The argument against "factory education" was against compulsory state-run education with a one-size-fits-all curriculum and overarching social goals. It was criticized because it was intended as a pipeline to push Americans into a very narrow social and economic model of American citizenship beneficial to the state and industry. So it is not so much turning education into a factory, but integrating education as a high quality tool in the factory that is the state. Industrialism needed workers, America had a bunch of farmers.

I won't claim to be an expert on this or even correct, but I tried to read what Dewey was trying to do in his own words. It didn't come across quite as menacing as Gatto made it out to be, but I believe he got the intention right. I agree with the author that the term has been misused, you can't make sense out of the way Khan uses the term.