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Legal and Regulatory Matters | 12 Months Ended
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Dec. 31, 2018
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, 2018, 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, 2017, the DOE required us to increase our letter of credit to approximately $139,000 (an amount equal to 15% of the Title IV program funds received by Laureate in the fiscal year ended December 31, 2017) 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 of approximately $139,000, 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, 2018 and 2017. Under the HEA, proprietary schools generally are eligible to participate in Title IV programs in respect of educational programs that lead to “gainful employment in a recognized occupation.” On October 30, 2014, the DOE published regulations to define “gainful employment,” which became effective on July 1, 2015. Continued compliance with the gainful employment regulations could increase our cost of doing business, reduce our enrollments and have a material adverse effect on our business, financial condition, results of operations and cash flows. Historically, the concept of “gainful employment” has not been defined in detail. The regulations require each educational program offered by a proprietary institution to achieve threshold rates in two debt measure categories: an annual debt-to-annual earnings (DTE) ratio and an annual debt-to-discretionary income (DTI) ratio. An educational program must achieve a DTE ratio at or below 8% or a DTI ratio at or below 20% to be considered “passing.” An educational program with a DTE ratio greater than 8% but less than or equal to 12% or a DTI ratio greater than 20% but less than or equal to 30% is considered to be “in the zone.” An educational program with a DTE ratio greater than 12% and a DTI ratio greater than 30% is considered “failing.” An educational program will cease to be eligible for students to receive Title IV program funds if its DTE and DTI ratios are failing in two out of any three consecutive award years or if both of those rates are failing or in the zone for four consecutive award years. In January 2017, the DOE issued final DTE rates to institutions. Of the programs currently offered by NewSchool of Architecture and Design and Walden University, three programs are in the zone. Additionally, the regulations require an institution to certify to the DOE that its educational programs subject to the gainful employment requirements, which include all programs offered by our U.S. Institutions, meet the applicable requirements for graduates to be professionally or occupationally licensed or certified in the state in which the institution is located. The regulations also include requirements for the reporting of student and program data by institutions to the DOE and expand the disclosure requirements that have been in effect since July 1, 2011. The failure of any program or programs offered by any of our U.S. Institutions to satisfy any gainful employment regulations could render that program or programs ineligible for Title IV program funds and we may choose to cease offering the program or programs. Due to DOE certification requirements, it is possible that several programs offered by our schools may be adversely affected by the regulations due to lack of specialized program accreditation or certification in the states in which such institutions are based. We also could be required to make changes to certain programs at our U.S. Institutions in order to comply with the rule or to avoid the uncertainty associated with such compliance. The DOE decided to review its gainful employment regulations by negotiated rulemaking in early 2018, but failed to meet consensus on the DOE’s proposed regulatory changes. On August 14, 2018, the DOE released a Notice of Proposed Rulemaking which would rescind its gainful employment regulations and related requirements. Comments were due September 13, 2018. The DOE did not meet the master calendar deadline of November 1 to issue a new regulation to rescind the gainful employment requirements, and therefore it is not clear when any new such regulation to repeal these regulations will become effective. While the DOE has required institutions to continue to report data to the DOE, it has not issued new GE metrics for institutions and has delayed certain disclosure requirements. We cannot predict with any certainty the outcome of the DOE’s proposal to rescind the gainful employment regulations or the extent to which it ultimately proposes gainful employment regulations that differ from the current regulations. 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, as part of a program review that the Minnesota Office of Higher Education (MOHE) is conducting of Walden University’s doctoral programs, MOHE sent to Walden University an information request regarding its doctoral programs and complaints filed by doctoral students, to which we have responded. We cannot predict the outcome of this matter. However, if MOHE makes an adverse determination, it could have a material adverse effect on our business, financial condition and results of operations. Brazilian Regulation We operate 13 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 to the rules for federal education subsidy programs like Pronatec, Prouni and the Fundo de Financiamento ao Estudante do Ensino Superior (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 Econˆomica (CADE). As noted, Laureate’s institutions in Brazil participate in the FIES program, which targets students from low socio-economic backgrounds enrolled at private post-secondary institutions. In December 2017, a new FIES reform was implemented by the Provisional Presidential Decree (Medida Provisória) n. 785/2017, which amended the FIES legal statute (Law n. 10.260/2001). The current FIES offer conditions were consolidated for the selection rules for the first half of 2018. The traditional FIES financing program continues to be offered to about one third of vacancies announced for the program in the first half of 2018. For the traditional offering, the