Washington Post 2012 Annual Report Download - page 46

• Congressional Examination of For-Profit Education Could Lead to Legislation or Other Governmental Action That
May Materially and Adversely Affect Kaplan’s Business
There has been 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. Beginning in June 2010, the HELP Committee held a series of hearings to
examine the for-profit education sector and requested information from various for-profit institutions, including KHE
institutions. In July 2012, the Chairman of the HELP Committee issued a final report to conclude the review. The final
report included observations and recommendations for federal policy, but did not include or endorse any specific
proposed legislation or regulations. The ultimate outcome of the HELP Committee review and any implications to the
operation of KHE’s institutions are presently unknown.
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,
and other current and future 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 negative 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 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 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
assessment do not have to pay for the coursework.
The Kaplan Commitment program, along with generally lower demand, has resulted in declines in new enrollments in
2012. 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. 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. One campus (Pittsburgh) has a two-year rate over 25%
for 2010. This is the first year that campus has exceeded the threshold.
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 were issued by the
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