Washington Post 2014 Annual Report Download - page 40

each OPEID unit’s compliance with Title IV statutory and regulatory requirements. These compliance reviews can result in
findings of noncompliance with statutory and regulatory requirements that can, in turn, result in proceedings to impose
fines, liabilities, civil or criminal penalties or other sanctions against the school, including loss or limitation of its eligibility
to participate in Title IV programs. Certain KHE schools are the subject of ongoing compliance reviews and lawsuits
related to their compliance with statutory and regulatory requirements and may be subject to future compliance reviews.
KHE schools also have been, and may in the future be, subject to complaints and lawsuits by present or former students or
employees or other people related to compliance with statutory, common law and regulatory requirements that, if
successful, could result in monetary liabilities or fines or other sanctions.
• Reductions in the Amount of Funds Available to Students, Including Under Title IV Programs, in KHE Schools,
Changes in the Terms on Which Such Funds Are Made Available or Loss or Limitation of Eligibility to Receive Such
Funds, Could Have a Material Adverse Effect on Kaplan’s Business and Operations
During the Company’s 2014 fiscal year, funds provided under the student financial aid programs created under Title IV
accounted for approximately $806 million of the revenues of the schools in KHE. Any legislative, regulatory or other
development that has the effect of materially reducing the amount of Title IV financial assistance or other funds available to
the students of those schools would have a material adverse effect on Kaplan’s business and operations. In addition, any
development that has the effect of making the terms on which Title IV financial assistance or other funds are available to
students of those schools materially less attractive could have a material adverse effect on Kaplan’s business and
operations.
• Regulatory Changes Could Have a Material Adverse Effect on Kaplan’s Business and Operations
The implementation of new Title IV and other regulations required Kaplan to change its practices to comply with new requirements
and has increased its administrative costs and overall risk. 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 ED or other U.S.
or international regulatory bodies 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.
• Changes to the Regulations Regarding Incentive Compensation Make It Difficult for Kaplan to Attract Students and
Retain Qualified Personnel and Add Compliance Risk
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. KHE modified some of its compensation practices as a result of the revisions to the incentive compensation
rule. Due to a lack of clear guidance from the ED, KHE cannot assure that these modifications will in all cases be found to be
in compliance with the ED’s interpretation of the regulations. Additionally, these changes to compensation arrangements
make it difficult to attract students and to provide adequate incentives to promote superior job performance and retain
qualified personnel. The Company believes that this change in Kaplan’s approach to recruiting has adversely impacted, and
will continue to adversely impact, Kaplan’s enrollment rates, operating costs, business and results of operations. The
Company cannot predict how the ED will interpret and enforce all aspects of the revised incentive compensation rule in the
future, and any changes in this regard could have a material adverse effect on Kaplan’s business and results of operations.
• ED Rules Regarding Gainful Employment Could Have a Material Adverse Effect on Kaplan’s Business and
Operations
In October 2014, the ED 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.
Under the regulation effective July 1, 2015, if a program’s graduates’ debt payments exceed 8% of the graduates’ mean
and median annual earnings and 20% of the graduates’ mean and median discretionary earnings, the program will be
placed on a warning status requiring certain disclosures to the public. If a program is in a warning status for four
consecutive years, it will become ineligible for Federal aid Title IV participation. In addition, if a program’s graduates’
debt payments exceed 12% of the graduates’ mean and median annual earnings and 30% of the graduates’ mean and
median discretionary earnings, the program will fail the gainful employment test. If a program fails the test two times
24 GRAHAM HOLDINGS COMPANY