The Washington Post Co. expects the profits from its embattled education division to plummet this year, as the federal government probes Kaplan Higher Education’s recruitment practices and education quality. Although revenue increased $1.8 billion in 2010, it dropped 3 percent in the last three months of the year compared with the fourth quarter of 2009 as enrollment slowed amid the scrutiny. The for-profit chain laid off 770 employees, or 5 percent of its work force, in December because of the declining enrollment.
| Boom times | ||
| Operating revenue for Kaplan Higher Eduction has climbed over the last few years, but the Washington Post Co. is prepping for substantial profit drops in 2011. | ||
| 2008 | $1.16 billion | |
| 2009 | $1.54 billion | |
| 2010 | $1.79 billion | |
“In the short term, the company expects KHE’s operating income to be down very substantially in 2011,” the Washington Post Co. said in its annual report, which names Kaplan its “largest and fastest-growing business.”
Kaplan’s for-profit colleges, test prep programs and other offerings account for 62 percent of the Post Co.’s revenues. Kaplan Higher Education — the for-profit colleges — enjoyed $1.8 billion in revenue in 2010, 62 percent of the company’s total education revenues.
The colleges rely on Title IV federal funding for $1.46 billion — 82 percent of their revenue. But as the U.S. Department of Education has begun cracking down on for-profit colleges, “No assurance can be given that the Kaplan schools, or individual programs within schools, will maintain their Title IV eligibility, accreditation and state authorization in the future,” the report says.
Starting around 2014, the U.S. Department of Education will revoke a college’s entitlement to Title IV funding — largely Pell Grants — if their three-year default rate on student loans exceeds 30 percent for three consecutive years. Kaplan’s most recent three-year rate was 30 percent.
To increase its student body’s academic preparedness — and to lower its default rate — Kaplan in late 2010 introduced Kaplan Commitment, which allows students to withdraw within their first few weeks without any tuition obligation.
However, the company said it cannot guarantee this will lower default rates and moreover, it will likely hurt revenue in 2011. According to the report, revenues in 2010 would have been about $140 million less if Kaplan Commitment had been introduced at the beginning of the year.
Also on the company’s risk radar: 14 regulations finalized in October by the Education Department concerning “program integrity,” from defining credit hours to strengthening guidelines against misleading recruitment practices.
Kaplan will have to “change its practices to comply with these requirements and [that] could increase its administrative costs,” according to the Post Co.’s annual report.
The regulations stem from a federal probe of for-profits that discovered low graduation rates, misleading recruitment practices, and in some cases, encouragement to forge federal aid applications to qualify for Pell Grants.
In December, a former Kaplan dean said in a federal jury trial against cyberharassment charges that Kaplan executives ran “multiple schemes” that defrauded $1 billion from taxpayers through federal grants. Kaplan has consistently denied the allegations.
