Strayer Education is tying up with Capella Education in a deal worth about $1.9 billion under an administration that looks much more favorably at non-profit schools that had come under a harsher spotlight in recent years.
The two schools, however, stood out from others mired in inquiries about students left with large debts and limited prospects. Strayer University and Capella University will continue to run as independent institutions with separate boards.
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The tie-up of schools comes as the U.S. Education Department considers rolling back Obama-era rules that would have erased federal loans for students defrauded by for-profit colleges.
Strayer and Capella together serve about 80,000 students across all 50 states. Both universities will operate under Strayer Education Inc., with corporate headquarters in Herndon, Virginia. Strayer Education will be renamed Strategic Education Inc. and still use the ticker symbol "STRA."
Strayer Education's stock has surged 62.6 percent over the past year, according to FactSet. Capella has not fared as well, down 7.1 percent over the same period.
The Education Department officials told The Associated Press that the department is considering only partially forgiving federal loans for students defrauded by for-profit colleges. That would be a change from President Barack Obama's administration, which had a policy of erasing that debt. Critics of the potential move say that the Trump administration, which has ties to the for-profit sector, is looking out for industry interests. Earlier this year, Trump paid $25 million to settle charges his Trump University misled students.
In recent years tens of thousands of students began to request that the government cancel their loans following the demise of Corinthian and ITT for-profit chains.
The transaction between Strayer and Capella is expected to result in about $50 million in annual cost savings within 18 months of closing, which is targeted for 2018's third quarter. An annual dividend of $2 per share is expected after the deal is complete.
Capella Education Inc. shareholders will receive 0.875 Strayer shares for each Capella share. Strayer shareholders will own about 52 percent of the combined business, with Capella shareholders owning about 48 percent.
The transaction has been approved by both companies' boards. It still needs approval from the shareholders of both companies, the Department of Education, state regulators, relevant accreditation bodies and antitrust approvals.