Washington Post 2011 Annual Report Download - page 47

unclear in some states and are subject to change. If KHE 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.
New regulations went into effect on 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 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 authorization necessary to participate in the Title IV programs.
In addition, new DOE rules currently under judicial review may 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 legally offer postsecondary
distance education in that state. The regulations require an institution to document upon request by the DOE that it has the
applicable state approval. As a result, some of KHE’s schools and distance education programs may be required to
obtain additional or revised state authorizations. If KHE 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
DOE 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 DOE 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.
• Failure to Demonstrate Financial Responsibility Could Result in a Requirement to Submit Letters of Credit to the
DOE, 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 Higher Education Act and under DOE regulations. Among other things, the applicable regulations require an institution
to achieve a composite score of at least 1.5, as calculated under DOE regulations, based on data in annual financial
statements submitted to the DOE. If an institution fails to achieve a composite score of 1.5 or fails to comply with other
financial responsibility standards, the DOE may place conditions on the institution’s participation in the Title IV programs
and may require the institution to submit to the DOE 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 DOE has measured the compliance of KHE
schools, based on the composite score of the division. If one or more of the institutions in KHE fail to meet the composite
score standard or any of the other financial responsibility standards, those institutions may be required to post a letter of
credit in favor of the DOE 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 DOE 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
DOE 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 KHE 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 DOE 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 DOE could have a material adverse effect on Kaplan’s results of operations.
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