Washington Post 2014 Annual Report Download - page 22

A majority of KHE students are enrolled in certificate and associate’s degree programs. Revenue from certificate and
associate’s degree programs is composed of a higher percentage of Title IV funds than is the case for revenue from KHE’s
bachelor’s and other degree programs. KHE is taking various measures to reduce the percentage of its receipts attributable to
Title IV funds, including modifying student payment options; emphasizing direct-pay and employer-paid education programs;
encouraging students to evaluate carefully the amount of their Title IV borrowing; eliminating some programs; cash-matching;
and developing and offering additional non-Title IV-eligible certificate preparation, professional development and continuing
education programs. Kaplan has taken steps to ensure that revenue from programs acquired by a KHE campus is eligible to
be counted in that campus’ 90/10 calculation. However, there can be no guarantee that the ED will not challenge the
inclusion of revenue from any acquired program in KHE’s 90/10 calculations or will not issue an interpretation of the 90/10
rule that would exclude such revenue from the calculation. Absent the adoption of the changes mentioned above, and if
current trends continue, management estimates that in 2015, three of the KHE Campuses’ OPEID units, representing
approximately 2.6% of KHE’s 2014 revenues, could have a 90/10 ratio over 90%. As noted above, Kaplan is taking steps
to address compliance with the 90/10 rule; however, there can be no guarantee that these measures will be adequate to
prevent the 90/10 ratio at some or all schools from exceeding 90% in the future.
Change of Control. If one or more of Kaplan’s schools experience a change of control under the standards of applicable
state agencies, accrediting agencies or the ED, the applicable schools governed by such agencies must seek the approval
of the relevant agencies. A school that undergoes a change of control, which may include a change of control of a school’s
parent corporation or other owners, must be reviewed and recertified by the ED and obtain approvals from certain state
agencies and accrediting bodies, in some cases prior to the change of control. The standards pertaining to a change of
control are not uniform and are subject to interpretation by the respective agencies. Certifications obtained from the ED
following a change in control are granted on a provisional basis that permits the school to continue participating in Title IV
programs, but provides fewer procedural protections than full certifications. As a result, the ED may withdraw an institution’s
provisional certification more easily than if it is fully certified. In addition, the ED may subject an institution on provisional
certification status to greater scrutiny in some instances, for example, when it applies for approval to add a new location or
program or makes another substantive change.
Standards of Financial Responsibility. An institution participating in Title IV programs must maintain a certain level of financial
responsibility as determined under the Higher Education Act and under ED regulations. The ED measures an institution’s financial
responsibility by compiling a composite score ranging from 0 to 3.0, pursuant to a formula that incorporates various financial
data from annual financial statements submitted to the ED. If an institution fails to achieve a composite score of 1.5 or fails to
comply with other financial responsibility standards, the ED may place conditions on the institution’s participation in the Title IV
programs and may require the institution to submit to the ED a letter of credit in an amount of from 10% to 50% of the institution’s
annual Title IV participation for its most recent fiscal year. For the 2014 fiscal year, Kaplan expects KHE to have a composite
score of 2.77, based on its own assessment using ED methodology. However, the ED will make its determination once it
receives and reviews Kaplan’s audited financial statements for the 2014 fiscal year.
Administrative Capability. The Higher Education Act, as reauthorized, directs the ED to assess the administrative
capability of each institution to participate in Title IV programs. The failure of an institution to satisfy any of the criteria
used to assess administrative capability may cause the ED to determine that the institution lacks administrative capability
and subject the institution to additional scrutiny, deny eligibility for Title IV programs or impose other sanctions. To meet
the administrative capability standards, an institution must, among other things:
• Comply with all applicable Title IV program requirements;
• Have an adequate number of qualified personnel to administer Title IV programs;
• Have acceptable standards for measuring the satisfactory academic progress of its students;
• Have procedures in place for awarding, disbursing and safeguarding Title IV funds and for maintaining required
records;
• Administer Title IV programs with adequate checks and balances in its system of internal control over financial reporting;
• Not be, and not have any principal or affiliate who is, debarred or suspended from U.S. Federal contracting or
engaging in activity that is cause for debarment or suspension;
• Provide financial aid counseling to its students;
• Refer to the ED’s Office of the Inspector General any credible information indicating that any student, parent,
employee, third-party servicer or other agent of the institution has engaged in any fraud or other illegal conduct
involving Title IV programs;
• Submit in a timely way all required reports and financial statements; and
• Not otherwise appear to lack administrative capability.
6GRAHAM HOLDINGS COMPANY