What changed in this filing

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Item 1A. Risk Factors

2021-03-09 compared with 2020-03-10 · 514 added, 390 removed, 502 unchanged (64% of the section changed)

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As a result of the risks and uncertainties described below as well as such additional risks and uncertainties, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to the COVID-19 Pandemic

The COVID-19 pandemic has caused us to have to adjust our operations, which could adversely affect the student experience, particularly at HCN, and could have additional adverse effects on our business, financial condition, or results of operations.

The COVID-19 pandemic prompted us to adjust our operations throughout our business.

In March 2020, we implemented our business continuity plans, with employees at APEI and APUS transitioning to a remote workforce and employees at HCN operating in a blended model.

The COVID-19 pandemic required us to shift from campus-based to a blended model at HCN beginning with HCN’s second academic quarter in 2020, with online delivery of its courses and limited in person interactions.

HCN later fully reopened its campuses, using smaller in person classes with screening, social distancing and masking requirements while continuing to offer courses in a virtual setting for those that prefer remote course learning.

In October 2020, HCN temporarily expanded certain campuses through short-term leases of additional space to be used as lab space in order to accommodate student demand in compliance with COVID-related public health measures that effectively limit the number of students in each lab class, and then reverted to online courses and limited on-campus labs in November 2020 following spikes in COVID-19 cases in Ohio.

In 2020, we experienced an increase in net course registrations at APUS and an increase in student enrollment at HCN.

We believe the increase in net course registrations at APUS may have in part been due to the impact of the COVID-19 pandemic, and that the increase in new student enrollment at HCN was due in part to an increase in demand for nursing education and a change in the competitive environment due to COVID-19.

Demand for online education or nursing education may moderate or decrease as the COVID-19 pandemic abates, which would adversely impact our financial condition and results of operations.

At HCN, ongoing impacts from the COVID-19 pandemic could also cause a disruption of educational services provided to students and increase costs to continue to deliver courses in person and online.

There can be no assurance that these and other protective measures we have implemented or may put in place will be successful in preventing cases of COVID-19 among our employees and students, when on-campus courses will resume more broadly or to what degree, or that thereafter HCN will not need to again further limit campus interactions or close its campuses.

Furthermore, we have limited experience delivering HCN’s curriculum online, and to the extent HCN utilizes online learning, HCN’s students may not experience the same level of success in coursework or with NCLEX scores as they would in a traditional campus environment.

If HCN is not able to continue to deliver instruction on-campus and HCN is not able to effectively create and manage online or blended versions, or otherwise arrange for delivery, of all of the required elements of HCN’s academic programs, HCN’s students may not be able to complete their studies with HCN, impacting their ability to graduate and obtain licensure, employment, or their other desired outcomes.

This would likely have a material adverse effect on our business, financial condition, or results of operations.

Furthermore, the need to practice social distancing also increases the demand for space in HCN’s facilities.

HCN may need to obtain further additional facilities and may also need to place restrictions on program size, which may adversely impact our results of operations.

While we have not experienced significant changes in interactions with students other than by temporarily shifting to online and then blended in person and online learning at HCN, we may experience such impacts in the future if the COVID-19 pandemic and its effects are prolonged or increase in scope.

At APUS, faculty, substantially all of whom work remotely in ordinary circumstances, and our student support services teams, many of whom routinely work in our offices, may experience increasing difficulty in continuing to provide quality instruction and support to our students if current social distancing and future “stay-at-home” orders impact the communities in which they live, causing disruption in their lives that could impact their ability to provide a quality product, lead to increased absenteeism, or impact their ability to continue working.

Almost all of the remainder of our workforce is working remotely, and we have implemented business continuity processes, which could lead to decreased operational efficiency and other challenges

inherent in doing things in a manner different than our ordinary course operations.

If faculty, student support services staff, administrators, or other skilled personnel cease working or are unable to work as efficiently or effectively due to the effects of the COVID-19 pandemic, we could lose capacity and expertise critical to our operations and the delivery of instruction and services to students.

Over time, any reduction in operating efficiencies or other business challenges could compound or worsen, adversely impacting our operations and our ability to provide services to our students.

For example, the economic downturn, restrictions on business activities, and other effects of the COVID-19 pandemic could result in the inability of our third-party vendors to serve us, which could disrupt integral business processes.

Remote working and the implementation of business continuity processes also generally create operational challenges around information technology matters, including, for example, an enhanced risk of cyber events and more difficulty in responding to them.

It is not practical to estimate or identify all potential risks that could arise from having substantially all of our workforce working remotely or other impacts of the COVID-19 pandemic and there may be risks that are not reasonably foreseeable.

There could be significant adverse effects on our business, financial condition, and results of operations that we have not identified or that we do not currently expect will be material.

