Legal and Regulatory Matters

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Legal and Regulatory Matters

Legal and Regulatory Matters

Laureate is subject to legal proceedings arising in the ordinary course of business. In management's opinion, we have adequate legal defenses, insurance coverage, and/or accrued liabilities with respect to the eventuality of these actions. Management believes that any settlement would not have a material impact on Laureate's financial position, results of operations, or cash flows.

United States Postsecondary Education Regulation

Through our Online & Partnerships and Central America & U.S. Campuses segments, as of December 31, 2019, we operate postsecondary educational institutions in the United States (U.S. Institutions). The U.S. Institutions are subject to extensive regulation by federal and state governmental entities as well as accrediting bodies. The U.S. Higher Education Act (HEA), and the regulations promulgated thereunder by the DOE, subject the U.S. Institutions to ongoing regulatory review and scrutiny. The U.S. Institutions must also comply with a myriad of requirements in order to participate in Title IV federal financial aid programs under the HEA (Title IV programs).

In particular, to participate in the Title IV programs under currently effective DOE regulations, an institution must be authorized to offer its educational programs by the relevant state agencies in the states in which it is located, accredited by an accrediting agency that is recognized by the DOE, and also certified by the DOE. In determining whether to certify an institution, the DOE closely examines an institution’s administrative and financial capability to administer Title IV program funds. Based on Laureate’s consolidated audited financial statements for its fiscal year ended December 31, 2018, the DOE required us to post a letter of credit of approximately $125,800 (an amount equal to 15% of the Title IV program funds received by Laureate in the fiscal year ended December 31, 2018) and remain subject to Heightened Cash Monitoring 1. The DOE also required us to comply with additional notification and reporting requirements. We have provided the DOE with a letter of credit in the amount required, and we are complying with the additional requirements. See Note 12, Commitments and Contingencies, for further description of the outstanding DOE letters of credit as of December 31, 2019 and 2018.

In recent years, the DOE has proposed or promulgated a substantial number of new regulations that impact our U.S. Institutions, including, but not limited to, borrower defense to repayment, state authorization and financial responsibility. Changes in or new interpretations of applicable laws, DOE rules, or regulations could have a material adverse effect on the U.S. Institutions’ eligibility to participate in the Title IV programs.

State Higher Education Agency Program Review for Walden University

On September 8, 2016, the Minnesota Office of Higher Education (MOHE) sent to Walden University an information request regarding its doctoral programs and complaints filed by doctoral students as part of a program review that MOHE was conducting. On October 23, 2019, MOHE completed its program review and issued a final report that indicated no findings of noncompliance. As part of its report, MOHE made recommendations for Walden University to develop certain goals and benchmarks with respect to its doctoral programs.

Brazilian Regulation

We operate 12 post-secondary education institutions in Brazil. The responsibility of the federal government in regulating, monitoring and evaluating higher education institutions and undergraduate programs is exercised by the Brazilian Ministry of Education (the MEC), along with a number of related federal agencies and related offices. The MEC is the highest authority of the higher education system in Brazil and has the power to issue implementing rules, (regulations, notices, and technical advisories governing the conduct of higher education), as well as to regulate and monitor the higher education segment, including aspects like adherence by higher education institutions (HEIs) to the rules for federal education programs like Prouni and the Fundo de Financiamento Estudantil (the FIES program, or FIES), through one or more of which all of our institutions enroll students.

Additionally, Brazilian law requires that almost all change-of-control transactions by Laureate receive the prior approval of the Brazilian antitrust authority, the Conselho Administrativo de Defesa Economico (CADE).

As noted, Laureate’s institutions in Brazil participate in the FIES program, which is a federal program established to provide financing to students enrolled in courses in private institutions of higher education that have achieved a minimum satisfactory evaluation according to the National Higher Education Evaluation System (SINAES) and receive a grade of 3 or higher out of 5 on the National Examination of Student Performance (ENADE). Under this basic structure, FIES targets both of the government’s education policy goals: increased access and improved academic quality outcomes. As of December 31, 2019, approximately 7% of our total students in Brazil participated in FIES, representing approximately 13% of our 2019 Brazil net revenue. As of December 31, 2018, approximately 11% of our total students in Brazil participated in FIES, representing approximately 20% of our 2018 Brazil net revenue.

All of our Brazil HEIs adhere to Prouni, a federal program of tax benefits designed to increase higher education participation rates by making college more affordable. Prouni provides private HEIs with an exemption from certain federal taxes in exchange for granting partial and full scholarships to low-income students enrolled in traditional and technology undergraduate programs. HEIs may join Prouni by signing a term of membership valid for ten years and renewable for the same period. This term of membership shall include the number of scholarships to be offered in each program, unit and class, and a percentage of scholarships for degree programs to be given to indigenous and Afro-Brazilians. To join Prouni, an educational institution must maintain a certain relationship between the number of scholarships granted and the number of regular paying students. The relationship between the number of scholarships and regular paying students is tested annually. If this relationship is not observed during a given academic year due to the departure of students, the institution must adjust the number of scholarships in a proportional manner the following academic year. For the years ended December 31, 2019, 2018 and 2017, our HEIs granted Prouni scholarships of approximately $100,600, $112,500, and $115,200, respectively, that resulted in tax credits.

Chilean Regulation - Higher Education Bill

As discussed in Note 2, Significant Accounting Policies, on January 24, 2018, the Chilean Congress passed the New Law, which was enacted in May 2018. See Note 2, Significant Accounting Policies, for further discussion about the New Law and its impact to Laureate.