"Quick and Dirty" Deregulation and Expansion of National Higher Education: Be Careful of What You Ask For

Increased access to higher education is a well-established stylized fact that many policies have driven, overlooking the implications for higher education's quality. During the 1990s, Peru embarked on a national-scale experiment that quickly and drastically deregulated new universities' entrance into the marketplace under two basic premises. The first was that the private sector is superior to the public sector in increasing access to higher education in a developing country with a budding institutional capacity. The second was that the market auto-regulates itself to provide an adequate quality of educational services. We document that the university supply almost doubled in a dozen years, mainly driven by for-profit institutions of higher education. The experiment could be hailed as an unqualified success as tens of thousands of new students, particularly from low-income sectors, could access a college education. Nevertheless, our straightforward evidence shows that this increased access paid a very high cost in the form of significant decreases in educational quality. Fifteen years after the reform, our findings indicate an increase in the quality dispersion across colleges measured by undergraduate students' outcomes.