Trend of Investor-Backed Child Care Highlights Need for Public Investment in Sector

Can you imagine if Morgan Stanley owned your child’s 4th grade class? And operated it in order to make a profit? If this seems crazy to you, we agree.

Even more unbelievable is that this actually is the case in the early education and care sector, where large for-profit, investor-backed companies are buying up small child care centers. And unfortunately, they aren’t doing it for social good. Their goal is to make a profit — at the expense of underpaid educators, struggling child care centers, and our youngest learners. 

The lack of public investment in our child care system coupled with the pandemic, which only exacerbated existing fault lines in this broken sector, have made it ripe for the picking by for-profit investors. Not only that, but these companies have benefited greatly from federal and state funds meant to keep the struggling sector afloat. 

According to a recent report, investor-backed chains make between a 15 and 20% profit while regularly hiking fees for parents. Currently, these companies – including many international firms – own 8 of the 11 largest child care chains, including KinderCare, which is by far the largest.

At the same time, families and educators are struggling under the weight of a child care system that is in desperate need of public investment. The average annual child care tuition for two children in center-based care in Massachusetts is more than $40,118. At the same time, the mean hourly wage for child care workers nationally is just $15.42. 

This is all while CEOs of these companies take home millions in pay. Additionally, these firms have lobbied against public child care investments at the federal and state level that would improve compensation for child care teachers and affordability for families – all because such laws threaten their business models and could limit their profits. 

Fortunately, Massachusetts is doing something about it. Massachusetts just became the first state in the nation to implement policies that create important guardrails for direct to-provider operations grants, including limiting how much public funding large for-profit child care chains are eligible for.

Specifically, Governor Maura Healey’s Fiscal Year 2025 (FY25) budget codified important guardrails to ensure that state funds are used to promote equitable access, serve children, and raise teacher compensation – instead of padding the pockets of profiteering companies. 

The language in the budget limits how much public funding large for-profit providers are eligible for in direct-to-provider operations grant funds and sets additional eligibility requirements for these providers. To be eligible for grants, large for-profits (defined as a for-profit provider operating or licensing 10 or more programs in Massachusetts) must accept children receiving child care financial assistance program (CCFA) at each of their programs, will be limited to 1% of total grant funds ($4.75 million for FY25), will have to spend a certain percentage of their grants on salaries, and will have to submit an annual report auditing how they spent their grant funds. 

By structuring public investments so that they prioritize quality, equitable access to child care and wages for educators, the sector will improve for families and will simultaneously be less vulnerable to exploitation from investors who prioritize profit over children and families. 

And while this is certainly a reason for celebration in Massachusetts, we know much more needs to be done here and at the national level to ensure these for-profit, investor-backed companies are prevented from taking advantage of this critical and under-resourced sector. To truly transform our child care system so that it works for families, educators, providers, and our economy, we need to start treating it as a public good and prioritizing the children and families who rely on it.