Washington Post 2010 Annual Report Download - page 49

• Failure to Maintain State Authorizations Could Cause Loss of Ability to Operate and to Participate in Title IV Programs
in Some States
Kaplan Higher Education’s ground campuses and online university 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. Institutions that participate in Title IV programs must be legally authorized to operate in the state in which the
institution is physically located. The loss of such authorization would preclude the campuses or online university from
offering postsecondary education and render students ineligible to participate in Title IV programs. Loss of authorization at
those state campus locations, or, in states that require it, for Kaplan University online, could have a material adverse effect
on Kaplan Higher Education’s business and operations.
Some states have sought to assert jurisdiction over online educational institutions that offer educational services to residents
in the state or to institutions that advertise or recruit in the state, notwithstanding the lack of a physical location in the state.
State regulatory requirements for online education vary among the states, are not well developed in many states, are
imprecise or unclear in some states and are subject to change. If Kaplan Higher Education is found not to be in
compliance with an applicable state regulation and a state seeks to restrict one or more of its business activities within its
boundaries, it may not be able to recruit or enroll students in that state and may have to cease providing services and
advertising in that state.
The Department of Education published new regulations on October 29, 2010, with an effective date of July 1, 2011,
that expand the requirements for an institution to be considered legally authorized in the state in which it is physically
located for Title IV purposes. In some cases, the regulations will require states to revise their current requirements and/or
to license schools in order for institutions to be deemed legally authorized in those states and, in turn, to participate in the
Title IV programs. If the states do not amend their requirements where necessary and if schools do not receive approvals
where necessary that comply with these new requirements, then the institution could be deemed to lack the state authori-
zation necessary to participate in the Title IV programs. However, under the final regulations, institutions unable to obtain
state authorization in a state under the above requirements may request a one-year extension of the effective date of the
regulation to July 1, 2012, and, if necessary, an additional one-year extension of the effective date to July 1, 2013. To
receive an extension of the effective date, an institution must obtain from the state an explanation of how a one-year
extension will permit the state to modify its procedures to comply with the regulations.
In addition, the new Department of Education rules also require institutions offering postsecondary education to students
through distance education in a state in which the institution is not physically located or in which it is otherwise subject to
state jurisdiction as determined by the state, to meet any state requirements for it to be legally offering postsecondary
distance education in that state. The regulations require an institution to document upon request by the Department of
Education that it has the applicable state approval. As a result, some of Kaplan Higher Education’s schools and distance
education programs may be required to obtain additional or revised state authorizations. If Kaplan Higher Education is
unable to obtain the required approvals, its students in the affected schools or programs may be unable to receive Title IV
funds, which could have a material adverse effect on its business and operations.
• Failure to Correctly Calculate or Timely Return Title IV Funds for Students Who Withdraw Prior to Completing Programs
Could Result in a Requirement to Post a Letter of Credit or Other Sanctions
Department of Education regulations require schools participating in Title IV programs to calculate correctly and return on
a timely basis unearned Title IV funds disbursed to students who withdraw from a program of study prior to completion.
These funds must be returned in a timely manner, generally within 45 days of the date the school determines that the
student has withdrawn. Under Department of Education regulations, failure to make timely returns of Title IV program funds
for 5% or more of students sampled in a school’s annual compliance audit in either of its two most recently completed
fiscal years could result in a requirement that the school post a letter of credit in an amount equal to 25% of its prior year
returns of Title IV program funds. If unearned funds are not properly calculated and returned in a timely manner, an
institution is also subject to monetary liabilities, fines or other sanctions. Six of the Kaplan Higher Education reporting units
currently have letters of credit outstanding to the Department of Education as a result of this requirement, with a collective
total face value of approximately $3.3 million. The requirement to post additional letters of credit or the imposition of
other sanctions by the Department of Education would increase Kaplan’s regulatory compliance costs and could have a
materially adverse effect on its business and operations.
• Failure to Demonstrate “Financial Responsibility” Could Result in a Requirement to Submit Letters of Credit to the U.S.
Department of Education, Loss of Eligibility to Participate in Title IV Programs, or Other Sanctions
An institution participating in the Title IV programs must comply with certain measures of financial responsibility under
the Federal Higher Education Act and under Department of Education regulations. Among other things, the applicable
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