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Should a short seller testify on for-profit colleges?

Leaders of the for-profit education sector are questioning Congress for calling a short seller -- someone who profits from a stock's decline -- to testify in a hearing Thursday.

Steven Eisman is a portfolio manager at FrontPoint Financial Services Fund in New York, a hedge fund manager. He's listed to speak at a hearing titled "Emerging Risk? An Overview of the Federal Investment in For-Profit Education."

The hearing is part of a larger regulatory push to curb abuses in the for-profit sector, which has been widely accused of using high-pressure sales tactics and false promises of prosperity to load up students with debt.

Short sellers sell borrowed assets, then repurchase those assets and return them to the lender. They profit from a decline in the value of the assets between sale and repurchase.

One way short sellers make money is by targeting assets they deem overvalued. Short sellers have been front and center in the recent debate about for-profit higher education, helping journalists, lawmakers and other potential critics understand the industry's vulnerabilities. Unlike the lawmakers and journalists (we hope), the short seller stands to gain if for-profit stocks decline.

(Those stocks include Washington Post Co., which owns the for-profit Kaplan University.)

"Eisman's comments should be vigorously examined with an understanding that a short seller's aim above all else is to make money on the decline of stocks," the Career College Association said in a statement.

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By Daniel de Vise  |  June 23, 2010; 10:07 AM ET
Categories:  For-profit colleges , Public policy  | Tags: career college assocation, congressional hearings for-profits, congressional investigation for-profits, for-profit colleges, for-profit higher education  
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Comments

You pose the question as if being a short seller is inherently bad. There's nothing wrong with short sellers. They do, as you say, provide important information about overvalued assets.

If anything, people should pay close attention to what Steve Eisman says, because he was one of the very few people to foresee the financial meltdown caused by lax lending standards and bogus debt ratings. Alan "there's no housing bubble" Greenspan didn't see it coming; Ben Bernanke didn't see it, either. Nor did Hank Paulson. They're all very smart guys, but at least in that case, Steve Eisman was smarter. Given his track record, I don't think he can written off as a mere profit-seeker if he says he has something to say about a risky situation.

Posted by: jimcole23 | June 24, 2010 10:59 AM | Report abuse

*

I work as one of these “recruiters” at a for-profit college. The reason why we have such high churn rate for students is because we slam anyone who are eligible for title IV funds and have a high school degree or GED to take classes at almost $1,200 a five week class. It doesn’t matter if they have the competence or aptitude. We’ll spend hours with computer illiterate “students” and walk with through the application, FAFSA and a couple courses in addition we’ll give out promises of financial aid stipend money and Pell grants to help out with they’re living expenses. After they took a couple classes, three to be exact to ensure we get the funds for the government because they’re now full-time, we offer very little assistance. Good luck trying to get a hold of a financial or academic adviser to receive help.

Then we get them to degree programs like BA in Criminal Justice, even though they’ll never make it to the upper division courses, and if they do, they won’t make the money to pay back these loans. Working at one of these places is truly like working at “Boiler Room.” We don’t care about these students, we just get them in for the number. We celebrate, clap, cheer, whoot and holler for every enrollment. We’ll call these prospects five times a day until we get them to enroll. For every student that drops out after a couple classes, we’ll enroll new ones in.

Check out the graduation rates. I believe Apollo, who we’re modeled after and have been around significantly longer, graduate 5% of their students. Something is wrong here and I hope DOE and Congress cracks down before it’s too late.

I don’t know Steve Eisman’s agenda, but as an employee of a for-profit college, I can concur that these institutions really are cash cow’s that are morally and socially corrupt. People who post in support of for-profit colleges either or in the pocketbooks of these colleges or have no clue how dirty they really are.

There is a need for distance-adult education. There really is. However the practice in which we enroll students, the amount of money being generated, the abnormal amount of defaults, the low graduation rate, poor job placement as well as through the roof churn rates in both students and employees at theses for-profit colleges, show signs that there are massive abuse going on. There needs to be a different approach. Either drastically lower the amount of tuition being charged by these for-profit colleges or let the traditional colleges handle the need for distance education.

Posted by: ashfordrecruiter | June 24, 2010 3:51 PM | Report abuse

If it's okay for the CEO of a for-profit college to testify, I don't see why an investor who analyzes the sector shouldn't testify. Even if he advocates short selling. Sure, he stands to profit if his testimony affects Congress -- but so does the CEO.

Posted by: drrico | June 25, 2010 12:54 PM | Report abuse

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