means more of each dollar can be captured as profit or spent on non-instructional costs.

The economic implications extend far beyond simple resource reallocation. When education dollars flow through different channels, they create cascading effects throughout the educational ecosystem, affecting everything from employment patterns and vendor relationships to facility utilization and programmatic sustainability.

For entrepreneurs, investors, and existing educational service providers, the financial opportunity is transformative. Texas would essentially be creating a new multi-billion dollar marketplace practically overnight—one with guaranteed government funding, limited regulation, and sustained political support from powerful interests.

These debates transcend philosophical differences about teaching and learning. At their core, they represent fundamental questions about resource allocation within one of government's largest expenditure categories. When considering the substantial financial interests at stake, the persistence and intensity of advocacy for structural change becomes more comprehensible.

Three Things to Remember

Education privatization creates substantial profit opportunities for various entities—from testing companies and religious schools to real estate developers and wealthy individuals seeking tax advantages.
The regulatory differences between public and private schools create financial advantages for private providers receiving public funds, allowing them to operate under fewer restrictions while capturing the same per-student funding.
The scale of potential profit is enormous—with billions potentially flowing from public education to private entities that can extract value in ways not possible in the traditional public system.

If you found this chapter insightful, please consider supporting the author's work by purchasing the full book, Power Play: Billionaires, Politics, and the Battle for Texas Public Education, now available as an ebook on Amazon.