A little over a year ago, the idea of shorting for-profit education was practically fashionable.
Steven Eisman, made famous by Michael Lewis’ "The Big Short" for his role in shorting the mortgage market, championed the idea that proprietary education would implode just as subprime mortgages had. Meanwhile, the Department of Education planned regulations that would hold for-profits accountable if graduates could not repay school loans and find work.
The rules carried serious consequences. If a program failed the "gainful employment" test, it would lose eligibility for federal student aid that accounts for the great bulk of its revenue. And Sen. Tom Harkin, D-Iowa, began hearings before the Senate’s Committee on Health, Education, Labor and Pensions that questioned for-profits’ tactics and the value of their degrees.
Then last year the threats seemed to recede. Education Secretary Arne Duncan’s gainful-employment rules turned out to be softer than expected. Though Harkin continues to bang the drum, most recently accusing the sector of targeting GIs too aggressively, any legislation will be difficult after Democrats lost the House of Representatives. And even Eisman has gone quiet.
Still, the question remains: Does the short thesis on for-profit education still hold? The answer involves a tangle of issues and considerations that goes to the heart of a sector designed to educate and retrain hundreds of thousands of mostly adult Americans.
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