Washington Post 2011 Annual Report Download - page 16

The enactment in August 2008 of the U.S. Federal Higher Education Opportunity Act (HEOA) (which reauthorized the
Higher Education Act) changed the methodology that will be used to calculate cohort default rates for future years.
Under the revised law, the period of time for which student defaults are tracked and included in the cohort default rate
calculation is extended by a year, which is expected to increase the cohort default rates for most institutions. That
change became effective with the calculation of institutions’ cohort default rates for the U.S. Federal fiscal year ending
September 30, 2009; those rates are expected to be calculated and issued by the DOE in 2012. The DOE will not
impose sanctions based on rates calculated under this new methodology until rates for three consecutive years have been
calculated, which is expected to occur in 2014. Until that time, the DOE will continue to calculate rates under the old
method and impose sanctions based on those rates. The revised law also increases the threshold for ending an
institution’s participation in certain Title IV programs from 25% to 30% for three consecutive years, effective for three-
year cohort default rates issued beginning in fiscal year 2012. The revised law changes the threshold for placement on
provisional certification to 30% for two of the three most recent fiscal years for which the DOE has published official
three-year cohort default rates.
The two-year cohort default rate for Kaplan University, which comprises 68.1% of KHE’s revenue, for the U.S. Federal
fiscal year periods 2009, 2008 and 2007 were 17.3%, 17.2%, and 13.3%, respectively. The cohort default rates for
the remaining KHE reporting units for those U.S. Federal fiscal year periods ranged from 9.8% to 23.9%, 5.8% to
25.7%, and 7.8% to 28.7%, respectively. For 2009, the default rate for the KHE reporting units as a whole was 17.3%,
and only one reporting unit had a cohort default rate in excess of 20%.
For the 2009 cohort year, no reporting unit had a cohort default rate of 25% or more, and none had two or more years
above 25%. Two-year cohort default rates for the 2010 cohort year and three-year cohort default rates for the 2009
cohort year will be issued in final form by the DOE in September 2012.
In December 2009, the DOE issued an electronic announcement explaining the future changes to the methodology for
calculating an institution’s cohort default rate based on defaults occurring over a three-year period rather than a two-year
period, and released unofficial trial three-year cohort default rates for the 2005, 2006 and 2007 U.S. Federal fiscal
years. In February 2011, the DOE issued an electronic announcement releasing unofficial trial three-year cohort default
rates for the 2008 U.S. Federal fiscal year.
Under the new methodology, the trial rate for Kaplan University was 27.7% for the 2008 U.S. Federal fiscal year. The
trial rates for the remaining KHE reporting units under the new methodology ranged from 16% to 37.1% for the 2008
U.S. Federal fiscal year. The DOE stated in its electronic announcements that the publication of these rates was for
informational purposes only and that no sanctions will be imposed based on these rates.
Kaplan believes that student loan default rates tend to correlate directly to a student’s family income level, such that lower
income students will have higher default rates. KHE’s student population generally tends to come from lower income
groups than those of other providers of higher education, including other for-profit providers. In addition, because KHE
receives a significantly lower level of U.S. taxpayer-funded grants and subsidies than community colleges, state schools
and not-for-profit schools, KHE’s schools are more dependent on tuition, and its students are more dependent on loans.
Kaplan has dedicated resources to help students who are at risk of default. Kaplan personnel contact students and
provide assistance, which includes providing students with specific loan repayment information, lender contact information
and debt counseling. Kaplan has also implemented a financial literacy and counseling program for current students, and
provides career counseling services. However, no assurances can be given that these resources will enable Kaplan’s
schools to maintain cohort default rates below the thresholds for sanctions.
In the fourth quarter of 2010, most programs at Kaplan University and KHE Campuses implemented the Kaplan
Commitment. Under this program, students may enroll in classes for several weeks and assess whether their educational
experience meets their needs and expectations before incurring any significant financial obligation. Kaplan also conducts
academic assessments to help determine whether students are likely to be successful in their chosen course of study. Students
who choose to withdraw from the program during this time frame (risk-free period) and students who do not pass the
academic evaluation do not have to pay for the coursework. Kaplan believes that the Kaplan Commitment will help ensure
that its student body is more committed, better academically prepared and more likely to complete their programs. In
Kaplan’s experience, students who withdraw prior to program completion demonstrate a higher loan default rate than those
who continue through to graduation. Kaplan is hopeful that the Kaplan Commitment will also improve cohort default rates as
students who might have withdrawn previously with debt will now leave a program under the Kaplan Commitment. Although
Kaplan has taken the above steps and dedicated resources to mitigate the increased risk of student loan defaults by its
students, there is no guarantee that such efforts will be successful in reducing cohort default rates. Kaplan believes that the
Kaplan Commitment program is unique and reflects Kaplan’s commitment to student success.
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