A left-right consensus is emerging to support money manager Steve Eisman's complaints about for-profit colleges and universities.
Since part of Mr. Eisman's complaint is that federal student loans and grants to students at for-profit colleges amount to, in essence, corporate welfare, the left-right consenus isn't all that shocking; you'd find similar agreement against, say, farm subsidies to big agriculture.
But Mr. Eisman's complaint deserves more skeptical treatment that it has received. I haven't seen any detailed disclosure of his economic position, or that of his fund. Bloomberg, which unlike some of the others does say Mr. Eisman has a short position, notes "Eisman didn't name the companies whose stock he has sold short, or say over what period he expects them to lose value."
A New York Times article from Friday on student loans has this on Mr. Eisman:
Adding new fuel to the fire was a recent presentation at a New York conference for investors by Steven Eisman, a hedge-fund manager known for having anticipated the housing market crash.
Mr. Eisman, whose early awareness of structural problems in the housing market is described in Michael Lewis's bestseller "The Big Short," said the for-profit education industry, like the subprime mortgage industry, has rested on the proliferation of loans to low-income people who would not be able to repay them.
Without tighter government regulation, Mr. Eisman predicted, students at for-profit colleges will default on $275 billion of student loans over the next decade.
"Until recently I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry," said Mr. Eisman, of FrontPoint Partners, a unit of Morgan Stanley. "I was wrong. The for-profit education industry has proven equal to the task."
Mr. Eisman sounds as though he is short the stocks of the for-profit college companies. But his complaints -- high drop-out rates, high unemployment rates among graduates seeking work in their field of study -- might just as easily be applied to certain government-run high schools and state colleges, or certain departments -- say, art history -- at highly prestigious non-profit universities.
At least some of Mr. Eisman's argument, in other words, seems designed to play on a bias against for-profit education, period.
Look at the terms Mr. Eisman is throwing around against the for-profit colleges: "socially destructive," "morally bankrupt." Some might say that using the press for a full-fledged campaign against an innovative industry that some students feel offers a better deal to them than non-profit or government-run colleges is itself socially destructive or morally bankrupt. At the very least, Mr. Eisman, if he is going to phrase his case in terms of an argument about "socially destructive" and "morally bankrupt," deserves some scrutiny about whether his main motivation is saving the government money on bad loans or saving students from going into debt, or making himself money. He could be motivated by all three factors, and we've got nothing against the profit motive here. But at a certain point these short sellers can use the press to create a kind of self-fulfilling cycle.
The "subprime mortgage industry" comparison Mr. Eisman makes is apt perhaps in more ways than he realizes or wants people to realize. He thinks the analogy is about unscrupulous operators and government subsidies. But there's also an analogy about shorts talking up a crisis and pushing precipitous government action (Seize Fannie Mae! Slap tougher Education Department regulations on the for-profit colleges!) that make money for the shorts but may have undesirable side effects.