Eisman Bets Against Strayer Education Amid Doubt About Loan-Repayment Rate

Hedge-fund manager Steven Eisman is betting against for-profit college provider Strayer Education Inc. because the company’s federal student loan repayment rate is much lower than it claims.

Eisman, who according to “The Big Short” by Michael Lewis was one of the few investors to profit from the collapse of the U.S. housing market, said he initiated a new short position against Strayer because he agrees with the U.S. Department of Education data that show the loan repayment rate of former Strayer students is 25 percent. The Arlington, Virginia-based company has disputed the data and says its students’ repayment rate is 55.4 percent.

“It’s a company that has been very successful in portraying itself as a high-quality company. I believe that’s just a lie,” Eisman said in an interview. “What they said was factually untrue.”

Sonya Udler, a spokeswoman for Strayer, wasn’t available for immediate comment.

Nationally, for-profit colleges have a 36 percent student- loan repayment rate, compared with 54 percent at public universities and 56 percent at private nonprofits, according to the analysis of Education Department data by the Institute for College Access & Success, an Oakland, California nonprofit research and advocacy group.

“We’ve got comments from Strayer and other people on the data we published and we’ve gone back and looked at it,” said James Kvaal, deputy undersecretary of education, in a telephone interview Aug. 24. “We haven’t found anything yet that would make us doubt the repayment rates we’ve calculated.”

Low Repayment Rates

The Obama administration is proposing to limit or cut off access to federal financial aid at programs with low repayment rates. Government grants and loans can account for as much as 90 percent of revenue at for-profit colleges.

“I’m very confident that Strayer’s loan repayment rate is 25 percent,” Eisman said today.

Eisman said in May that the stocks of companies operating for-profit colleges could fall much as 50 percent if the U.S. tightens student-loan rules. Short selling is the sale of stock borrowed from shareholders in the hope of profiting by repurchasing the securities later at a lower price and returning them to the holder.

Strayer’s shares retreated 1.9 percent to $161 as of 3:36 p.m. after falling as much as 3 percent earlier. The company’s shares have fallen 25 percent this year, compared with a decline of 0.5 percent for the S&P MidCap 400 Index. An index of 12 education stocks rose 0.2 percent.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.

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