For Profit Schools Fighting Back: Will Eisman finally be investigated by the SEC?

I've made no bones on my feelings regarding Eisman's role in trying to manipulate a market using political influence to close a successful short sale of for profit school stock, it looks like others are finally catching on as well.

For-profit college group: "Eisman is a self-serving nutcase" - Apr. 21, 2011

 

Well, it would be pretty smart to bet your stocks against for profit colleges you publicly humiliate them.

 

Eisman is no worse than the executives at places like Apollo that are stealing money from American tax-payers.

 

Ummmm.....I've got to ask because I know you're an educated sort of guy, but exactly how are the executives at Apollo group stealing money from American tax payers?

 

By getting uniformed/uneducated people (scouring homeless shelters for "students" to enroll) to attend their "schools", charging excessive tuition rates so that these students have to borrow the maximum amount the gov't will loan them in order to cover their tuition, all the while these executive knows that these students will never be able to repay the loans, will default and American tax payers get stuck with the bill. That is how they are stealing from tax payers.

 

Can you substantiate this charge?

 

I'm not AUTiger00, but I'll give it a shot. Here is an article about it from Businessweek:
The Homeless at College - BusinessWeek

Here is the first paragraph.

 

Is that uniformed or uninformed?

 

I'm not a fan of UoP, in fact, I don't like them, but what if the homeless person in question made it through and improved his life?

 

I'd say "great, now what about the hundreds or thousands that didn't?"

 

I was unaware of this story and agree that it doesn't look good. I'm guessing that there was some response from the school. Do we know what they said?

 

Apollo's official response was that they were going to quit recruiting at homeless shelters.

 

Sadly, some of us in this forum are hypocrites. We dislike for-profit schools but yet, we teach there and collect part of the money that is supposedly "stolen from American taxpayers." We hate University of Phoenix for charging students excessive fees, but we are quick to accept teaching jobs there, and happy to accept pay increases, which all come from monies that is "stolen from unsuspecting students and american tax payers by the school. Some of us even go as far as owning stocks from for-profit schools so as to have a piece of "the profits." What happened to those ethics classes,? Enough with the sanctimony...

 

Let me clarify my position. I have absolutely nothing against the concept of a for-profit school or some of the for-profits that are currently in operation. Some of the smaller ones are excellently run. My beef is with schools owned by publically traded entities because I know those entities are more concerned with their share holders than their students.
Cyber, if your post was in reference to my comments, I can assure you I own no Apollo stock. You use quotes around comments regarding stealing money from tax payers like it isn't a point of fact, I assure you it is. That is what these corporations are doing. I'm a free market capitalist and I understand why they are doing it, because it's legal and they can, but our government needs to rectify its lending practices to prevent this crap from continuing. If these students were taking out private loans - which most would never qualify for - I wouldn't have a problem with these schools charging whatever the market would bear.

 

I remember sitting at a table talking to a woman who was an investigator with the U.S. Department of Education's Office of the Inspector general. We were all talking about student loans and loan fraud and a Treasury agent that was sitting next to me said something to the effect of he wouldn't have paid back $60K in loans if he thought he could get away with it. She had been explaining to us the lengths the Dept. of Ed. goes to in order to get their money. Everything from wage garnishment, denying social security benefits and other entitlements, garnishing unemployment checks or in some cases opening fraud investigations. Other tricks and tools they use are seizing tax returns, civil litigation, etc.

The point I'm trying to make is the sifting process that someone would have to go through to slip through the cracks enough to finally cause taxpayers to actually foot the bill for their education is dang near impossible. You would have to slip through so many cracks, be so far off the radar, as to not even live a half respectable life or simply go into self exile out of the country. When you owe the government money, they will get it, end of story. The tools and processes are in place to use almost any and every method to extract their money in one way or another to include simply denying your Social Security benefits which in totality of monies will almost always exceed whatever you owe in student aid. The notion that taxpayers are on the hook for money privately owed to the government is a myth. This isn't the 1980's anymore and the loopholes that used to exist are largely gone forever and the government is tireless in their efforts, they will never give up.

