Washington Post 2015 Annual Report Download - page 22

directly or indirectly on success in securing enrollments or financial aid to any person or entity engaged in any
student recruiting or admission activities or in making decisions regarding the awarding of Title IV funds.
Kaplan has taken steps to comply fully with these rules and the related guidance. Among the actions taken,
Kaplan revised its compensation plans for admissions personnel and eliminated enrollment results as a
component in the determination of compensation. Kaplan believes that this change in its approach to recruiting
has adversely impacted, and will continue to adversely impact, its enrollment rates, operating costs, business and
results of operation. Kaplan cannot predict how the ED will interpret and enforce all aspects of the revised
incentive compensation rule in the future.
The 90/10 Rule. Under regulations referred to as the 90/10 rule, an institution would lose its eligibility to
participate in Title IV programs for a period of at least two fiscal years if the institution derives more than 90%
of its receipts from Title IV programs, as calculated on a cash basis in accordance with the Higher Education Act
and applicable ED regulations, in each of two consecutive fiscal years. An institution with Title IV receipts
exceeding 90% for a single fiscal year would be placed on provisional certification and may be subject to other
enforcement measures. Kaplan University derived less than 79% and less than 81% of its receipts from Title IV
programs in 2015 and 2014, respectively.
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 Kaplan University is eligible to be counted in that campus’s 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. There can be no guarantee that these measures will be adequate to prevent the 90/10 ratio at Kaplan
University from exceeding 90% in the future. In addition, certain legislators have proposed amendments to the
Higher Education Act that would lower the threshold percentage in the 90/10 rule to 85%, treat non-Title IV
federal funds as Title IV funds in the 90/10 calculation and make other refinements to the calculation. If these
proposals or similar laws or regulations are adopted, they would make it more difficult for KHE institutions to
comply with the 90/10 rule.
Change of Control. If an institution experiences a change of control under the standards of applicable state
agencies, accrediting agencies or the ED, the institution must seek the approval of the relevant agencies. An
institution that undergoes a change of control, which may include a change of control of the institution’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 institution
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 -0.1 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 at least 1.5 or fails to comply with other financial
responsibility standards, the ED may place conditions on the institution’s participation in Title IV programs,
impose monitoring and reporting requirements, transfer the institution from the advance system of Title IV
7 GRAHAM HOLDINGS COMPANY