Washington Post 2010 Annual Report Download - page 23

other important regulatory requirements, such as the cohort default rate regulations and the proposed gainful employment
regulations.
Change of Control. If one or more of Kaplan’s schools experiences a change of control under the standards of
applicable state agencies, accrediting agencies or the Department of Education, the applicable schools governed by
such agencies must seek the approval of the relevant agencies. A school that undergoes a change of control, which may
include a change of control of a school’s parent corporation or other owners, must be reviewed and recertified by the
Department of Education and obtain approvals from certain state agencies and accrediting bodies, in some cases prior to
the change of control. The standards pertaining to a change of control are not uniform and are subject to interpretation by
the respective agencies. Certifications obtained from the Department of Education 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.
Standards of Financial Responsibility. An institution participating in the Title IV programs must comply with certain
measures of financial responsibility under the Higher Education Act and under Department of Education regulations.
Among other things, the applicable regulations require an institution to achieve a composite score of at least 1.5, as
calculated under Department of Education regulations, based on data in annual financial statements submitted to the
Department of Education. If an institution fails to achieve a composite score of 1.5 or fails to comply with other financial
responsibility standards, then the Department of Education may place conditions on the institution’s participation in the
Title IV programs and may require the institution to submit to the Department of Education a letter of credit in an amount of
at least 10% to 50% of the institution’s annual Title IV participation for its most recent fiscal year. The Department of
Education has measured the compliance of Kaplan Higher Education schools based on the composite score of the
division. For the 2010 fiscal year, Kaplan expects Kaplan Higher Education to have a composite score of 2.29, based
on an assessment using Department of Education methodology. However, this is subject to determination by the
Department of Education once it receives and reviews Kaplan’s audited financial statements for the 2010 fiscal year.
Administrative Capability. The Higher Education Act, as reauthorized, directs the U.S. Department of Education to
assess the administrative capability of each institution to participate in Title IV programs. The failure of an institution to
satisfy any of the criteria used to assess administrative capability may cause the Department of Education to determine that
the institution lacks administrative capability, and, therefore, the Department of Education may subject the institution to
additional scrutiny, deny eligibility for Title IV programs or impose other sanctions. To meet the administrative capability
standards, an institution must, among other things, fulfill the following:
• Comply with all applicable Title IV program requirements;
• Have an adequate number of qualified personnel to administer Title IV programs;
• Have acceptable standards for measuring the satisfactory academic progress of its students;
• Have procedures in place for awarding, disbursing and safeguarding Title IV funds and for maintaining required
records;
• Administer Title IV programs with adequate checks and balances in its system of internal control over financial
reporting;
• Not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in
activity that is cause for debarment or suspension;
• Provide financial aid counseling to its students;
• Refer to the Department of Education’s Office of the Inspector General any credible information indicating that any
student, parent, employee, third-party servicer or other agent of the institution has engaged in any fraud or other illegal
conduct involving Title IV programs;
• Timely submit all required reports and financial statements; and
• Not otherwise appear to lack administrative capability.
Although Kaplan believes that Kaplan Higher Education currently complies with the administrative capability requirements,
Kaplan cannot guarantee that it will continue to do so and that its interpretation of the relevant rules will be upheld by the
Department of Education or other agencies, or upon judicial review.
State Authorization. Kaplan’s institutions are subject to state-level regulation and oversight by state licensing agencies,
whose approval is necessary to allow an institution to operate and grant degrees or diplomas in the state. State laws
may establish standards for instruction, qualifications of faculty, location and nature of facilities, financial policies and
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