Changes to our teaching methodology at HCN, including as a result of the COVID-19 pandemic, could have an adverse impact on the ability of HCN’s graduates to obtain professional licensure, employment, or other outcomes, which could reduce our enrollments and revenue, limit our ability to offer educational programs, and potentially lead to litigation that could be costly to us.

To apply for licensure to practice nursing in Ohio, an applicant must have successfully completed a nursing education program that is approved by the OBN.

The OBN requires that nursing education programs such as HCN’s PN and ADN Programs have a pass rate on the relevant NCLEX that is at least 95% of the national average for first-time candidates in a calendar year.

As discussed more fully in “Regulatory Environment - State Authorization/Licensure of Our Institutions” in Part I, Item 1 of this Annual Report, failure to satisfy that requirement can result in the OBN taking certain adverse actions, including placement of a program on provisional status or withdrawal of approval pursuant to an adjudication proceeding.

In March 2017, the OBN placed HCN’s ADN Program on provisional approval because the ADN Program has not met the OBN pass rate standard for four consecutive years.

In March 2020, the OBN found that HCN’s ADN Program did not meet the OBN pass rate standard in 2019 for a seventh consecutive year.

HCN has been implementing changes, including curriculum, admissions, and academic achievement and course retake policy changes that are designed to improve NCLEX scores over time, but there is no assurance that these changes will be successful or will not have negative effects on HCN’s enrollment.

In addition, we cannot be certain that factors beyond our control, such as the ongoing COVID-19 pandemic, which led to the temporary shifting of HCN’s courses to online delivery and then to a blended model of in person and online, and then back to online delivery, will not have a negative impact on the student experience, student outcomes and NCLEX scores.

If HCN is unable to improve NCLEX scores over time, this situation could have an adverse impact on our ability to enroll students and eventually our ability to continue HCN’s ADN Program, any of which would have an adverse effect on our results of operations, cash flows, and financial condition.

On March 27, 2020, Ohio enacted a COVID-19 emergency relief law that allows individuals who have successfully completed a nursing education program approved by OBN to receive a temporary license to practice as an RN or LPN before taking the NCLEX.

Graduates of OBN-approved nursing education programs, such as HCN’s programs, were permitted to apply for a temporary license that was valid until March 1, 2021, at which time it expired.

We cannot predict the effect Ohio’s emergency relief law will have on our NCLEX scores, if any.

If HCN’s graduates fail to obtain professional licensure or employment or experience other negative outcomes in their chosen fields of study, including as a result of the COVID-19 pandemic and the resulting changes to our academic program, we and our institutions could be exposed to litigation, including class-action litigation, claiming that we are at fault for such failure, which would force us to incur legal and other expenses that could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Adverse impacts on HCN resulting from the COVID-19 pandemic could also lead to an impairment of goodwill.

The CARES Act, CAA, CRRSAA, and COVID-19-related regulatory guidance may contain provisions that could benefit some institutions more than others, their provisions may be ambiguous or subject to change, we may have difficulty adjusting our systems to comply, and failure to comply could subject us to penalties.

In March 2020, Congress passed the CARES Act in response to COVID-19 and its related effects.

Wholly online institutions are effectively ineligible for any of the $12.6 billion in funding from ED available to higher education institutions under the Higher Education Emergency Relief Fund or HEERF, established by the CARES Act.

No allocation of HEERF funds was made to APUS by ED.

ED allocated $3.1 million for HCN and in May 2020, HCN received its HEERF allocation.

As part of the process to receive its allocation, HCN signed a funding certification and agreement setting forth terms and conditions, including compliance with relevant CARES Act provisions and applicable law.

The CARES Act requires recipient institutions to use at least 50% of their HEERF funds to provide emergency grants to students for expenses related to the disruption of campus operations due to COVID-19.

The CARES Act also permits institutions to use up to 50% of their HEERF funds to cover any costs associated with significant changes to the delivery of instruction due to COVID-19, so long as such costs do not include payment to contractors for the provision of pre-enrollment recruitment activities, endowments, or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.

Although HCN incurred costs to shift its delivery of instructions and operations due to COVID-19, it chose to distribute 100% of its HEERF allocation directly to eligible students.

In December 2020, Congress passed the CAA, which included the CRRSAA, which contained several education-related provisions.

The CRRSAA appropriated an additional $22.7 billion for the HEERF to be distributed to higher education institutions.

The CRRSAA allocation formula differs from the CARES Act formula in several ways, including new allocations for institutions on the basis of the number of students enrolled exclusively in distance education.

Under this formula, ED allocated approximately $600,000 for APUS and $2.0 million for HCN.

Each institution has until April 15, 2021 to accept its allocation.

The CRRSAA places limitations on the expenditure of funds that were not applicable to CARES Act funds.

