Washington Post 2015 Annual Report Download - page 43

institution is not physically located or in which it is otherwise subject to state jurisdiction, as determined by the
state, to meet any state requirements for it to legally offer postsecondary distance education in that state. Kaplan
believes that this will ultimately result in new distance-education state authorization requirements that may
require some distance-education programs to obtain additional or revised state authorizations. If KHE is unable
to obtain the required approvals, its students in the affected programs may be unable to receive Title IV funds,
which could have a material adverse effect on Kaplan’s business and operations.
• Failure to Correctly Calculate or Timely Return Title IV Funds for Students Who Withdraw Prior to
Completing Programs Could Result in a Requirement to Post a Letter of Credit or Other Sanctions
ED regulations require schools participating in Title IV programs to calculate correctly and return on a timely
basis unearned Title IV funds disbursed to students who withdraw from a program of study prior to completion.
These funds must be returned in a timely manner, generally within 45 days of the date the school determines that
the student has withdrawn. Under ED regulations, failure to make timely returns of Title IV program funds for
5% or more of students sampled in a school’s annual compliance audit, or in a program review or OIG audit,
could result in a requirement that the school post a letter of credit in an amount equal to 25% of its prior-year
returns of Title IV program funds. If unearned funds are not properly calculated and returned in a timely manner,
an institution may be subject to monetary liabilities, fines or other sanctions by the ED that could have a material
adverse effect on Kaplan’s results of operations.
• Failure to Demonstrate Financial Responsibility Could Result in a Requirement to Submit Letters of
Credit to the ED, Loss of Eligibility to Participate in Title IV Programs or Other Sanctions
An institution participating in the Title IV programs must comply with certain measures of financial
responsibility under the Higher Education Act and under ED regulations. Among other things, the applicable
regulations require an institution to achieve a composite score of at least 1.5, as calculated under ED regulations,
based on data in annual financial statements submitted to the ED. If an institution fails to achieve a composite
score of 1.5 or fails to comply with other financial responsibility standards, the ED may place conditions on the
institution’s participation in the Title IV programs, impose monitoring and reporting requirements, transfer the
institution from the advance system of Title IV payments to a heightened cash monitoring or reimbursement
system of payment, and may require the institution to submit to the ED a letter of credit in an amount equal to at
least 10% of the institution’s annual Title IV program funds received by the institution during its most recently
completed fiscal year, although the ED could require a letter of credit based on a higher percentage than 50% of
the total Title IV program funds. The ED historically has measured the financial responsibility of the KHE
institutions based on the financial results of KHE. If KHE or the institutions fail to meet the composite score
standard or any of the other financial responsibility standards, they may be required to post a letter of credit in
favor of the ED and possibly may be subject to other sanctions, including limitation or termination of their
participation in Title IV programs. A requirement to post a letter of credit or the imposition of any one or more
other sanctions by the ED could have a material adverse effect on Kaplan’s results of operations.
• Failure to Demonstrate Administrative Capability Could Result in Loss of Eligibility to Participate in
Title IV Programs or Other Sanctions
ED regulations specify extensive criteria that an institution must satisfy to establish that it has the required
“administrative capability” to participate in Title IV programs. These criteria include, but are not limited to,
requirements relating to the institution’s compliance with all applicable Title IV requirements; the institution’s
administration of Title IV programs; the institution’s compliance with certain reporting, disclosure and record-
keeping obligations; and the institution’s ability to maintain cohort default rates below prescribed thresholds.
Failure to comply with these criteria could result in the loss or limitation of the eligibility of one or more of the
schools in KHE to participate in the Title IV programs, a requirement to pay fines or to repay Title IV program
funds, a denial or refusal by the ED to consider a school’s application for renewal of its certification to
participate in the Title IV programs, civil or criminal penalties or other sanctions. Any one or more of these
actions by the ED could have a material adverse effect on Kaplan’s results of operations.
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