More from the appearance of hedge fund manager Steven Eisman before the Senate Health, Education, Labor and Pensions Committee hearing on for-profit education, covered earlier here:
Mr. Eisman claims the growth of the for-profit education industry is "purely a function of government largesse." That's ridiculous. You think that Bill Gates is getting a Pell Grant or a Stafford Loan when he watches a lecture from The Teaching Company? Some of the growth has to do with the fact that private companies have been quicker to adopt technology that makes distance learning possible, that they emphasize teaching and learning as opposed to research or football, and that they focus on practical fields such as nursing or auto mechanics rather than, say, art history.
Mr. Eisman faults the for-profits for dropout rates between 50% and 100%. "How good could the product be if dropout rates are so stratospheric?" he asks. Again, you've got to remember that some of these for-profits -- ones that issue GEDs, for instance, or those that cater mainly to older students -- are dealing almost by definition with students who have already dropped out. Of course they are going to have higher dropout rates.
Senator Harkin asked Mr. Eisman, "Do you have a financial stake in the success or failure of the for-profit education industry?" Mr. Eisman replied, "Yes, I do." He didn't disclose what particular companies he was shorting, how much money he had bet, or how much money he had made already on the bet, or how much money he stands to gain if the bet succeeds fully. Nor was he pressed on any of these points. He said he was acting on behalf of his clients -- "universities, pension funds" -- which he regarded as a "sacred trust."
This, too, is an interesting disclosure. Mr. Eisman's clients are presumably non-profit universities, and in going after the for-profits, Mr. Eisman may not only make his clients money on their endowment investments, but also provide the non-profit universities the additional bonus service of hassling their for-profit competitors.
Senator Franken faulted the for-profit colleges for lying about their placement rates for graduates. But there are plenty of shenanigans at non-profit universities involving placement rates, too. I know of one non-profit graduate school that just hired a couple dozen of its graduating class at low wages as "research assistants" to professors so that its job-placement rate for graduates would appear higher. It's only the for-profits that are getting hassled by Congress, though, because there's no way for a hedge-fund manager to short the non-profits.
Senator Franken and Mr. Eisman claimed it was a conflict of interest for for-profit college executives to sit on the board of the organization that accredits the colleges. By that logic, it's a conflict of interest for Senator Franken to accept the existence of the Senate Ethics Committee, in which senators sit in judgment on their colleagues. And it's a conflict of interest for Mr. Eisman to accept the supervision of FINRA, a self-regulating body for the financial industry.
I'm not saying the for-profit colleges are perfect, or that Congress should shovel endless student grant and loan money toward their students (and through them, to their shareholders) without any oversight or regulation. But on the basis of the hearing, at least some of this seems to be driven by opposition to the profit motive and by a short bet by a fund manager rather than by substantive concern over the abuses.