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Financing Receivables

12 Months Ended

Jun. 30, 2020

9. Financing Receivables

Adtalem’s financing receivables consist of trade receivables related to credit extension programs available to students at Chamberlain, AUC, RUSM, and RUSVM. These credit extension programs are designed to assist students who are unable to completely cover educational costs consisting of tuition, books, and fees, and are available only after all other student financial assistance has been applied toward those purposes. In addition, AUC, RUSM, and RUSVM allow students to finance their living expenses. Repayment plans for financing agreements are developed to address the financial circumstances of the particular student. Interest charges at rates from 3.0% to 12.0% per annum accrue each month on the unpaid balance. Most students are required to begin repaying their loans while they are still in school with a minimum payment level designed to demonstrate their capability to repay, which reduces the possibility of over borrowing, and minimizes interest being accrued on the loan balance. Payments may increase upon completing or departing school. After a student leaves school, the student typically will have a monthly installment repayment plan. In addition, Becker offered an 18-month credit extension program for its Becker CPA Exam Review Course which is considered a financing

receivable. Becker is no longer offering credit extension under this program. Instead, Becker is offering financing through flexible payment plans with terms of up to 12-months which is not considered a financing receivable.

Allowances for uncollectible loans are determined by analyzing the current aging of financing agreements and historical loss rates of loans at each institution. Management performs this analysis and records an associated adjustment on a quarterly basis. In evaluating the collectability of all our receivable balances, we set our bad debt reserves incorporating the most recent and updated circumstances, facts, and analytics. Changes in assumed collection rates will result in changes in the necessary reserves. Loans are considered nonperforming if they are over 90 days past due. Since all of Adtalem’s financing agreements are generated through the extension of credit to fund educational costs, all such receivables are considered part of the same credit extension portfolio. Adtalem charges-off credit extension program balances after they have been sent to a third party collector, the timing of which varies by the institution granting the loan, but in most cases is when the financing agreement is at least 181 days past due.

The following table details the financing agreement balances along with the related allowances for credit losses (in thousands):


	June 30,
	2020				2019
Gross financing receivables			$	50,025			$	47,937
Allowance for credit losses:
Balance as of July 1	$	(6,289)			$	(10,003)
Charge-offs and adjustments		712				10,777
Recoveries		(113)				(83)
Additional provision		(10,000)				(6,980)
Balance at end of period				(15,690)				(6,289)
Net financing receivables			$	34,335			$	41,648

Of the net balances above, $19.6 million and $16.6 million were classified as accounts receivable, net on the Consolidated Balance Sheets as of June 30, 2020 and 2019, respectively, and $14.7 million and $25.1 million, representing amounts due beyond one year, were classified as other assets, net on the Consolidated Balance Sheets as of June 30, 2020 and 2019, respectively.

The following table details the credit risk profiles of the financing agreement balances based on an aging of past due financing agreements (in thousands):


							Over						Total
	1-30 Days		31-60 Days		61-90 Days		90 Days		Total				Financing
	Past Due		Past Due		Past Due		Past Due		Past Due		Current		Receivables
Financing receivables:
June 30, 2020	$	7,192	$	1,755	$	1,547	$	13,782	$	24,276	$	25,749	$	50,025
June 30, 2019	$	3,578	$	2,458	$	687	$	9,888	$	16,611	$	31,326	$	47,937

In connection with the completion of the sale of DeVry University, Adtalem loaned $10.0 million to DeVry University under the terms of the Note. The Note bears interest at a rate of 4% per annum, payable annually in arrears, and has a maturity date of January 1, 2022. The value of the DeVry University loan receivable included in other assets, net on the Consolidated Balance Sheet as of June 30, 2020 and 2019 is estimated by discounting the future cash flows using an average of current rates for similar arrangements, which is estimated at 4% per annum. Management has evaluated the collectability of this note and has determined no reserve is necessary.

On July 31, 2019, Adtalem sold its Chicago, Illinois, campus facility to DePaul College Prep Foundation (“DePaul College Prep”). In connection with the sale, Adtalem holds a mortgage from DePaul College Prep for $46.8 million. The mortgage is due on July 31, 2024 as a balloon payment and bears interest at a rate of 4% per annum, payable monthly. The value of the DePaul College Prep loan receivable included in other assets, net on the Consolidated Balance Sheet as of June 30, 2020 is $41.4 million, which is estimated by discounting the future cash flows using an average of current rates

for similar arrangements, which is estimated at 7% per annum. Management has evaluated the collectability of this note and has determined no reserve is necessary.