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gainful employment in a recognized occupation. The topics covered in the final regulations published on October 29,
2010, with a general effective date of July 1, 2011, include, but are not limited to, the following:
• Revisions to the incentive compensation rule (see separate risk factor discussed below);
• Expansion of the notice and approval requirements for adding new academic programs and new reporting and
disclosure requirements for academic programs;
• Revision and expansion of the types of activities that are deemed a “substantial misrepresentation” and the ability
of the Department of Education to enforce the provisions;
• Requirement that states authorize institutions and set forth certain minimum requirements to obtain such
authorizations;
• Limiting agreements between related institutions;
• Defining a “credit hour”;
• Administration of ability-to-benefit examinations;
• Student attendance requirements;
• Proof of high school graduation;
• Verification of information included on student aid applications;
• Satisfactory academic progress;
• Retaking coursework;
• Return of Title IV funds; and
• Disbursements of Title IV funds.
The implementation of the final regulations will require Kaplan to change its practices to comply with these requirements
and could increase its administrative costs. The changes to its practices or its inability to comply with the final regulations
on or after their effective date could have a material adverse effect on Kaplan’s business and results of operations.
• Compliance With Recently Adopted Regulations Regarding Incentive Compensation May Make It Difficult for Kaplan
to Attract Students and Retain Qualified Personnel
Under the incentive compensation rule, an institution participating in the Title IV programs may not provide any
commission, bonus or other incentive payment based directly or indirectly on success in securing enrollments or financial
aid to any person or entity engaged in any student recruiting or admission activities or in making decisions regarding the
awarding of Title IV funds. The Department of Education’s current regulations establish 12 “safe harbors” identifying types
of compensation that could be paid without violating the incentive compensation rule. On October 29, 2010, the
Department of Education issued final rules, effective July 1, 2011, that amended the incentive compensation rule by,
among other things, eliminating the 12 safe harbors (and thereby reducing the scope of permissible payments under the
rule) and expanding the scope of payments and employees subject to the rule. The Department of Education has stated
that it does not intend to provide private guidance regarding particular compensation structures in the future and will
enforce the regulations as written. The Company cannot predict how the Department of Education will interpret and
enforce the revised incentive compensation rule and is presently unable to predict with certainty which forms of
compensation will be permitted under the rule, or the full effect the new rule will have on the results of the Kaplan Higher
Education division. Kaplan Higher Education will have to modify some of its compensation practices as a result of the
revisions to the incentive compensation rule. These changes to compensation arrangements for its personnel could
adversely affect its ability to provide adequate incentives to promote superior job performance, may make it more difficult
to attract students and retain qualified personnel and could have a material adverse effect on Kaplan’s business and
results of operations.
• Proposed Rulemaking by the Department of Education Regarding Gainful Employment Could Result in Regulatory
Changes That Could Have a Material Adverse Effect on Kaplan’s Business and Operations
The Department of Education plans to issue final regulations in early 2011 that would impose additional eligibility
requirements on educational programs that are subject to the requirement of preparing students for gainful employment in
a recognized occupation. The Department of Education published proposed gainful employment regulations in the July
2010 Notice of Proposed Rulemaking that would require each educational program to comply with benchmarks based
on (1) annual student loan repayment rates and (2) an annual student debt measure comparing the median annual student
loan payment to average annual student earnings and to student’s discretionary income. The various measures would be
calculated under complex formulas prescribed in the proposed regulations and would be based in part on data that is not
30 THE WASHINGTON POST COMPANY