Washington Post 2011 Annual Report Download - page 44

The implementation of these new regulations required Kaplan to change its practices to comply with these requirements
and has increased its administrative costs. The changes to its practices or its inability to comply with the final regulations
could have a material adverse effect on Kaplan’s business and results of operations.
• Compliance With Recently Adopted Regulations Regarding Incentive Compensation Can Make It Difficult for
Kaplan to Attract Students and Retain Qualified Personnel
Under the incentive compensation rule, an institution participating in the Title IV programs may not provide any commission,
bonus or other incentive payment to any person or entity engaged in any student recruiting or admission activities or in
making decisions regarding the awarding of Title IV funds if such payment is based directly or indirectly on success in
securing enrollments or financial aid. On July 1, 2011, new regulations went into effect that amended the incentive
compensation rule by reducing the scope of permissible payments under the rule and expanding the scope of payments and
employees subject to the rule. The Company cannot predict how the DOE will interpret and enforce the revised incentive
compensation rule or the full effect the new rule will have on the results of KHE. KHE modified some of its compensation
practices as a result of the revisions to the incentive compensation rule. These changes to compensation arrangements can
make it difficult to attract students and to provide adequate incentives to promote superior job performance and retain
qualified personnel, and could have a material adverse effect on Kaplan’s business and results of operations.
• New DOE Rule Regarding Gainful Employment Resulted in Regulatory Changes That Could Have a Material
Adverse Effect on Kaplan’s Business and Operations
In June 2011, the DOE issued final regulations that tie an education program’s Title IV eligibility to whether the program
leads to gainful employment. The regulations define an education program that leads to gainful employment as one that
complies with the following gainful employment metrics as calculated under the complex formulas prescribed in the
regulations: (1) the average annual loan payment for program graduates is 12% or less of annual earnings; (2) the average
annual loan payment for program graduates is 30% or less of discretionary income (generally defined as annual earnings
above 150% of the U.S. Federal poverty level); and (3) the U.S. Federal loan repayment rate must be at least 35% for loans
owed by students for attendance in the program regardless of whether they graduated.
If a program fails all three of the gainful employment metrics in a single U.S. Federal fiscal year, the DOE requires the
institution, among other things, to disclose to current and prospective students the amount by which the program under-
performed the metrics and the institution’s plan for program improvement, and to establish a three-day waiting period
before students can enroll. Should a program fail to achieve the metrics twice within three years, the Department requires
the institution, among other things, to disclose to current and prospective students that they should expect to have difficulty
repaying their student loans; that the program is at risk of losing eligibility to receive U.S. Federal financial aid; and that
transfer options exist (including providing resources to students to research other educational options and compare
program costs). Should a program fail three times within a four-year period, the DOE would terminate the program’s
eligibility for U.S. Federal student aid, and the institution would not be able to reestablish the program’s eligibility for at
least three years, although the program could continue to operate without student aid. The final rule is scheduled to go
into effect on July 1, 2012. However, the first final debt measures will not be released until 2013, and a program cannot
lose eligibility until 2015.
The continuing eligibility of Kaplan’s education programs for Title IV funding may be affected by factors beyond its
control, such as changes in the actual or deemed income level of Kaplan graduates, changes in student borrowing levels,
increases in interest rates, changes in the U.S. Federal poverty income level relevant for calculating the discretionary
income test, changes in the percentage of former students who are current in repayment of their student loans and other
factors. To the extent any of these events occur, Kaplan may need to eliminate or limit enrollments in certain educational
programs at some or all of its schools in order to comply with the new regulations, which could have a material adverse
effect on its business and operations.
• Congressional Examination of For-Profit Education Could Lead to Legislation or Other Governmental Action That
May Materially and Adversely Affect Kaplan’s Business
Throughout 2010 and 2011, there was increased attention by Congress on the role that for-profit educational institutions
play in higher education, including their participation in Title IV programs and U.S. Department of Defense oversight of
tuition assistance for military service members attending for-profit colleges. Since June 2010, the HELP Committee has held
a series of hearings to examine the for-profit education sector.
At this time, the Company cannot predict the ultimate impact that the investigation may have on KHE, or the likelihood of
or content of any future legislation.
32 THE WASHINGTON POST COMPANY