Washington Post 2010 Annual Report Download - page 64

classes for several weeks and assess whether their educational
experience meets their needs and expectations before incurring any
significant financial obligation. Kaplan also conducts academic
assessments to help determine whether students are likely to be
successful in their chosen course of study. Students who choose to
withdraw from the program during this time frame (“risk-free period”)
and students who do not pass the academic evaluation do not
have to pay for the coursework. In general, the risk-free period is
approximately four weeks for diploma programs and five weeks for
associate’s and bachelor’s degrees. Based on historical student
withdrawal and performance patterns and assuming students who
withdrew during early academic terms would have instead availed
themselves of the Kaplan Commitment, management estimates that
KHE revenues would have been approximately $140 million less in
2010 had the Kaplan Commitment commenced on January 1,
2010.
At December 31, 2010, about 2,200 students in attendance were
within their respective risk-free periods, during which KHE does not
recognize tuition revenue. For all students enrolled to date under the
Kaplan Commitment program, the attrition rate during the entire risk-
free period has been approximately 28%, a majority of which is
due to Kaplan’s dismissal of students from the program because of
the students’ lack of academic progress during the period. KHE
revenues and operating results will continue to be impacted by the
Kaplan Commitment, overall economic conditions and changes in
regulations and business practices. Management is not yet able to
estimate whether the Kaplan Commitment and these other factors
will cause student retention patterns to differ from historical levels or
whether additional students will be attracted to Kaplan as a result of
the risk-free offering.
Total KHE enrollments (exclusive of students within the risk-free
period) declined 8% compared to enrollments at December 31,
2009. A summary of KHE student enrollments at December 31,
2010, and December 31, 2009, is as follows:
As of December 31, %
Change2010 2009
Kaplan University ............. 58,217 60,388 (4)
Kaplan Higher Education
Campuses ................ 38,484 44,499 (14)
96,701 104,887 (8)
In response to the enacted and proposed regulations, KHE has
proactively implemented a number of marketing and admission
changes, the effect of which raises student selectivity. New
student enrollments at KHE declined 47% in the fourth quarter of
2010 compared to the same period of 2009, mostly due to these
marketing and admission changes, along with overall weaker
demand. New student enrollments were also adversely impacted
by the number of students that did not continue beyond the risk-free
period (students that withdraw during the Kaplan Commitment
period are not counted as official starts). Management believes
that the impact of fewer new enrollments will be offset in part by
improved student retention.
Kaplan University and KHE Campuses enrollments at December 31,
2010, and December 31, 2009, by degree and certificate
programs are as follows:
As of December 31,
2010 2009
Certificate ........................ 23.6% 27.6%
Associate’s ....................... 33.8% 33.0%
Bachelor’s ........................ 35.1% 34.7%
Master’s ......................... 7.5% 4.7%
100% 100%
In October 2010, the U.S. Department of Education (DOE)
released rules that address program integrity issues for post-
secondary education institutions that participate in Title IV programs.
The rules include, among other items, state approval processes,
DOE program approval processes, revised standards governing the
payment of incentive compensation to admissions and financial aid
advisors, standards around misrepresentation and the definition of
“credit hour.” The Company is taking steps to fully comply with
these rules, but cannot currently predict the impact that these rules
will have on its operations in the future and related operating results.
In July 2010, the DOE released a notice of proposed rulemaking
addressing substantive measurements for whether an educational
program leads to gainful employment in a recognized occupation
for purposes of that program’s eligibility for Title IV funds. The
proposed rulemaking addressing the definition of gainful
employment includes provisions whereby students at a program
level must demonstrate certain levels of student loan repayment
and/or a program’s graduates must achieve certain debt-to-income
ratios for the institution’s program to remain eligible for participation
in the Title IV program. If a program fails to meet some or all of
these proposed requirements, then the program’s eligibility to
participate in the Title IV program may be restricted or lost entirely.
Some of the data needed to compute program eligibility under this
proposed regulation are not readily accessible to the institutions, but
are compiled by the DOE.
The Company cannot currently predict with reasonable accuracy the
impact the proposed regulation would have on its program offerings
if it were enacted in its current form. However, the Company
expects that this regulation, if enacted as proposed, would
significantly impact Kaplan’s operating results as some or all
institutions owned by Kaplan might be required to limit program
offerings to ensure compliance with the restrictions of the proposed
gainful employment rule. The Company has filed public comments
related to the proposed rulemaking on gainful employment. The
DOE has stated it plans to issue final rules in 2011 for an effective
date on July 1, 2012. Refer to Item I, Item IA and Item 3 for
additional information regarding the KHE Business, Risk Factors
and Legal Proceedings.
Test Preparation includes Kaplan’s standardized test preparation
and tutoring offerings, as well as the domestic professional training
business, K12 and other businesses. In the first quarter of 2010, the
Company discontinued certain offerings of the K12 business; $7.8
48 THE WASHINGTON POST COMPANY