Chilean Regulators Say No to Clinton-Backed University

A Chilean university owned by Laureate Education Inc., a global chain with former President Bill Clinton as honorary chancellor, was stripped of its accreditation, cutting off its access to government loans for new students.

The National Education Council ruled Wednesday it won’t reaccredit Santiago-based Universidad de las Americas, the second-largest university in Chile with more than 33,000 students. The council upheld an October decision by Chile’s higher education accreditation commission, which cited declining academic quality in withdrawing recognition of the university.

“In spite of its efforts, the university hasn’t shown the ability to identify important problems with internal management,” the council, known as CNED, said in a statement released today.

UDLA Chancellor Jose Underraga, in a statement posted on the school’s website, said the school will make changes necessary to restore accreditation.

“The denial by the CNED hurts, but it doesn’t change an objective truth, recognized by the university community,” Undurraga said. “We are an institution that has strengthened and improved substantially over the last few years.”

Baltimore-based Laureate is America’s largest for-profit college company by enrollment, with more than 800,000 students. The company, spawned from tutoring chain Sylvan Learning Systems, operates 75 schools in 30 countries. Clinton has made more than a dozen appearances on behalf of Laureate since becoming honorary chancellor in 2010.

Controversial Growth

Laureate’s founder and CEO, Doug Becker, took it private in 2007 with the help of investors including Henry Kravis, George Soros, Steve Cohen and Paul Allen in a deal worth $3.8 billion. Since then, Laureate’s annual revenue has more than tripled to $4 billion and its enrollment has almost quadrupled.

As Bloomberg Markets reported in its February issue, that rapid expansion has stirred controversy in countries such as Turkey, Chile and Brazil. After Laureate struck a deal in March with Thunderbird School of Global Management in Glendale, Arizona, some alumni complained that the business school’s reputation would be tainted, and five board members resigned.

Laureate considered going public in 2012 and then decided against it, apparently because of regulatory issues in Chile, Trace Urdan, an analyst at Wells Fargo & Co. who covers the company, said in the Markets story. Urdan and the company both declined to comment Thursday on whether the latest setback would affect plans for a public offering.

Enrollment Risk

In Chile, for-profit education is technically illegal. Laureate says it has legally operated by acquiring seats on the boards of colleges and then selling services to its schools. When Laureate bought UDLA in 2000, the school’s enrollment was 5,500.

UDLA’s loss of accreditation could jeopardize its enrollment growth because incoming students won’t be eligible for government student loans. In 2012, 13 percent of new students enrolled with such financing, UDLA told the commission. In a 2012 bond memorandum, Laureate said that shutting students out of government finance programs could have a material impact on its business.

In its October decision, Chile’s National Accreditation Commission wrote that UDLA’s academic standards have suffered since 2010 as it has added almost 10,000 students while reducing the number of full- and half-time teachers to 399 from 408. It said graduation rates were as low as 15 percent in some majors.

‘Massive Admission’

“This is an important issue since the university has defined itself as offering unselective and massive admission,” CNED said in the statement. “That needs to be accompanied with the teaching capacity to attend to the increasing number and diversity of students.”

The 10-member national council rejected the university’s appeal, cutting off the last avenue to reverse the decision, Undurraga said. The university can reapply for accreditation in two years.

Becker, in an interview in December, said UDLA deserved to be accredited because academic standards had improved in recent years. He said the Chilean commission misunderstood Laureate’s nontraditional approach to education.

Laureate spokesman Matthew Yale said the company will do all it can to help UDLA meet regulator’s recommendations for improvement.

“For more than 25 years, UDLA has played a significant role in expanding access to quality higher education for tens of thousands of students who would otherwise not have had the opportunity to pursue a university degree,” Yale said in a statement. “This ruling will not stop UDLA from continuing to provide its students with strong academic and career-oriented programs.”

UDLA officials declined to comment.

(Corrects wording in 10th paragraph.)
Before it's here, it's on the Bloomberg Terminal.