In the Hamptons, a Financier Talks Housemates and College Credit

  • Steve Klinsky shared house with Robert Kaplan and Phil Murphy
  • New Mountain CEO’s Freshman Year for Free offers 40 courses

Steve Klinsky knows how Goldman Sachs careers can arc and bend. In the 1990s, Robert Kaplan and Phil Murphy were his roommates in a share house in Sagaponack. Kaplan is now Dallas Fed president, Murphy is running for governor of New Jersey, and Klinsky, 17 years into helming his own private equity firm, has created Freshman Year for Free.

The program helps students overcome the prohibitively high cost of college by offering free online courses leading to College Board exams and real credits. It’s run by a philanthropy he set up, Modern States Education Alliance. And he has promised to pay the first 10,000 exam fees.

We discussed the project last weekend in Southampton, where he’s moved on from share houses to owning a home with his wife, Maureen Sherry, and four kids. Klinsky, 61, also described how he left Goldman to work at a private equity firm with brothers Ted and Nick Forstmann, and eventually founded his own. This interview is edited and abridged.

Steve Klinsky has funded and created a new program to help high school students and others earn college credits.

Photographer: Amanda Gordon/Bloomberg

What was it like in Goldman’s private equity group in the 1980s?

The first deal that Goldman did with their own money was Trinity Paper Bag, a $12 million acquisition. And the guy who ran it, he said to me, “You see this bag? This bag was in ‘Tootsie.’”

He was proud that Dustin Hoffman in the movie “Tootsie” had held up a white paper Haagen Dazs bag that was Trinity Paper’s -- his. It was part of the process when you are learning about a company, and his entrepreneurial pride was a good thing to see in an owner/manager.

[Back then, private equity] was like going to Silicon Valley the day transistors were invented. I went to Forstmann Little from 1984 to 1999, the “Barbarians at the Gate” days. It was very glamorous: Teddy dating Lady Di, we owned a Gulfstream jet. Ted and Nick were also very active in education charities, particularly helping the city’s Catholic schools. They set a good example for me. Then in 2000 I started New Mountain. We’ve gone from nothing to over $20 billion in assets in companies by the end of this year.

What’s your approach at New Mountain Capital?

Klinsky initials the original offering memorandum for New Mountain’s first private equity fund.

Source: Steve Klinsky

We look for industry niches that can do well whether the macro economy is good or not. We’re in things like life-science supplies, software, information data. We’ve never had a bankruptcy at New Mountain, we’ve never missed an interest payment, we’ve added or created over 26,000 jobs. Private equity, if you do it right, can be a very socially proper way to live your life as well. So I’m not doing education to pay amends.

You got involved in education reform in the 1990s.

In 1993, I’d had a little success, and I set up after-school programs in East New York to extend the school day by 50 percent. That’s still going, we’ve given or gotten over $20 million for that. In 1999, I wrote the application and organized the first charter school in the state of New York. And when Jeb Bush ran for president, I took his seat as chairman of an education policy group at Harvard.

When did you decide to take on college costs?

I was having dinner with friends in 2012, and someone said to me, “Why is college so expensive?” And I tried to explain it to him. I said, “It’s a weird system. It’s like, if the only way you could prove you knew Mozart was to go to the Viennese opera house and pay the orchestra, and if you heard it on Sirius radio or Pandora it didn’t count! And you go, ‘Why is that?’” So I tried to change the system.

You tried one strategy that you abandoned.

I wrote editorials, went to D.C. and met with the Department of Education and all that, to change the accreditation system for these online courses. And I just could see, to do it through government, it would take forever and I’m not a politician. So I thought of a private way to do it.

Why create new courses when there are already so many out there?

Five million students take online college courses every year but basically they’re paying the same tuition as if they were in the class in person. And over the last few years, some of the best universities have started to give away courses for free, which is great, but you can’t get any credit for them. We’ve figured out a way to bridge the two.

The courses take advantage of an exam system in place, the CLEP.

They say there are 2,900 universities who accept it: Purdue, Michigan State, the SUNY system, most of the major state universities.

We offer courses to prep for 32 CLEP tests and 12 of the Advanced Placement exams. The CLEP ones are going to be much more useful because APs are only given in high schools in May. CLEP can be taken anytime you want by anyone.

Who’s taking the classes so far?

The first one who ever passed an exam for us is this teenager in Oregon. He’s 17 and he’s home schooling. I called him up to congratulate him. I said, ‘Do you want to go to college?’ He said, ‘No, I want to be an electrician.’ But maybe he’ll change his mind, he seems like a really smart guy.

We talked to a working mom. We’ve had people who needed one credit to finish. We have people who’ve been in the military. The only cost is the exam fee to the College Board. I’m paying for the first 10,000 fees just as part of the charity.

Why is this important to you now?

I just wanted to have an on-ramp. It’s about the American dream and respect for the individual: If someone is hardworking and smart and wants the chance for an education there ought to be a guaranteed way to get it. It’s better to go to Stanford for four years. Not everyone can.

Anything crazy happen in that share house?

I have no scandals on Phil! In the early ’90s, before any of us were married, a group of us rented a house just north of the highway in Sagaponack for several years. Phil and Rob were two of the six. It was just a regular share house for that period in time, not flashy or big. Basically, I was the young, Midwestern guy doing the deal work in the back room.

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