For-Profit University Accreditation Facing Increased Scrutiny

Published on June 7, 2010

Steve Eisman’s accurate predictions during the subprime mortgage bubble, as profiled in The Big Short, have prompted investors to take notice regarding his recent criticism of the economic model of for-profit universities.  Mr. Eisman’s presentation at the Ira Sohn Investment Research Conference focused on the similarities between the subprime bubble that imploded in 2007 and the current popularity of for-profit universities.

Much of the criticism is related to the university accreditation process.  Without accreditation, students cannot qualify for federal financial aid.  Colleges and universities pay accrediting agencies to evaluate their educational offerings and provide opinions.  In this way, the process mirrors the payments that bond issuers make to rating agencies to secure credit ratings.

Today, The Wall Street Journal reported that the U.S. Department of Education’s inspector general has recommended a curtailment of the accreditation authority of Higher Learning Commission (HCL) of the North Central Association of Colleges.  A loss of such authority would impact the ability of students to secure financial aid.

Whether for-profit education is the next “subprime” remains to be seen.  For-profit education has prospered due to demand from students hoping to secure well paid employment in exchange for high tuition often funded by student loans.  According to Mr. Eisman, the promised benefits often fail to materialize.  His presentation appears below (thanks to Market Folly for providing the link to the presentation.)


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Disclosures:  None.

For-Profit University Accreditation Facing Increased Scrutiny