Washington Post 2003 Annual Report Download - page 33

provides various undergraduate and graduate degree programs in business and the liberal arts. All of these overseas
businesses were included in the supplemental education category in 2003.
Title IV Federal Student Financial Aid Programs
Funds provided under the student financial aid programs that have been created under Title IV of the Higher Education Act
of 1965, as amended, historically have been responsible for a majority of the net revenues of the schools in Kaplan's
Higher Education Division, accounting, for example, for approximately $250 million of the revenues of such schools for the
Company's 2003 fiscal year. The significant role of Title IV funding in the operations of these schools is expected to
continue.
To maintain Title IV eligibility a school must comply with extensive statutory and regulatory requirements relating to its
financial aid management, educational programs, financial strength, recruiting practices and various other matters. Among
other things, the school must be authorized to offer its educational programs by the appropriate governmental body in the
state or states in which it is located, be accredited by an accrediting agency recognized by the U.S. Department of
Education (the ""Department of Education''), and enter into a program participation agreement with the Department of
Education.
A school may lose its eligibility to participate in Title IV programs if student defaults on the repayment of Title IV loans
exceed specified default rates (referred to as ""cohort default rates''). A school whose cohort default rate exceeds 40%
for any single year may have its eligibility to participate in Title IV programs limited, suspended or terminated at the
discretion of the Department of Education. A school whose cohort default rate equals or exceeds 25% for three
consecutive years will automatically lose its Title IV eligibility for at least two years unless the school can demonstrate
exceptional circumstances justifying its continued eligibility. Pursuant to another program requirement, any for-profit
postsecondary institution (a category that includes all of the schools in Kaplan's Higher Education Division) will lose its Title
IV eligibility for at least one year if more than 90% of that institution's receipts for any fiscal year are derived from Title IV
programs.
The Title IV program regulations also provide that not more than 50% of an eligible institution's courses can be provided
online and that, in some cases, not more than 50% of an eligible institution's students can be enrolled in online courses and
impose certain other requirements intended to insure that individual programs (including online programs) eligible for Title
IV funding include minimum amounts of instructional activity. However, Kaplan College currently is a participant in the
distance education demonstration program of the Department of Education and as a result is exempt from the foregoing
requirements until at least June 30, 2005. Several bills are currently pending in both houses of Congress that would exempt
online courses from the 50% rules and certain other existing requirements if various other conditions set forth in such
legislation or to be specified in future Department of Education regulations can be satisfied. The Company cannot now
predict whether any of those bills will ultimately be enacted into law and whether Kaplan College will be able to satisfy
whatever conditions may ultimately be imposed on the availability of Title IV funding for online programs.
As a general matter, schools participating in Title IV programs are not financially responsible for the failure of their students
to repay Title IV loans. However the Department of Education may fine a school for a failure to comply with Title IV
requirements and may require a school to repay Title IV program funds if it finds that such funds have been improperly
disbursed. In addition, there may be other legal theories under which a school could be subject to suit as a result of alleged
irregularities in the administration of student financial aid.
Pursuant to Title IV program regulations, a school that undergoes a change in control must be reviewed and recertified by
the Department of Education. Certifications obtained following a change in control are granted on a provisional basis that
permits the school to continue participating in Title IV programs but provides fewer procedural protections if the Department
of Education asserts a material violation of Title IV requirements. As a result of Kaplan's acquisition of Quest Education
Corporation in 2000, all of the schools owned by Quest at that time were provisionally certified by the Department of
Education for a term expiring in June 2004; Kaplan will be eligible to apply for full certification for such schools (which
constitute most of the schools in Kaplan's Higher Education Division) in the spring of 2004. The schools acquired by
Kaplan's Higher Education Division subsequent to the Quest acquisition have also been provisionally certified by the
Department of Education, generally for terms expiring approximately three years after the date of the acquisition.
No proceeding by the Department of Education is pending to fine any Kaplan school for a failure to comply with any
Title IV requirement, or to limit, suspend or terminate the Title IV eligibility of any Kaplan school. However no assurance can
be given that the Kaplan schools currently participating in Title IV programs will maintain their Title IV eligibility in the future or
that the Department of Education might not successfully assert that one or more of such schools have previously failed to
comply with Title IV requirements.
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