Washington Post 2010 Annual Report Download - page 24

responsibility and other operational matters. Institutions that participate in Title IV programs must be legally authorized to
operate in the state in which the institution is located.
Some states have sought to assert jurisdiction over online educational institutions that offer educational services to residents
in the state or to institutions that advertise or recruit in the state, notwithstanding the lack of a physical location in the state.
State regulatory requirements for online education vary among the states, are not well developed in many states, are
imprecise or unclear in some states and are subject to change. If Kaplan Higher Education is found not to be in
compliance with an applicable state regulation and a state seeks to restrict one or more of Kaplan Higher Education’s
business activities within its boundaries, Kaplan Higher Education may not be able to recruit or enroll students in that state
and may have to cease providing services and advertising in that state. As of December 31, 2010, Kaplan Higher
Education’s schools are authorized to operate or have confirmed exemptions in 26 states.
The Department of Education published new regulations on October 29, 2010, with an effective date of July 1, 2011,
that expand the requirements for an institution to be considered legally authorized in the state in which it is physically
located for Title IV purposes. In some cases, the regulations will require states to revise their current requirements and/or
to license schools in order for institutions to be deemed legally authorized in those states and, in turn, to participate in the
Title IV programs. If the states do not amend their requirements where necessary and a school does not receive approvals
where necessary that comply with these new requirements, then the institution could be deemed to lack the state
authorization necessary to participate in the Title IV programs. However, under the final regulations, institutions unable to
obtain state authorization in a state under the above requirements may request a one-year extension of the effective date
of the regulation to July 1, 2012, and, if necessary, an additional one-year extension of the effective date to July 1,
2013. To receive an extension of the effective date, an institution must obtain from the state an explanation of how a
one-year extension will permit the school to modify its procedures to comply with the regulations.
In addition, the new Department of Education rules require institutions offering postsecondary education to students
through distance education in a state in which the institution is not physically located or in which it is otherwise subject to
state jurisdiction as determined by the state, to meet any applicable state requirements for it to be legally offering
postsecondary distance education in that state. The regulations require an institution to document upon request by the
Department of Education that it has the applicable state approval. As a result, some of Kaplan’s schools and distance
education programs may be required to obtain additional or revised state authorizations. If Kaplan is unable to obtain the
required approvals, Kaplan students in the affected schools or programs may be unable to receive Title IV funds, which
could have a material adverse effect on Kaplan’s business and operations.
Congressional Reauthorization of Title IV Programs. All of the Title IV financial aid programs are subject to periodic
legislative review and reauthorization. In addition, while Congress historically has not limited the amount of funding
available for the various Title IV student loan programs, the availability of funding for the Title IV programs that provide for
the payment of grants is primarily contingent upon the outcome of the annual federal appropriations process. Congress
also can make changes in the laws affecting Title IV programs in those annual appropriations bills and in other laws it
enacts between Higher Education Act reauthorizations.
Whether as a result of changes in the laws and regulations governing Title IV programs, a reduction in Title IV program
funding levels or a failure of schools within Kaplan Higher Education to maintain eligibility to participate in Title IV
programs, a material reduction in the amount of Title IV financial assistance available to the students attending those
schools could have a material adverse effect on Kaplan’s business and operations. In addition, any development that has
the effect of making the terms on which Title IV financial assistance is made available materially less attractive could also
have a material adverse effect on Kaplan’s business and operations.
U.S. Senate Committee Review. In the summer of 2010, the Health, Education, Labor and Pension Committee (“the
HELP Committee”) of the U.S. Senate commenced an industry-wide review of for-profit higher education institutions. The
institutions owned and operated by Kaplan Higher Education are included in the scope of this industry-wide review. The
scope of the hearings is being established and directed by the chairman of the HELP Committee. Hearings have been
conducted thus far, and additional hearings are anticipated. The ultimate outcome of the hearings and implications to the
operation of Kaplan Higher Education’s institutions are presently unknown.
As part of the HELP Committee’s review of for-profit higher education institutions, investigators from the U.S. Government
Accountability Office (“GAO”) performed undercover interviews at 15 for-profit higher education institutions, including two
campuses of Kaplan Higher Education. In August 2010, the GAO issued a report that was critical of the recruiting tactics
at several schools, including two Kaplan campuses. The GAO subsequently revised its report and reduced the number of
alleged violations it uncovered.
On August 5, 2010, the HELP Committee sent a document request to numerous for-profit higher education institutions,
including Kaplan. The HELP Committee indicated that it is interested in investigating the receipt and use of federal student
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