The Department of Education has been under fire by lawmakers on both sides of the aisle as well as non-profit organizations ranging from Citizens for Responsibility and Ethics in Washington (CREW) to Americans for Tax Reform (ATR) since DoEd proposed and eventually published the Gainful Employment rule this year.
The new regulation would likely devastate the for-profit school industry by ridding federal student aid aimed at for-profit education. The DoEd rule demands that for-profit schools meet particular employment metrics for their students that are not required of traditional colleges, public universities, and community colleges.
On top of it all, the process of the DoEd rule’s creation is under scrutiny, as a Wall Street short seller, who would financially benefit from the DoEd policy, was brought in testify to support the crafting of the Gainful Employment rule.
Congressman Darrel Issa, Chairman of the House Oversight House Oversight and Government Reform Committee, held hearings last week to look further into the questionable issues surrounding the DoEd rule.
I spoke with Mr. Issa on Tuesday about where the Committee was since the hearing happened.
“We have concerns that those who have not received subsidies are essentially being sectioned out while those who receive subsidies…in other words, community colleges that are highly subsidized—state universities—are they held to the same standard?” asked Mr. Issa.
“Was this a standard that is going to be across the board where a community college falls below a certain number would be locked out. That would be a standard we could at least discuss. And yes…we would like to know who wrote the rule,” Rep. Issa added.
The Securities Exchange Commission has yet to announce an investigation surrounding suspicions of insider trading that may have occurred during the crafting if the Gainful Employment policy. In the meantime, the DoED’s Inspector General Kathleen Tighe is currently probing the matter.
“We’re a little concerned that there has been insider trading in the form of information that we know has been sent to a hedge fund that has led to extensive shorting,” Congressman Issa said. “It would seem to be a classic SEC investigation of what is likely to be wrong doing or at least there should be a law specifying that a government official cooperating and leading to an adverse effect.”
Mr. Issa joins Senator Mike Enzi, Wyoming Republican and ranking member of the Senate HELP Committee, to call upon the SEC to start investigations on the DoEd rule making process. Senator Enzi has also called for the U.S. Attorney to step in and review the Gainful Employment regulation.
Wall Street short seller Steve Eisman testified before Senator Tom Harkin’s Health Insurance Labor and Pensions Committee last year. At the behest of Chairman Harkin, Iowa Democrat, Mr. Eisman spoke to committee members about his prediction of the for profit school financial melt down and why the Gainful Employment rule was necessary.
Mr. Eisman, who has no education expertise, according to CREW, may have collaborated with DoEd officials about the policy, which would have financially benefited him, before it was published. Through FOIA requests and legal wins, CREW sorted through DoED e-mails that show evidence of this collaboration.
“For every seller who profits, there’s a buyer who lost. And that would be the whole point. The people who were injured should have some recourse from the SEC,” Mr. Issa told me.
Some question why Mr. Harkin brought Mr. Eisman, formerly of Front Point Partners, into the mix of the regulation’s crafting, given the line hedge fund manager would have to toe within the legal world of stock trading and short selling. Could Chairman Harkin or his office face similar ethics issues?
“I never presume what’s going on in the Senate,” Rep. Issa said to that.