Washington Post 2014 Annual Report Download - page 41

within three years, it will become ineligible for Federal aid Title IV participation. 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.
• Congressional Examination of For-Profit Education Could Lead to Legislation or Other Governmental Action That
May Materially and Adversely Affect Kaplan’s Business and Operations
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 tuition assistance programs 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 majority
staff of the HELP Committee issued a final report to conclude the review. The final report included observations and
recommendations for Federal policy. The ultimate outcome of the HELP Committee review and any implications to the
operation of KHE’s institutions remains unknown.
Other committees of 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 Is Expected to Continue to Impact Operating Results
In the fourth quarter of 2010, KHE phased in a program called the Kaplan Commitment. Under this program, students of
Kaplan University and KHE campuses enroll in classes for several weeks and assess whether their educational experience
meets their needs and expectations before they incur any significant financial obligation. Students who choose to withdraw
from the program during the risk-free period do not have to pay for the coursework. The Kaplan Commitment program and
related initiatives could negatively impact the future operations of KHE, including student enrollments and retention, tuition
revenues, operating income and cash flow.
• 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 ED 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 Federal Family Education Loan (FFEL) program and Direct Loan programs for at least two
fiscal years, effective 30 days after notification from the ED. The schools in an OPEID number whose cohort default rate
equals or exceeds 30% for three consecutive years lose their Title IV eligibility to participate in the U.S. Federal Family
Education Loan (FFEL), Direct Loan and U.S. Federal Pell Grant programs effective 30 days after notification from the ED
and for at least two fiscal years. The schools in an OPEID number whose cohort default rate equals or exceeds 30% in
two of the three most recent fiscal years for which rates have been issued by the ED may be placed on provisional
certification by the ED.
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 was increased from two years to three years,
which has increased the cohort default rates for most institutions. This 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 ED in 2012. The ED did not impose sanctions based on rates calculated under this new methodology until rates for
three consecutive years were fully calculated, which occurred in September 2014.
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