That Apollo recruited at homeless shelters was wrong of them. I understand their logic in that it could be a "win/win" relationship but that would have to be made under the assumption that these homeless guys were involuntarily destitute and would do almost anything to change that because logically that's probably how someone like you or I would feel (or be). But in reality some people make choices we simply cannot understand for reasons that are equally incomprehensible to us, choosing to be homeless for example.

Some homeless people are actually mentally unstable or suffer from some form of mental handicap, in which case Apollo Group would not be taking advantage of the government and tax payers but instead those individuals themselves (which I find even more repugnant) and in those cases perhaps the taxpayers would be on the hook for some because you cannot bleed a stone and I doubt most homeless people would pursue their entitlement benefits anyway (though that money is likely still there somewhere). But let me ask, how much do you think that would be? Do you think these guys would max their benefit by staying enrolled in courses long enough? Do you think they’d drop after the 1st semester because they actually do not complete the work? (likely) So how much do you think the taxpayers would be on the hook for in these circumstances if you totaled it all up? Thousands? Maybe a million? A drop in the bucket when you begin to think about some of the other crap we shovel money at daily that nobody seems to give a rip about (even within education circles) yet we spend all this time and attention on this one issue. I understand why though, why wrestle the gorilla in the room when there’s a doodlebug you can step on. So I concede that in this case what UofP did was wrong however it was not “stealing” since this implies an illegal act. They are acting within the confines of the law even if unethically.

Second I take issue with the fact that you think all publicly traded schools only look after the interests of their shareholders but that privately owned for profit schools are okay (I’m paraphrasing). As if private owners would somehow be immune to the greed that would potentially infect investors. I do not believe for one second that the method of ownership dictates how ethical a school or business will act. Though in general there seems to be more accountability when an organization is privately owned, history may prove me wrong since that is more of a gut feeling and not based upon fact. The truth is some business people understand that ethical behavior behooves the business and is therefore in the interest of shareholders but I’m not going to argue that point because at the end of the day, money talks and even though it could be argued that acting ethically is actually cheaper than otherwise, I’d rather not chase that rabbit for now.

Since you are a “capitalist” let’s talk about business decisions then. Taking care of core competencies and offering excellence in services will lead to increasing profits, this is not a secret in business and has been a working model for probably more than a century. With increasing global competition, developing core competencies and sticking to “what you know” has never been more important since in virtually every consumer market (to include education) quality must improve due to it truly being a “buyers market” even during these dark economic days. I’ll give a non-education example, Cisco just announced that they will realign their business to return to their roots and excel in doing one thing well, removing themselves largely from the consumer market to focus on their business offerings. Is this an ethical decision? Probably not, but it is a sound business move, will act in the interest of shareholders, management and even the customers. Improving quality and offering customers what they want is not a moral decision but a business one. Education is not immune to the effects of free market rules but instead increasingly subject to them.

In education circles I love to use American Public University as an example. They are one of the best buys in education around, they do not receive tax money outside of tuition entitlements, they are ethically sound and largely uncontroversial. They also happen to be publicly traded, are growing by leaps and bounds and are focused on their core competencies, sticking strictly to their mission. Are they an exception to the rule? Maybe, but I doubt it.
On the other end of the spectrum (business wise, not ethically) is Ashford University. Since I’m an alumni I keep a very close eye on their dealings, especially since I will soon buy as many shares as possible thanks in large part to the efforts of Mr. Eisman and Senator Harkin for devaluing their stock artificially making them a steal on the open market. Ashford University has grown exponentially. As someone who has attended multiple colleges (via distance education) I was astonished at how slick their particular implementation of technology was and how effective their programs are. I was also impressed by their rigor and when I finally visited their campus at their dedication towards their local community. I do not think they are perfect but I do believe they are well intentioned and that they want to be the very best open university available. They are sticking to their vision which in scale is much more grand than that of AMU or APUS. The risks are certainly greater and they have received some criticism (largely centered around their rate of growth) but they stand to grab a lion’s share of the market largely from the University of Phoenix. I spoke to one of the founders of the school and he told me their vision was to offer a better quality of education, better student services, be better stewards in their community (by employing local talent, offering scholarships, partnering with community colleges and allowing townspeople free use of their facilities, etc.) but most importantly by using an ethical and stable business model that does not rely on ever pervasive growth to turn a profit.