candidate should have family income of up to three times the minimum wage and, although the previous 18-month grace period was eliminated, financing will have an interest rate of zero and will be adjusted by inflation only. The risk is borne by a new guarantee fund - called FG-FIES - which may have public contributions of up to BRL 3,000,000, and contributions from Higher Education Institutions (HEIs), which range from 13% of the program-funded tuition revenue for the first year, between 10% and 25% for the second to fifth year (according to delinquency-related variances), and at least 10% from the sixth year on. The second financing offer - called P-FIES - has two variables, according to the funding sources (a. Constitutional/Regional Development Funds or b. the BNDES). The distribution of vacancies for this modality favors programs offered in corresponding regional limits. This FIES offer will be operated strictly by financial agents, who will also bear the risks of the operation. As of December 31, 2018, approximately 11% of our total students in Brazil participate in FIES, representing approximately 20% of our 2018 Brazil net revenue. All of our Brazil HEIs adhere to Prouni. Prouni is 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 to 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, 2018, 2017 and 2016, our HEIs granted Prouni scholarships of approximately $112,500, $115,200 and $83,900, respectively, that resulted in tax credits. Turkish Regulation Through our Rest of World segment, we operate Istanbul Bilgi University (Bilgi), a network institution located in Turkey that consolidates under the variable interest entity model. Bilgi is established as a Foundation University under the Turkish higher education law, sponsored by the Bilgi Foundation. As such, it is subject to regulation, supervision and inspection by Turkish Higher Education Council (the YÖK). Under the “Ordinance Concerned with Amendment to Foundation High Education Institutions” (the Ordinance), the YÖK has authority to inspect accounts, transactions, activities and assets of Foundation Universities, as well as their academic units, programs, projects and subjects. The Ordinance establishes a progressive series of five remedies that the YÖK can take in the event it finds a violation of the Ordinance, ranging from (1) a warning and request for correction to (2) the suspension of the Foundation University’s ability to establish new academic units or programs to (3) limiting the number of students the Foundation University can admit, including ceasing new admissions, to (4) provisional suspension of the Foundation University’s license to (5) cancellation of the Foundation University’s license. The Ordinance specifies that Foundation Universities cannot be established by foundations in order to gain profit for themselves, and prohibits specified types of fund transfers from Foundation Universities to their sponsoring foundation, with certain exceptions for payments made under contractual arrangements for various goods and services that are provided at or below current market rates. Bilgi has entered into contractual arrangements with a subsidiary of the Company to provide Bilgi with management, operational and student services and certain intellectual property at fair market rates, and certain affiliates of the Company are members of the board of trustees of the Bilgi Foundation. The YÖK conducts annual audits of the operations of Bilgi. The Company previously disclosed that, on April 18, 2017, Bilgi received from the YÖK the results of the 2015-2016 annual audit (the 2015-2016 Annual Audit) and that the Company was appealing the result of that audit. The YÖK also conducted a supplemental audit of the 2015-2016 academic year (the 2015-2016 Supplemental Audit) and the annual audit of the 2016-2017 academic year (the 2016-2017 Annual Audit). On April 6, 2018, Bilgi received the results of the 2015-2016 Supplemental Audit and the 2016-2017 Annual Audit by resolutions of the YÖK which, among other things, approved a portion of the payments previously made by Bilgi to a subsidiary of the Company for management, operational and student services and intellectual property and disallowed and required reimbursement of a portion of such payments. In order to comply with the resolutions of the YÖK and avoid sanctions, Bilgi has complied with those resolutions and the Company has reimbursed to Bilgi the disallowed payments; however, it has appealed the YÖK’s decision on the 2015-2016 Annual Audit in the Turkish court system, as well as the YÖK’s decisions pursuant to the 2015-2016 Supplemental Audit and the 2016-2017 Annual Audit. The YÖK is currently conducting its 2017-2018 annual audit (the 2017-2018 Annual Audit) of Bilgi. As part of the 2017-2018 Annual Audit, Bilgi has received inquiries from the YÖK requesting clarifications regarding certain academic and financial matters. Bilgi responded to the YÖK's inquiries in November 2018. In May 2018, an amendment to Turkey's higher education law was passed, which could affect certain transactions of Turkish universities related to the procurement of goods and services as well as transactions that are deemed to be related party transactions. In order for it to be implemented, the amendment required the Turkish government to issue final directives. The directives were issued in November 2018 and do not preclude controllers of higher education institutions from participating in the procurement process outlined in the law. Accordingly, at this time we do not expect the higher education law amendments to have a significant impact on our existing contractual relationships with Bilgi. We will continue monitoring any developments in the implementation of the higher education law and evaluate any potential effect on our operations. Bilgi is one of the subsidiaries that the Company plans to divest; accordingly, it is included in Discontinued Operations for all periods presented. See Note 4, Discontinued Operations and Assets Held for Sale, for further description. 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.

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