Washington Post 2014 Annual Report Download - page 42

The revised law also increased 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 changed the threshold for placement on potential provisional certification to 30% for two of the three most
recent fiscal years for which the ED has published official three-year cohort default rates.
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.
• 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. Any OPEID reporting unit with receipts from the Title IV programs exceeding 90% for a single fiscal
year would be placed on provisional certification and could 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 or any ED interpretation of what revenue
may be included in the calculation, make it more difficult for institutions to comply with the 90/10 rule. 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%.
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 either national or regional accreditors
recognized by the ED. Accreditation by an accrediting agency recognized by the ED is required for an institution to become
and remain eligible to participate in Title IV programs. KHE’s institutional accreditors conduct program reviews at KHE’s
schools from time to time for a variety of reasons. Failure to resolve any concerns that may arise during such reviews could
result in a loss of accreditation at the school. The loss of accreditation at any school 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-specific
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 because of 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 postsecondary education and render students
ineligible to participate in Title IV programs. Loss of authorization at those state campus locations, or, in states that require it, for
Kaplan University online, would have a material adverse effect on KHE’s business and operations.
Some states have sought to assert jurisdiction over online education institutions that offer education services to residents in
the state or to institutions that advertise or recruit in the state, notwithstanding the lack of a physical location in the state.
State regulatory requirements for online education vary among the states, are not well developed in many states, are
imprecise or unclear in some states and are subject to change. If KHE is found not to be in compliance with an applicable
state regulation and a state seeks to restrict one or more of KHE’s business activities within its boundaries, KHE may not be
able to recruit or enroll students in that state and may have to cease providing services and advertising in that state.
26 GRAHAM HOLDINGS COMPANY