The trouble with Apollo Group is that they’ve already reached that critical mass where they have maxed their market share and have reached a point of diminishing returns. Pushing harder only lowers the quality of offerings while diminishing the organization’s reputation (more so). Think Microsoft in the mid to late 1990s. Apollo Group can still increase profits without compromising ethical standards and still acting in the best interests of their students by returning to their core competencies of providing a quality, accessible education and not on driving up enrollment numbers. When they figure this out organizationally everyone in the industry will be better off.

So since I’ve written an article I guess I should get to the point. None of these universities are moral or amoral, some act unethically but I believe that is when they start expanding beyond their core competencies. I think acting in the best interests of the student is also acting in the best interests of the shareholders and that this is not a new or novel concept but commonly understood in business. I also do not believe taxpayers are on the hook for nearly as much as professed by the U.S. Department of Education and that their 3 year measure to earn a “lifetime default” in their documentation is ill conceived at best and ultimately dishonest, especially since they almost always will get their money. I believe the issue has become politicized for the profit of a few and I myself intend to turn a profit in this little drama by playing on the rebound. Why? Because I’m a capitalist who still believes that pleasing the consumer is the best form of business there is and that more than a few for profit schools that are publicly traded realize this. Ownership models to not dictate morality or ethical behavior.

 

I think you're going to take a beating on that stock, but best of luck. Just remember, a publically traded company's first priority is to its share holders, not its customers. You have an MBA, you should know that.

 

My post was not directed at you per se. It was a general statement that took into consideration the negative view that anti-profit schools have in this forum (not referring to SurfDoctor either). I used the quotes (from your post) to emphasize the shared interest between for-profit schools (and non-profit schools who charge excessively high tuition as well ) and those who disparage them, at the same time, collect some of those monies through various means.

I've brought up this issues in several other threads, which in my opinion, were brushed off or simply ignored (no point to name names...). While I have indulged in dismissing for-profit schools (even though I have for profit degrees) as good-for-nothing, I'm realizing that what is wrong with for-profit schools is not the educational opportunities that they provide (to many who for whatever reason can't attend public universities). I think the exclusive focus on making money by charging excessive tuition for low paying degrees (non-profit private/public schools also engage in this), and other dubious practices all with the aim of extracting student loans monies from students are some of the issues that I have some for-profits.

For example, DeVry's bachelor degrees now cost $71k or more. While taking out $71k in students loans to get an engineering (my electronics degree which cost me $20k in 1999 have served me well) or nursing degree from DeVry may not be a terrible choice, taking out those loans for some thing like criminal justice (where jobs typically require a two year degree) may well position any "victim" for future financial ruins. Talking about doctoral degrees; I don't think one from an online-only school should cost $50k, $60k or $70k either; considering most of those degrees are only good for teaching at other online schools (that is if you can actually get in by the time you get done with the degree).

I think degrees earned cheaply at for-profit schools (APU/AMU, for example) using government loans come with higher value, and those from schools, especially, from online-only schools (that think keeping their tuition rates at exactly what government loans provide or more) do not seem to serve the students well. I was simply saying that it is not just the schools that engage in "stealing money from American tax-payers," but that those (sanctimonious adjuncts) who collect a share of such monies through various means are equally guilty of this theft (which is not illegal yet).

 

I'll let you know how I do on that stock

As for the first priority to share holders, I understand that...what I'm saying is that the interests of the customers and share holders are mutually complimentary. If you screw over your customers long enough they and their money walk, screwing over the share holders (think Toyota recently). You have an MBA, you should know that

And as we both know, not every publicly traded organization takes care of shareholders first, sometimes it's the share holders being exploited (think Enron).

 

Going back to the OP, Eiseman and other short sellers who collaborated with DOE officials to gain insider information that allowed them to bet on and then influence a decline in stock value of certain for-profit companies appears to be little different in basic practice than the kind of insider trading that has landed a some well known people in jail.

 

Of course, as you know, companies, whether publicly-traded or not, that consistently ignore the needs of their customers tend to go belly-up. Unless, of course, that company has a government-sponsored monopoly