Washington Post 2005 Annual Report Download - page 31

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.
Those regulations also 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 University 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, 2006. Moreover, legislation enacted in February 2006 repealed the
50% rules described above effective July 1, 2006, for institutions like Kaplan University whose online programs are
approved by an accrediting agency recognized by the Department of Education for that purpose.
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. In accordance with Department of Education regulations, a
number of the schools in Kaplan's Higher Education Division are combined into groups of two or more schools for the
purpose of determining compliance with Title IV requirements. Including schools that are not combined with other schools
for that purpose, the Higher Education division has 39 Title IV reporting units; of these 13 reporting units have been
provisionally certified, while the remaining 26 are fully certified.
Of the 39 Title IV reporting units in Kaplan's Higher Education Division, the largest in terms of revenue accounted for
approximately 28% of the Division's 2005 revenues. If the Department of Education were to find that one reporting unit
had failed to comply with any applicable Title IV requirement and as a result limited, suspended or terminated the Title IV
eligibility of the school or schools in that reporting unit, that action normally would not affect the Title IV eligibility of the
schools in other reporting units that had continued to comply with Title IV requirements. For the most recent year for which
data is available from the Department of Education, the cohort default rate for the Title IV reporting units in Kaplan's Higher
Education Division averaged 8.5%, and no reporting unit had a cohort default rate of 25% or more. In 2005 those
reporting units derived an average of less than 83% of their receipts from Title IV programs, with no unit deriving more than
87.4% of its receipts from such programs.
No proceeding by the Department of Education is currently 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 during 2005
a Kaplan school in Texas was unable to satisfy certain state licensing requirements that applied to two of its associate
degree programs and as a result had to discontinue those programs, return approximately $400,000 in Title IV funds and
refund certain other tuition payments. Also, as noted previously, to remain eligible to participate in Title IV programs a
school must maintain its accreditation by an accrediting agency recognized by the Department of Education. At the present
time schools in four of Kaplan's Title IV reporting units (which collectively accounted for approximately 6% of the Title IV
funds received in 2005 by the schools in Kaplan's Higher Education Division) have unresolved show cause orders issued
against them by their respective accrediting agencies. Such orders are issued when an accrediting agency is concerned
that an institution may be out of compliance with one or more applicable accrediting standards, and gives the institution an
opportunity to respond before any further action is taken. The institution may be able to demonstrate that the concern is
unfounded, that the necessary corrective action has already been taken or that it has implemented an ongoing program
that will resolve the concern. The agency may then vacate the order or continue the order pending the receipt of additional
information or the achievement of specified objectives. If the agency's concerns are not resolved to its satisfaction, it may
then withdraw the institution's accreditation.
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.
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
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