Dive Brief:

• For-profit college operator Laureate Education has completed a sale of its University of St. Augustine for Health Sciences (USAHS) school to the Canadian private equity firm Altas Partners, it announced in a press release Tuesday.
• The deal was worth $400 million in all, including $58.1 million in debt that Atlas took on. Laureate said it would use net proceeds from the deal ($346.4 million) to pay down a term loan and credit revolver.
• Last year, Laureate considered selling Walden University, an online college based in Minneapolis. The company announced this week that it will hold onto Walden to "maintain its leadership position in the working professional segment in the U.S.," Laureate CEO Eilif Serck-Hanssen said in a statement.

Dive Insight:

Laureate said its strategic plan will be built around its campus-based business in Latin America and Walden's online-only platform in the U.S. 

In holding onto Walden, Laureate said it plans to invest in areas where it thinks the college can be a "market leader," including competency-based education and microcredentials. The company also noted the "particular strength" of Walden's health sciences program, especially in the number of nursing master's degrees it awards. 

The sale of St. Augustine — which has a handful of campuses in California, Florida and Texas — leaves Laureate with a minimal physical footprint in the U.S. (It still operates the NewSchool of Architecture & Design, which has a campus in San Diego.) The deal with Atlas also helps pay down Laureate's debt load, but only so much.

In a securities filing this week, Laureate said it currently owes about $2.5 billion in long-term debt and total liabilities of $5 billion. Meanwhile, interest payments are more than eating up its operating income. For the nine months that ended Sept. 30, Laureate paid $172.4 million in interest expenses and posted a loss of $35.5 million from continuing its operations. It has posted net losses in some recent years, too, as it expands its global operations.

The operator's finances have brought heightened regulatory scrutiny. By the end of September, Laureate had provided the Department of Education with letters of credit totaling $137 million for Walden, NewSchool, St. Augustine and Kendall College (which the company sold last year). The letters of credit, backed with cash by Laureate, account for 15% of its Title IV funds and are meant to secure public student aid in the event of school failures.

The department has also placed Laureate on heightened cash monitoring and last year required the company to provide detailed ongoing information about its operations and cash flow.

Laureate's turnaround efforts join those of other for-profit operators looking to sell, buy or merge as they try to stabilize or transform their business model. In some cases, such as Grand Canyon University, for-profits have spun off their academics as nonprofit entities while retaining a services business. Given declining enrollment throughout higher ed, that consolidation is likely to continue.

St. Augustine's sale to a private equity firm reflects another ongoing trend in the sector stretching back over the past decade, and one that has taken a toll on students and taxpayers. In a 2018 paper, academic researchers examined data from 88 private equity deals in the for-profit college space and nearly 1,000 schools owned by private equity investors. The paper found private equity buyouts led to lower school spending on education, higher tuition, higher per-student debt, lower graduation rates, lower repayment rates and lower earnings for graduates.