Education authorities in the US are intensifying their use of letters of credit (L/Cs) in their efforts to ensure that for-profit education companies that are state funded deliver adequate services.

The US Department of Education (DoE) said earlier this year it would require larger L/Cs from education providers that receive state aid to guarantee they deliver the services that public money is provided for (DC World News, 10 June 2016).

L/C requirement

The DoE's latest order is that the prospective new owners of Apollo Education Group must put up a substantial L/C if they buy the group.

If the consortium led by private equity firm Apollo Global Management wants to remain eligible for federal student aid funds, it would need to post an L/C of US$385 million.

The group will also have to provide the federal government with detailed financial statements, monthly student rosters and other information.


Apollo Education, which operates the University of Phoenix chain of for-profit colleges and a number of international programmes, agreed to be privatised in February.

The new owners, Apollo Global, Vistria Group and Najafi Companies, will pay around US$1.1 billion for the group.

Trump expectations

The University of Phoenix is not currently required to post an L/C but the DoE is concerned that declining enrolment may adversely affect the group's cash flow.

For-profit colleges and their investors are hoping that the incoming Trump administration will ease the tough regulatory environment imposed on them by the Obama administration.

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