Washington Post 2012 Annual Report Download - page 45

• Regulatory Changes Could Have a Material Adverse Effect on Kaplan’s Business and Operations
Regulations went into effect on July 1, 2011, relating to various “program integrity” topics. The topics covered in the
regulations include, but are not limited to, the following:
• Revisions to the incentive compensation rule;
• Expansion of the notice and approval requirements for adding new academic programs and new reporting and
disclosure requirements for academic programs;
• Revision and expansion of the types of activities that are deemed a “substantial misrepresentation” and the ability
of the DOE to enforce the provisions;
• Requirement that states authorize institutions and set forth certain minimum requirements to obtain such
authorizations;
• Limiting agreements between related institutions;
• Defining a “credit hour”;
• Administration of ability-to-benefit examinations;
• Student attendance requirements;
• Proof of high school graduation;
• Verification of information included on student aid applications;
• Satisfactory academic progress;
• Retaking coursework;
• Return of Title IV funds; and
• Disbursements of Title IV funds.
The implementation of these 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. Moreover, the DOE could implement new
regulations or amend existing regulations in a manner that could have a material adverse effect on Kaplan’s business and
results of operations.
• Compliance With 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, 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 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.
• Potential DOE Rules Regarding Gainful Employment 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 gainful employment metrics relating to loan repayment rates of program graduates.
On June 30, 2012, the United States District Court for the District of Columbia overturned most of the final regulations on
gainful employment. The DOE is reviewing the details of the Court’s decision in consultation with the Department of Justice
and evaluating their plans, which may include an appeal. As a result, the ultimate outcome of gainful employment
regulations and their impact on Kaplan’s operations are uncertain. However, if the regulations are reinstated either as
originally issued or in some variation thereof, Kaplan’s higher education programs would become subject to gainful
employment metrics. This could cause Kaplan to eliminate or limit enrollments in certain educational programs at some or
all of its schools, and could have a materially adverse effect on its business and operations.
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