Washington Post 2015 Annual Report Download - page 39

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• 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 2015 fiscal year, funds provided under the student financial aid programs created under
Title IV accounted for approximately $628 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. Among other requirements, each program subject to the GE
regulations must meet one of two debt-to-earnings rates.
Under the regulation, which was effective July 1, 2015, if a program’s graduates’ median debt payments exceed
8% of the graduates’ mean and median annual earnings and 20% of the graduates’ mean and median
discretionary income, the program will be placed on a warning status (referred to by the ED as “zone” status). In
addition, if a program’s graduates’ median debt payments exceed 12% of the graduates’ mean and median annual
earnings and 30% of the graduates’ mean and median discretionary income, the program will fail the debt-to-
2015 FORM 10-K 24