Washington Post 2010 Annual Report Download - page 48

This program and related initiatives are designed to benefit students and will likely have a significant impact on the future
operations of Kaplan Higher Education, including student enrollment and retention, tuition revenues, operating income
and cash flow. 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 Kaplan Higher Education revenues would have been approximately $140 million less in 2010 had the provisions
of the Kaplan Commitment commenced on January 1, 2010. Kaplan is not able to estimate whether the Kaplan
Commitment will cause student retention patterns to differ from historical levels. The Kaplan Commitment is expected to
have a material impact on Kaplan’s operating results.
• Student Loan Defaults Could Result in Loss of Eligibility to Participate in Title IV Programs
A school may lose its eligibility to participate in Title IV programs if student defaults on the repayment of Title IV loans
exceed specified rates, referred to as “cohort default rates.” The Department of Education calculates a cohort default rate
for each of Kaplan Higher Education’s OPEID numbers. The schools in an OPEID number whose cohort default rate
exceeds 40% for any single year lose their eligibility to participate in the Federal Family Education Loan (“FFEL”) and
Direct Loan programs effective 30 days after notification from the Department of Education and for at least two fiscal
years, except in the event of a successful adjustment or appeal. The schools in an OPEID number whose cohort default
rate equals or exceeds 25% for three consecutive years lose their Title IV eligibility to participate in FFEL, Direct Loan and
Federal Pell Grant programs effective 30 days after notification from the Department of Education and for at least two
fiscal years, except in the event of a successful adjustment or appeal. The schools in an OPEID number whose cohort
default rate equals or exceeds 25% in any one of the three most recent fiscal years for which rates have been issued by
the Department of Education may be placed on provisional certification by the Department of Education.
The two-year cohort default rate for Kaplan University (which comprises 52% of Kaplan Higher Educations’s revenue) for
the federal fiscal year periods 2008, 2007 and 2006 were 17.2%, 13.3% and 9.2%, respectively. The cohort default
rates for the remaining Kaplan Higher Education reporting units for those federal fiscal year periods ranged from 5.8% to
25.7%, 7.8% to 28.7%, and 2.1% to 24.9%, respectively.
For the 2008 cohort year, one reporting group had a cohort default rate of 25% or more, but none had two or more
years above 25%. For the 2009 cohort year, which has been issued in draft form by the Department of Education, no
reporting units had a cohort default rate greater than 25%. The Department of Education’s 2009 draft rates indicated
that Kaplan University’s 2009 fiscal year cohort default rate was 17.5% and that the overall rates at Kaplan Higher
Education’s reporting units range between 9.8% and 24.3%. The 2009 draft rates are not final and are subject to
revision. The loss of Title IV eligibility by either (1) the single OPEID unit that includes Kaplan University or (2) a
combination of two or more other OPEID units would have a material adverse effect on Kaplan’s operating results.
• Loss of Eligibility to Participate in Title IV Programs If Title IV Revenues Exceed Federally-Set Percentage
Under regulations referred to as the 90/10 rule, a Kaplan Higher Education OPEID unit would lose its eligibility to
participate in the Title IV programs for a period of at least two fiscal years if it derives more than 90% of its receipts
from the Title IV programs for two consecutive fiscal years, commencing with the unit’s first fiscal year that ends after
August 14, 2008. Any OPEID reporting unit with receipts from the Title IV programs exceeding 90% for a single
fiscal year ending after August 14, 2008, would be placed on provisional certification and may be subject to other
enforcement measures. The enactment of the Ensuring Continued Access to Student Loans Act of 2008 increased student
loan limits and the maximum amount of Pell Grants, which could result in an increase in the percentage of KHE’s receipts
from Title IV programs. The Higher Education Opportunity Act has provided temporary relief from the impact of the loan
limit increases by excluding from the 90/10 rule calculation any amounts received between July 1, 2008, and June 30,
2011, that are attributable to the increased annual loan limits. Absent relief from the loan limit increases, Kaplan
University would have a 90/10 ratio of 91.7%, and the remaining Kaplan Higher Education OPEID numbers would
have 90/10 percentages ranging between 75.3% and 94.5%. The loss of Title IV eligibility by either (1) the single
OPEID unit that includes Kaplan University or (2) a combination of two or more other OPEID units would have a materially
adverse effect on Kaplan’s operating results.
• Failure to Maintain Institutional Accreditation Could Lead to Loss of Ability to Participate in Title IV Programs
Kaplan Higher Education’s online university and all of its ground campuses are institutionally accredited by one or another
of a number of national and regional accreditors recognized by the U.S. Department of Education. Accreditation by an
accrediting agency recognized by the U.S. Department of Education is required for an institution to become and remain
eligible to participate in Title IV programs. The loss of accreditation would, among other things, render the affected
Kaplan schools and programs ineligible to participate in Title IV programs and would have a material adverse effect on
its business and operations.
32 THE WASHINGTON POST COMPANY