Washington Post 2011 Annual Report Download - page 45

Other committees of the Congress have also held hearings into, among other things, the standards and procedures of
accrediting agencies, credit hours and program length and the portion of U.S. Federal student financial aid going to
for-profit institutions. Several legislators have variously requested the U.S. Government Accountability Office to review and
make recommendations regarding, among other things, student recruitment practices; educational quality; student
outcomes; the sufficiency of integrity safeguards against waste, fraud and abuse in Title IV programs; and the percentage
of proprietary institutions’ revenue coming from Title IV and other U.S. Federal funding sources. This increased activity may
result in legislation, further rulemaking affecting participation in Title IV programs and other governmental actions. In
addition, concerns generated by congressional or other activity, or media reports, may adversely affect enrollment in
for-profit educational institutions.
Kaplan cannot predict the extent to which these activities could result in further investigations, legislation or rulemaking
affecting its participation in Title IV programs, other governmental actions and/or actions by state agencies or legislators
or by accreditors. If any laws or regulations are adopted that significantly limit Kaplan’s participation in Title IV programs
or the amount of student financial aid for which Kaplan’s students are eligible, Kaplan’s results of operations and cash
flows would be adversely and materially impacted.
• The Kaplan Commitment Has Materially Impacted Operating Results and Is Expected to Continue to Do So
In the fourth quarter of 2010, KHE phased in a new program, called the Kaplan Commitment. Under this program students
of Kaplan University, Kaplan College and other KHE schools enroll in classes for several weeks and assess whether their
educational experience meets their needs and expectations before they incur 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 the risk-free period, and students who do not pass the
academic evaluation do not have to pay for the coursework. In general, the risk-free period is approximately four weeks for
diploma programs and five weeks for associate’s, bachelor’s and master’s degree programs.
The Kaplan Commitment program, along with generally lower demand, has resulted in 37% declines in new enrollments
in 2011. Kaplan estimates that without the Kaplan Commitment, this decline would have been approximately 20% in
2011. Kaplan also estimates that revenue for 2011 would have been approximately $63 million higher if the Kaplan
Commitment had not been implemented. This program and related initiatives will likely continue to have a significant
impact on the future operations of KHE, including student enrollment and retention, tuition revenues, operating income and
cash flow. However, 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 continue 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 DOE calculates a cohort default rate for each of KHE’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 FFEL and Direct Loan programs effective 30 days after notification from the DOE 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 U.S. Federal Pell Grant programs effective 30 days after notification from the DOE 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 DOE may be placed on provisional certification by the DOE.
The enactment in August 2008 of 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.
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