Clifford Gives Short Seller a C+ for His Assessment of For-Profit Education Sector

Steve Eisman, who Inside Higher Ed described as, "the Wall Street trader who was mythologized in Michael Lewis’s The Big Short as that rare person who saw the subprime mortgage crisis coming and made a killing as a result," is cutting corners when it comes to his next assignment.

Eisman told an audience on May 26 at the Ira Sohn Conference that the "For-Profit Education Industry" may be as "socially destructive and morally bankrupt as the subprime mortgage industry." Many listened and Wall Street responded, penalizing the industry.

"Eisman is one of the legendary Wall Streeters, who has a strong proclivity for making ‘easy money.’ He doesn’t create jobs or help people live better lives. Instead, he makes money for himself and investors in his $1.1 billion long/short equity fund by creating doom and gloom scenarios, then shorting stocks. Buying and selling paper is not what has made America great," said education thought leader Michael K. Clifford of SignificantFederation (

But is the current portfolio manager at FrontPoint Financial Services Fund on point this time? Or was he feverishly taking notes when PBS’ Frontline aired its piece dressing down the industry on May 5 ( The difference between Frontline and Eisman is that Frontline understood that not every for-profit institution is bad for America. Eisman took the easy path and painted everyone with a broad brush.

"Look, I agree with some of what he says, he is a very smart man," added Clifford, who is the lead investor in several for-profit colleges as well as a philanthropist for non-profit schools. "Many institutions in our sector have charged too much to traditionally underserved students. Having one out of five students defaulting on their student loans is inherently unsustainable.

“Where I respectfully disagree with him, however, is in his belief that the sector as homogeneous. It’s an incredibly diverse industry with good and bad actors. On one hand, some of the publicly traded schools charge far too much and internally finance student loans that nearly half of their students will default on. By comparison on the for-profit side, there are institutions like American Public Education (APEI), Bridgepoint Education (BPI), and Grand Canyon University (LOPE) that charge far lower tuition than their peers. Inherently, the value proposition for these institutions remains substantially better, for no other reason than the price point. And the quality of education for the working adult is the best on the planet.”

Clifford addressed some of Eisman’s other points by suggesting that the regulatory system needs to be modernized to meet the needs of today’s students and workers.

“Eisman said for-profit schools will draw 40 percent of all Title IV aid in 10 years. We as a society allowed it to happen because working adults were largely ignored when we created state institutions. A significant majority of students in the for-profit sector of higher education are what we used to term ‘non-traditional’ — single parents and others with life circumstances that prevented them from a 4-year, on-campus experience. People can’t ‘stop life’ for a traditional school for several years from 9 to 5.”

Clifford continued, “The state non-profits have abandoned these students. California state schools are going to deny access to 70,000 qualified students this Fall. Our sector is at least giving them a chance. And the simple fact is that any school that accepts such students is likely going to have higher default rates. Eisman is using this simple reality as a way to make a buck and in the process deny an opportunity for all Americans to get an education.

“Eisman also bemoans drop-out rates. He’s right. Drop-out rates look abysmal. But he conveniently doesn’t compare apples to apples. When taking into account the student population being served, for-profit colleges and universities have drop-out rates that are equal to or better than traditional state institutions of higher learning. Many students at for-profit institutions struggled in their first attempt at college. And some will struggle again. But do we eliminate opportunities for all such students when some of them will take this second chance and make the most of it?

“Liberal Arts education adds value to our society that can’t be manipulated by Eisman’s computers for a quick buck. It helps shapes the mothers, fathers, volunteers, thinkers, ministers, artists, writers, and social leaders of tomorrow. How can we quantify areas like ‘Gainful Employment’ when we know that an education is a significant factor in creating better people? Some of the most successful people in America were History majors. Education is life producing whereby metrics don’t always apply.

“It was Winston Churchill who said: ‘Democracy is the worst form of government, except for all those other forms that have been tried from time to time.’ The same can be said of market-funded versus public-funded education. Market-funded education may not be perfect, but neither are the alternatives. The goal for all educational institutions should be to offer the highest quality education while optimizing capital whether the money comes from donors or investors.”

That said, Clifford does see ways that the industry, as a whole, can be improved. He humbly suggests the following to Secretary Arne Duncan:

“Get rid of 90/10 rule, or the requirement that schools receive no more than 90 percent of their tuition revenues from the government. Watch prices fall at institutions. The primary way today for schools to solve the 90/10 dilemma is to increase tuition.

“Jobs: If under your watch, Secretary Duncan, the Department of Education decides to cut the for-profit sector’s participation in helping these students, the sector will be forced to lay off hundreds of thousands of faculty and support staff resulting in increased unemployment numbers. And hundreds of thousands of current students will be denied access to school and much needed retraining.

"Make sure the Department of Education differentiates between publicly traded for-profits and privately held for-profits. The pressure Wall Street demands for increased profits with growth to avoid players like Eisman every single quarter contributes to the abuses. Private for-profits don’t have this pressure.

“Increase transparency with ALL regionally accredited institutions for-profit and non-profit. The best contribution the Department of Education could provide would be to give the accrediting commissions the same technology in order to create real time reporting for the entire world to review. Level the playing field for all institutions receiving Title IV funding.

“Invest in technology and encourage innovation. The Internet is continuously and radically disrupting every business model it touches, so get some super smart Internet leadership riding shotgun with you, Secretary Duncan, as nobody can stop the power of the Cloud.

“Allow the opening of more post-secondary institutions with affordable price points. Encourage the regulators to support Public-Private Partnerships – get rid of the divisive ‘them or us’ mentality.”

Clifford summed up his position as follows: “If you make it prohibitive for all market-funded institutions to come into the higher education sector, then you will be smothering the dreams of millions of Americans, who want a better life. Are there bad actors in our industry? Sure. Just like there are in other industries. But the vast majority of schools and school owners are working to change lives through the power of education while fulfilling their corporate mission at the same time.

“We will continue to invest in for-profit schools that provide lower tuition, broader access, faster completion with less debt, and education with a purpose. And we will continue to donate our time, talent, and treasure to non-profit schools. We focus on the school’s mission of the niche served, not the source of the funding, as well as the highest quality possible. Eisman should have studied a bit more to get an A+ before making his sweeping appraisal.”

Hackney Communications for SignificantFederation
Holt Hackney, 512-632-0854


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