programs with programs that are currently in the warning zone or that failed the GE test, eligibility of the new programs to participate in Title IV programs and revenues from such programs would be materially adversely affected.
The GE rules allow for an appeal of these rates if the institution can provide alternative earnings data for each appealed program showing an improvement in the GE rates and moving the program from fail to warning zone or from warning zone to pass. KU has appealed the rates for the 16 programs in the warning zone, including the four programs that are active and currently accepting students and the remaining 12 programs that are discontinued and/or not accepting students. Although none of the five failing programs is active and accepting students, KU has appealed their rates as well. KU cannot predict the outcome of these appeals.
The ultimate outcome of future GE rates and their impact on Kaplan’s operations cannot be predicted. The GE rules have caused Kaplan to eliminate or limit enrollments in certain educational programs at some of its schools; may result in the loss of student access to Title IV programs; and has had and may continue to have a material adverse effect on KHE’s revenues, operating income and cash flows.
The regulations also contain requirements related to public disclosure of program information and outcomes, reporting data to the ED, including the debt-to-earnings rates, and certification requirements. On October 9, 2015, KU received a letter from the ED indicating that it had failed to report data on a significant number of programs that were listed as active in the ED’s system. The letter stated that until this issue is resolved, KU cannot start any new programs, and failure to resolve the issue could result in administrative actions. There is no assurance that the ED will accept Kaplan’s corrected data, will not find additional issues or will not take further action against KU.
On June 15, 2017, the ED announced its intent to convene a negotiated rulemaking committee to develop proposed regulations to revise the gainful employment regulations. The committee convened in December 2017, will continue to meet in early 2018 and may issue proposed regulations for public comment during the first half of 2018, but the ED has not established a final schedule for publication of proposed or final regulations. Any regulations published in final form by November 1, 2018, typically would take effect in July 1, 2019, but we cannot provide any assurances as to the timing or content of any such regulations.
On June 30, 2017, the ED announced the extension of the compliance date for certain gainful employment disclosure requirements from July 1, 2017, to July 1, 2018. The ED stated that institutions were still required to comply with other gainful employment disclosure requirements by July 1, 2017. On August 18, 2017, the ED announced in the Federal Register new deadlines for submitting notices of intent to file alternate earnings appeals of gainful employment rates and for submitting alternate earnings appeals of those rates. The deadline to file a notice of intent to file an appeal was October 6, 2017, and the deadline to file the alternate earnings appeal was February 1, 2018. The ED has not announced a delay or suspension in the enforcement of any other gainful employment regulations. However, on August 8, 2017, ED officials announced that the ED did not have a timetable for the issuance of lists of students who completed programs, which is the first step toward generating the data for calculating new gainful employment rates. Consequently, we cannot predict when the ED will begin the process of calculating and issuing new draft or final gainful employment rates in the future. We also cannot predict whether the initiation of gainful employment rulemaking or the extension of certain gainful employment deadlines may result in the ED delaying the issuance of new draft or final gainful employment rates in the future.
Congressional Examination of For-Profit Education and Other Governmental Scrutiny by the ED and Other Federal and State Regulators 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.
Other committees of Congress have also held hearings to look 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 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. Congress is expected to consider reauthorization of the Higher Education Act in 2018, but the Company cannot predict if or when this process will be completed. This increased activity, and other current and future activity, may result in legislation, further rulemaking and other governmental actions affecting Kaplan’s participation in Title IV programs or the amount of student financial assistance for which Kaplan’s students are