The rules also included revised requirements for program approval, public disclosures on certain outcomes (graduation, placement, repayment rates and other consumer information) and a “certification” requirement that each program is included in the school’s accreditation grant and has programmatic-level accreditation if required for licensure in the occupation. This “certification” requirement has a material negative impact on KU’s Concord Law School’s Juris Doctor program, which accounted for less than 1% of KHE’s 2017 revenue. Because it is completely online, that program does not have the accreditation necessary to allow graduates to become licensed to practice law upon graduation and qualify to take the bar exam in any state other than California. Accordingly, because the ED has not provided guidance that narrows the rule as written, in 2015, Concord Law School was required to cease enrollments in multiple states.
KU implemented actions to mitigate the potential impact of the GE regulations on certain programs that may fail the GE debt-to-income ratio by discontinuing likely failing programs and placing tuition caps on certain other programs. New programs have replaced a significant portion of the intake loss of the discontinued programs (isolating for general declines in all programs). Kaplan believes that the new programs are not “substantially similar” under the GE rules to any other current or past programs. However, if the ED determines that these new programs are substantially similar and combines the new 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 do not apply to degree programs (Graduate degrees, Associate’s and Bachelor’s) at non-profit or public institutions such as the new university.
In October 2016, the ED issued draft debt-to-earnings rates. KU had five programs in which the draft rates failed the GE test; however, two of these five programs are not active and the remaining three are not currently accepting enrollments. KU has 16 programs in which the draft rates put them in warning zone status. Four of these programs are active and accounted for $71 million and $51.1 million in revenue for 2015 and 2016, respectively. For 2017, these four programs accounted for $44.5 million in revenue. KU continues to employ mitigation actions to minimize the financial impact of GE and secure GE compliance. Of the remaining 12 programs, five were suspended several years ago and have no active students and seven of these programs are not currently accepting enrollments.
On January 9, 2017, the ED released the final first-year debt-to-earnings rates, which did not change from the draft rates issued in October 2016. Under the GE regulations, KU has the ability to challenge the underlying data used in the debt-to-earnings calculations. KU has appealed the underlying earnings data in certain programs that fell into the fail or warning zone category. If successful, the appeals could shift the number of programs in each category favorably.
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, and subsequently relaxed the documentation requirements for alternate earnings appeals. On August 18, 2017, the ED extended to February 1, 2018, the deadline for all programs to file supporting documents for their alternate earnings appeals. The ED has not announced a delay or suspension in the enforcement of any other GE 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 announcement of the intent to initiate gainful employment rulemaking, discussed below, 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.
On June 15, 2017, the ED announced its intention to convene a negotiated rulemaking committee to develop proposed regulations to revise the GE rules. 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 on July 1, 2019, but we cannot provide any assurances as to the timing or content of any such regulations.
Some of the data needed to compute debt-to-earnings rates and project their impact on Title IV program eligibility under the GE regulations are not accessible to the Company, including specific graduate earnings information that will be compiled by the Social Security Administration. In addition, the continuing eligibility of programs for Title IV funding may be affected by factors beyond Kaplan’s control, such as changes in the actual or deemed earnings level of its graduates, changes in student borrowing levels, increases in interest rates, changes in the U.S. Federal poverty income level relevant for calculating one of the proposed debt-to-earnings rates and other factors. As a result, the ultimate outcome of future GE rates and their impact on Kaplan’s operations are still uncertain. Kaplan is continuing efforts to mitigate any current and potential negative impact of the GE rules. These efforts include increasing career services support, implementing financial literacy counseling, creating program-specific tuition reductions and scholarships and revising the pricing model to implement a tuition cap for at-risk programs. Although Kaplan is taking these and other steps to address compliance with GE regulations, there is no assurance that these measures will be adequate to prevent a material number of programs from receiving debt-to-earnings rates that fail