Washington Post 2012 Annual Report Download - page 104

who are residents of Massachusetts. KHE has cooperated with the
Massachusetts Attorney General and provided the requested
information. Although KHE may receive further requests for
information from the Massachusetts Attorney General, there has
been no such further correspondence to date. The Company cannot
predict the outcome of this inquiry.
On July 20, 2011, Kaplan Higher Education Corporation received
a subpoena from the Office of the Attorney General of the State of
Delaware. The demand primarily sought information pertaining to
Kaplan University’s online students and KHE Campuses’ students
who are residents of Delaware. KHE has cooperated with the
Delaware Attorney General and provided the information requested
in the subpoena. Although KHE may receive further requests for
information from the Delaware Attorney General, there has been no
such further correspondence to date. The Company cannot predict
the outcome of this inquiry.
Student Financial Aid. The Company’s education division derives
the majority of its revenues from U.S. Federal financial aid received
by its students under Title IV programs administered by the DOE
pursuant to the Higher Education Act, as amended. To maintain
eligibility to participate in Title IV programs, a school must comply
with extensive statutory and regulatory requirements relating to its
financial aid management, educational programs, financial
strength, administrative capability, compensation practices,
facilities, recruiting practices and various other matters. In addition,
the school must be licensed or otherwise legally authorized to offer
postsecondary educational programs by the appropriate govern-
mental body in the state or states in which it is physically located or
is otherwise subject to state authorization requirements, be
accredited by an accrediting agency recognized by the DOE and
be certified to participate in the Title IV programs by the DOE.
Schools are required periodically to apply for renewal of their
authorization, accreditation or certification with the applicable state
governmental bodies, accrediting agencies and the DOE. In
accordance with DOE regulations, some KHE schools operate
individually or are combined into groups of two or more schools for
the purpose of determining compliance with certain Title IV
requirements, and each school or school group is assigned its own
identification number, known as an OPEID number. As a result, the
schools in KHE have a total of 30 OPEID numbers. Failure to comply
with the requirements of the Higher Education Act or related
regulations could result in the restriction or loss of the ability to
participate in Title IV programs and subject the Company to financial
penalties and refunds. No assurance can be given that the Kaplan
schools, or individual programs within schools, will maintain their
Title IV eligibility, accreditation and state authorization in the future
or that the DOE might not successfully assert that one or more of such
schools have previously failed to comply with Title IV requirements.
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 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
may be subject to monetary liabilities, fines or other sanctions.
Financial aid and assistance programs are subject to political and
governmental budgetary considerations. There is no assurance that
such funding will be maintained at current levels. Extensive and
complex regulations in the U.S. govern all of the government
financial assistance programs in which students participate.
For the years ended December 31, 2012 and 2011, and
January 2, 2011, approximately $882 million, $1,110 million,
and $1,460 million, respectively, of the Company’s education
division revenue was derived from financial aid received by
students under Title IV programs. Management believes that the
Company’s education division schools that participate in Title IV
programs are in material compliance with standards set forth in the
Higher Education Act and related regulations.
DOE Program Reviews. The DOE has undertaken program reviews
at various KHE campus locations and at Kaplan University.
Currently, there are four pending program reviews, including
Kaplan University. In addition, the Company is awaiting the DOE’s
final report on the program review at KHE’s Broomall, PA, location.
In May 2012, the DOE issued a preliminary report on its 2009
onsite review at Kaplan University containing several findings that
required Kaplan University to conduct additional, dated file reviews
and submit additional data. In January 2013, Kaplan submitted a
response to the DOE’s data request and is awaiting a final report
on this review. The Company does not expect the final program
review report to have a material impact on KHE; however, the
results of this and the other open reviews and their impact on
Kaplan’s operations are uncertain.
The 90/10 Rule. Under regulations referred to as the 90/10 rule,
a KHE school would lose its eligibility to participate in Title IV
programs for a period of at least two fiscal years if the institution
derives more than 90% of its receipts from Title IV programs, as
calculated on a cash basis in accordance with the Higher
Education Act and applicable DOE regulations, in each of two
consecutive fiscal years, commencing with the institution’s first fiscal
year that ends after August 14, 2008. An institution with Title IV
receipts exceeding 90% for a single fiscal year ending after
August 14, 2008, will be placed on provisional certification and
may be subject to other enforcement measures. The 90/10 rule
calculations are performed for each OPEID unit. The largest OPEID
reporting unit in KHE in terms of revenue is Kaplan University, which
accounted for approximately 65% of the Title IV funds received by
the division in 2012. In 2012, Kaplan University derived less than
80% of its receipts from the Title IV programs, and other OPEID units
derived between 71% and 88% of their receipts from Title IV
programs. For 2012, a portion of the non-Title IV receipts resulted
from the Kaplan Value Loan program, which has been discontinued.
In 2011, Kaplan University derived less than 82% of its receipts
from Title IV programs, and other OPEID units derived between 71%
and 88% of their receipts from Title IV programs.
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