Washington Post 2010 Annual Report Download - page 50

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’s Higher Education division’s schools based on the composite score of the division. If one or more
of the institutions in Kaplan’s Higher Education division fail to meet the composite score standard or any of the other
financial responsibility standards, then those institutions may be required to post a letter of credit in favor of the
Department of Education and possibly may be subject to other sanctions, including limitation or termination of their
participation in Title IV programs. A requirement to post a letter of credit or the imposition of any one or more other
sanctions by the Department of Education could have a material adverse effect on Kaplan’s results of operations.
• Failure to Demonstrate “Administrative Capability” Could Result in Loss of Eligibility to Participate in Title IV Programs
or Other Sanctions
Department of Education regulations specify extensive criteria that an institution must satisfy to establish that it has the
required “administrative capability” to participate in Title IV programs. These criteria include, but are not limited to,
requirements relating to the institution’s compliance with all applicable Title IV requirements; the institution’s administration
of Title IV programs; the institution’s compliance with certain reporting, disclosure, and record keeping obligations; and
the institution’s ability to maintain cohort default rates below prescribed thresholds. Failure to comply with these criteria
could result in the loss or limitation of the eligibility of one or more of the schools in Kaplan’s Higher Education division to
participate in the Title IV programs, a requirement to pay fines or to repay Title IV program funds, a denial or refusal by
the Department of Education to consider a school’s application for renewal of its certification to participate in the Title IV
programs, civil or criminal penalties or other sanctions. Any one or more of these actions by the Department of Education
could have a material adverse effect on Kaplan’s results of operations.
• Failure to Obtain Regulatory Approval of Transactions Involving a Change of Control May Result in Loss of Ability to
Operate Schools or to Participate in Federal Student Financial Aid Programs.
If one or more of Kaplan Higher Education’s schools experiences a change of control under the standards of applicable
state agencies, accrediting agencies or the Department of Education, the schools governed by such agencies must seek
the approval of the relevant agencies. The failure of any of Kaplan Higher Education’s schools to reestablish its state
authorization, accreditation or Department of Education certification following a change of control as defined by the
applicable agency could result in a suspension of operating authority or suspension or loss of federal student financial aid
funding, which could have a material adverse effect on Kaplan Higher Education’s student population and revenue.
• Actions of Other Postsecondary Education Institutions May Negatively Influence the Regulatory Environment and
Kaplan’s Reputation
The U.S. Senate HELP committee hearings, along with other recent investigations and lawsuits, have included allegations
of, among other things, deceptive trade practices, false claims against the United States and non-compliance with state
and U.S. Department of Education regulations. These allegations have attracted significant adverse media coverage.
Allegations against the overall student lending and postsecondary education sectors may impact general public
perceptions of educational institutions, including Kaplan, in a negative manner. Adverse media coverage regarding other
educational institutions or regarding Kaplan directly could damage its reputation, reduce student demand for Kaplan
programs, adversely impact its revenues and operating profit or result in increased regulatory scrutiny.
• Changes in the Extent to Which Standardized Tests Are Used in the Admissions Process by Colleges or Graduate Schools
A substantial portion of Kaplan’s revenue is generated by Kaplan Text Preparation. The source of this income is fees
charged for courses that prepare students for a broad range of admissions examinations that are required for admission to
colleges and graduate schools. Historically, colleges and graduate schools have required standardized tests as part of
the admissions process. There has been some movement away from this historical reliance on standardized admissions
tests among a small number of colleges that have adopted “test-optional” admissions policies. Any significant reduction in
the use of standardized tests in the college or graduate school admissions process could have an adverse effect on
Kaplan’s operating results.
34 THE WASHINGTON POST COMPANY