What: Shares of DeVry Education Group (NYSE:ATGE) are down 15% on Jan. 27 following news that the Federal Trade Commission has filed a complaint against the company, alleging deceptive advertising practices. And in a story of guilt by association, Apollo Education Group (NASDAQ:APOL) and Strayer Education (NASDAQ:STRA) shares are also down today:
So what: DeVry said in a press release that it would "vigorously contest" the suit. CEO Daniel Hamburger said the following:
DeVry University is an honorable institution with more than 80-years of providing high quality, career-oriented education. We're proud of our 250,000 alumni, many of whom are employed by America's most respected employers, including federal, state and local governments. DeVry Group is confident in our defense and looks forward to demonstrating the accuracy and credibility of our students' career success.
This lawsuit comes at a tough time for DeVry and the industry in general, which is suffering from shrinking enrollments, more regulatory scrutiny in general, and increased competition from public colleges and universities, which are increasingly offering online education programs, often at much lower cost than the for-profits.
Now what: DeVry may be able to fight off this suit, but it's hard to see much good for it, or Apollo Education or Strayer Education, no matter the outcome of this lawsuit. The reality is, for-profit college education has lost its luster, and a U.S. job market that's steadily growing stronger is likely to keep that trend going.
Furthermore, the impact of lower-cost online education from local and state colleges and universities is further eroding the competitive advantage that the industry has long enjoyed, pushing the prices they can charge lower. Yes, there is some international opportunity, but it's hard to see that being a long-term fix.
Simply put, the industry faces enormous headwinds that aren't going to blow over anytime soon. Probably better to look elsewhere if you're looking for a good long-term place to invest.