Legal and Regulatory Matters

3 Months Ended

Mar. 31, 2021

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.

Our institutions are subject to uncertain and varying laws and regulations, and any changes to these laws or regulations or their application to us may materially adversely affect our business, financial condition and results of operations. Except as set forth below, there have been no material changes to the laws and regulations affecting our higher education institutions that are described in our Annual Report on Form 10-K for the year ended December 31, 2020.

Continuing Operations

Mexican Regulation

A new higher education bill was enacted into law effective April 21, 2021. The new law, which, among other things, confirms the guaranteed right to higher education, is not expected to materially impact the business.

COVID-19 Update

Administrative activities have resumed at most of our campuses. Limited face-to-face educational activities have resumed at 10 campuses (in seven states), but such activities will not be permitted to resume at any other campus until the region (municipality or state) in which such campus is located is assigned a green color code under the country’s color-coded sanitary alert system, which is updated on a biweekly basis.

Peruvian Regulation – COVID-19 Update

Peru’s national sanitary emergency has been extended until June 2021, and may be extended again after the second round of presidential elections on June 6, 2021. Due to the more aggressive and deadly second wave of COVID-19, Peru has extended its region-by-region confinement plan until May 9, 2021, subject to continuing review. Lima has been qualified as “in extreme status,” which severely limits or prohibits economic activities, including presential gatherings like in-person instruction. Nevertheless, the government has announced that face-to-face classes may resume this year, initially semi-presential. The actual resumption of classes will depend upon COVID-19 infection rates at such time.

Discontinued Operations

Brazilian Regulation – COVID-19 Update

As of August 2020, Provisional Presidential Act n. 934/2020 has been converted to Law n. 14,040. Accordingly, institutions remain authorized to substitute face-to-face classes with remote activities and adjust the academic calendar. By the end of 2020, the National Board of Education had issued an opinion concerning the continuity of remote activities for an additional year. While the Ministry of Education originally had insisted on a gradual return to face-to-face classes, beginning on March 1, 2021, for higher education, this effort was affected by a second wave of COVID-19 infections and the consequent increase of local sanitary restrictive measures. As such, remote activities will continue until either a safety standard is sustained or mass vaccination reaches the students’ main age groups.

As of now, decisions to resume face-to-face educational activities in Brazil are being implemented on a state-by-state and city-by-city basis. Laboratory and professional practice activities have resumed, with short interruptions due to local sanitary statistics, at most of our Brazilian campuses. Despite being authorized to gradually return to face-to-face classes in some locations, academic planners still consider a larger contingent of remote activities to be the most suitable option given the current circumstances.

U.S. Regulation

The “90/10 Rule.”

As part of the American Rescue Plan Act of 2021 (“ARPA”) signed into law on March 11, 2021, Congress amended certain provisions of the U.S. Higher Education Act (the “HEA”) pertaining to a requirement of the HEA commonly referred to as the “90/10 Rule”. Specifically, the 90/10 Rule currently provides that a for-profit educational institution loses its eligibility to participate in federal student financial aid programs under Title IV of the HEA (“Title IV programs”) if, under a complex regulatory formula that requires cash basis accounting and other adjustments to the calculation of revenues, the institution derives more than 90% of its revenues from Title IV program funds for any two consecutive fiscal years. The ARPA amended the HEA to require that all “federal education assistance funds,” rather than only Title IV program funds, be included in the numerator of the 90/10 Rule. While the phrase “federal education assistance funds” was not defined by the statutory change, it presumably will include funds derived from student assistance programs administered by the U.S. Department of Veteran’s Affairs and the U.S. Department of Defense, among others. The ARPA requires the U.S. Department of Education to conduct a negotiated rulemaking to develop regulations needed to implement the revisions to the 90/10 Rule, with such negotiated rulemaking not permitted to begin before October 1, 2021. The revision to the 90/10 Rule to include all “federal education assistance funds” will take effect with institutional fiscal years beginning on or after January 1, 2023.

Department of Justice Notice of Election to Decline Intervention

On April 28, 2021, the Company was notified that the Civil Division of the United States Department of Justice (the “DOJ”), on behalf of the United States, had filed a Notice of Election to Decline Intervention (the “Notice”) with respect to a civil qui tam action filed by third-party relators (the “Relators”) against Walden University and the Company. It was this action that prompted the DOJ’s examination of Walden University’s Masters of Science in Nursing program. The DOJ’s investigation into this matter has now concluded. Further, as previously disclosed by the Company, the Higher Learning Commission (“HLC”) had informed Walden University that a public “Governmental Investigation” designation would be assigned to Walden University due to the DOJ inquiry; such designation became effective on November 9, 2020. Effective as of May 3, 2021, the HLC removed such designation.

Per the court order related to the Notice, the Relators may elect to continue to pursue the action. The Company cannot predict how long it may take to resolve this matter. The Company believes that the Relators’ claims are without merit and intends to defend vigorously against them.