Washington Post 2012 Annual Report Download - page 47

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. Five KHE campuses OPEIDs have three-year rates over 30%, and no
Kaplan OPEID had a three-year rate over 40%.
The loss of Title IV eligibility by either (1) the single OPEID unit that includes Kaplan University or (2) a combination of two
or more other OPEID units would have a material adverse effect on Kaplan’s operating results.
• Title IV Revenues in Excess of U.S. Federally-Set Percentage Could Lead to Loss of Eligibility to Participate in Title
IV Programs
Under regulations referred to as the 90/10 rule, a KHE OPEID unit would lose its eligibility to participate in the Title IV
programs for a period of at least two fiscal years if it derives more than 90% of its receipts from the Title IV programs for
two consecutive fiscal years, commencing with the unit’s first fiscal year that ends after August 14, 2008. Any OPEID
reporting unit with receipts from the Title IV programs exceeding 90% for a single fiscal year ending after August 14,
2008, would be placed on provisional certification and may be subject to other enforcement measures. The enactment of
the U.S. Federal Ensuring Continued Access to Student Loans Act of 2008 increased student loan limits and the maximum
amount of Pell Grants, which could result in an increase in the percentage of KHE’s receipts from Title IV programs. These
increases, and any future increases or changes in the 90/10 calculation formula, make it more difficult for institutions to
comply with the 90/10 rule. If current trends continue, management estimates that in 2013, 20 of the KHE Campuses’
OPEID units, representing approximately 21% of KHE’s 2012 revenues, could have a 90/10 ratio over 90%. The loss of
Title IV eligibility by either (1) the single OPEID unit that includes Kaplan University or (2) a combination of other OPEID
units would have a material adverse effect on Kaplan’s operating results.
• Failure to Maintain Institutional Accreditation Could Lead to Loss of Ability to Participate in Title IV Programs
KHE’s online university and all of its ground campuses are institutionally accredited by one or another of a number of
national and regional accreditors recognized by the DOE. Accreditation by an accrediting agency recognized by the
DOE is required for an institution to become and remain eligible to participate in Title IV programs. In March 2011,
Kaplan University’s institutional accreditor, HLC, sent Kaplan University a request for information asking for documents and
a report detailing Kaplan University’s admissions practices and describing the University’s compliance with HLC Core
Components and policies. In addition, in June 2012, the Accrediting Commission of Career Schools and Colleges
(ACCSC), a KHE accreditor, issued a notice to three campuses (Baltimore, Dayton and Indianapolis Northwest), to “show
cause” as to why their accreditation should not be withdrawn for failure to meet certain student achievement threshold
requirements. The loss of accreditation at these or other schools would, among other things, render the affected Kaplan
schools and programs ineligible to participate in Title IV programs and would have a material adverse effect on their
business and operations.
• Failure to Maintain Programmatic Accreditation Could Lead to Loss of Ability to Provide Certain Education
Programs and Failure to Obtain Programmatic Accreditation May Lead to Declines in Enrollments in Unaccredited
Programs
Programmatic accreditation is the process through which specific programs are reviewed and approved by industry- and
program-specific accrediting entities. Although programmatic accreditation is not generally necessary for Title IV eligibility,
such accreditation may be required to allow students to sit for certain licensure exams or to work in a particular profession
or career. Failure to obtain or maintain such programmatic accreditation may lead schools to discontinue programs that
would not provide appropriate outcomes without that accreditation or may lead to a decline in enrollments in programs
due to a perceived or real reduction in program value.
• Failure to Maintain State Authorizations Could Cause Loss of Ability to Operate and to Participate in Title IV
Programs in Some States
KHE’s ground campuses and online university are subject to state-level regulation and oversight by state licensing
agencies, whose approval is necessary to allow an institution to operate and grant degrees or diplomas in the state.
Institutions that participate in Title IV programs must be legally authorized to operate in the state in which the institution is
physically located. The loss of such authorization would preclude the campuses or online university from offering
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