Credit Suisse got the attention of Wall Street last week when it issued a report recommending that investors buy shares in one of the largest for-profit college companies, DeVry Education Group. The report came less than a week after the Federal Trade Commission sued DeVry for allegedly misleading students about job placement rates and salaries for the school’s graduates, with damages potentially reaching $8.6 billion, reports The Huffington Post.
The Credit Suisse analyst note, issued on Tuesday, February 2nd, told investors that DeVry shares were worth $29 — more than 50 percent higher than the trading value that day. The following day, Wednesday, the stock closed up by 9.73 percent to $19.84 on heavy trading. (By the end of Friday, the stock was down to $17.02; it was at $23.74 on the day before the FTC filed its suit, and it had peaked, in July 2011, at $65.99, according to Republic Report.)
However, financial reporters didn’t note that the co-author of the Credit Suisse paper, newly-hired Trace Urdan, an analyst with a long history of optimistic assessments of troubled for-profit colleges, offered overall positive evaluations of notorious Corinthian Colleges, despite media exposure and and congressional investigations revealing that Corinthian underspent on teaching, gave false information to students and regulators.
According to Republic Report, Urdan appeared on Al Jazeera America TV last June, around the time he left Wells Fargo, to discuss for-profit colleges, and he seemed a bit more reflective, acknowledging that some industry actors had behaved badly. But in his new role at Credit Suisse, Urdan is back on the offensive, telling Marketplace, for a story on DeVry, that the Obama administration “has effectively declared war on this industry.”
The FTC complaint against DeVry, filed in federal court in Los Angeles, alleges, “Through the use of English and Spanish-language advertisements and other marketing materials, and during sales pitches with prospective students [DeVry has] made deceptive representations about the benefits of obtaining a degree.”
The complaint focuses on claims that DeVry University repeatedly made in its TV, radio, online, print and other advertising: that 90 percent of DeVry graduates actively seeking employment got jobs in their field within six months of graduation; and that DeVry graduates had 15 percent higher incomes one year after graduation on average than the graduates of all other colleges or universities. The FTC asserts that these claims were deceptive.
The complaint alleges DeVry counted many graduates as working “in their field” when they were not:
a business administration graduate working as a server at the Cheesecake Factory restaurant;
graduates who majored in technical management working as unpaid volunteer positions at medical centers;
a business administration graduate with a health care management specialization working as a car salesman.
The complaint also alleges that DeVry counted, as placed in jobs, graduates who were working in the same jobs they held prior to enrolling at DeVry. The Commission voted 4-0 to file the lawsuit. In a related action, the U.S. Department of Education gave notice to DeVry to stop certain advertising regarding student employment outcomes. DeVry last year received $1.47 billion in Department of Education student aid.
In a statement, DeVry said it “intends to vigorously contest” the FTC suit and said the case was “without a valid legal basis. In addition, the FTC’s complaint contains anecdotal examples that exaggerate the allegations but do not prove them.” DeVry also said it would seek a hearing at the Department of Education “to demonstrate our compliance and resolve this matter satisfactorily.”
DeVry was also obtaining prospective student leads through a lead generation company, QuinStreet, whose website, GIBill.com, was shut down in June 2012 by 20 state attorneys general because the site seemed to mislead veterans into believing it was a government website.
These kinds of allegations of deception by schools, and evidence of weak outcomes for students, have reached the prospective student population and helped contribute to a decline in enrollments, revenues, and stock prices, at for-profit colleges.
As to the FTC charges, as Urdan suggests, the Commission’s dispute with DeVry over how to capture job placement rates may cover some new terrain. But a waiter at the Cheesecake Factory is not placed in the field of business administration. And DeVry’s year after year claim of a 90 percent placement rate rings false — and it should have seemed false to DeVry management, whom Urdan praises for their skills. DeVry’s CEO, Daniel Hamburger, is paid $6 million a year.
Students who sign up at DeVry are committing themselves to potentially owing tens of thousands of dollars in student debt — a DeVry bachelor’s degree costs $75,000. Many are busy people struggling to build better lives — returning vets, low-income single parents, immigrants — trying to hold down jobs, raise families, and get their education all at once.
DeVry takes their money, and it takes our tax money. DeVry should not do so by making false representations about what its programs can do.