Specifically, the CRRSAA requires proprietary institutions to spend their entire new HEERF allocation on direct financial aid grants.

The CRRSAA further specifies that institutions should provide grants based on financial need, with special emphasis on grants to students eligible for Pell Grants.

ED has issued several guidance documents regarding the appropriate use of HEERF funds and related reporting requirements and regarding regulatory flexibility in the administration of federal student aid as a result of challenges related to COVID-19.

These guidance documents provide institutions further information on allowable practices for the administration of federal work study, measurement of satisfactory academic progress, and proper return of unearned federal student aid to ED.

Our institutions’ failure to comply with applicable CARES Act provisions, including provisions related to funding and waivers of Title IV requirements, or with ED guidance related to the COVID-19 pandemic, both of which contain ambiguities, could result in administrative sanctions including fines, restrictions on our ability to participate in Title IV programs, debarment and suspension, and liabilities under applicable law, such as the False Claims Act.

The CARES Act and related ED guidance waive certain federal student financial aid requirements in connection with COVID-19 developments and, to the extent such waivers apply to our institutions, we may have difficulty adjusting our systems to comply with those waivers and our institutions’ failure to comply with those waivers.

In addition, ED guidance related to the COVID-19 pandemic may change as the pandemic continues.

We cannot predict what additional regulatory actions may be taken or legislation put in place in connection with the COVID-19 pandemic or what impact such regulations or legislation may have on us or our institutions, if any.

Risks Related to Attracting and Retaining Students

Our success and financial performance depends on the effectiveness of our ability to attract students who persist in our institutions’ programs.

Our success and financial performance depend on the effectiveness of our ability to attract students who persist in our institutions’ programs.

Building awareness and reputation among potential students of our institutions and the programs they offer is critical to our institutions’ ability to attract new students.

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• challenges in maintaining strong relationships with military and military-affiliated communities;

the emergence of more, and more successful, competitors, and alternative education models;

• the emergence of more, and more successful, competitors, and alternative education models, including as a greater number of schools pursue online education;

• factors related to our institutions’ marketing, including the costs of internet advertising and multi-faceted interactive marketing campaigns;

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• adverse publicity regarding us, our institutions, our competitors, or online or for-profit education generally;

a decline in the acceptance of online education generally;

• a decline in the acceptance of or demand for online education generally, including as the COVID-19 pandemic abates;

• a decrease in the perceived or actual economic benefits that students derive from our institutions’ programs or programs provided by for-profit schools generally.

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.” and with a continued focus on efforts to attract students outside of the military, we must continue to focus on marketing channels that attract college-ready students unaffiliated with the military who perform well at APUS.

However, we have experienced challenges attracting college-ready students unaffiliated with the military who perform well at APUS, and there is no assurance that we will be able to do so on a cost-effective basis and although enrollment increased in 2020, there is no assurance that the increase will be sustained, including as impacts of the COVID-19 pandemic abate.

Furthermore, because APUS’s tuition is generally lower than that of most of its competitors, it has fewer dollars to spend per student on marketing and advertising than they do.

Nevertheless, APUS has tried to, and may in the future try to, implement new marketing tactics and channels, including those with which it has no experience, and which have no guarantee of success.

For example, our Board of Directors has approved an increase in marketing expenditures for fiscal 2020, including to support a new advertising campaign focusing on affordability and return on investment for learners.

For example, we increased marketing expenditures in fiscal 2020, including to support a new advertising campaign focusing on affordability and return on investment for learners.

If we are unable to develop and optimize marketing and advertising programs that are effective in developing awareness of our institutions and the programs we offer and their value propositions, and are unable to enroll and retain qualified students in military and non-military markets, our enrollments would suffer, and there could be a material adverse effect on our financial condition and results of operations.

The success of HCN depends, in part, on our ability to maintain and increase student enrollments in HCN’s programs.

Enrollments in HCN’s ADN Program in 2019 were significantly lower than HCN planned, resulting in a significant decline in revenue in our HCN Segment.

We believe the decline in enrollments is likely partly associated with the implementation of new academic achievement and admissions requirements, as well as negative perceptions by certain current and prospective student cohorts, among other potential factors.

While we work on identifying the appropriate balance of academic achievement requirements, admissions requirements, and attracting appropriate students, as well as identifying and remediating the factors impacting enrollments, there may continue to be a negative impact on enrollments at HCN.

We cannot predict whether our initiatives and efforts will be successful over the long term and cannot guarantee that we will be able to reverse the enrollment and revenue decline in our HCN Segment or return to our prior level of enrollments.

Although we cannot predict what adjustments may be necessary or costs may be incurred as a result of the decline in enrollment at HCN, any such adjustments and costs may have an adverse impact on our results of operations or financial condition.

In addition, with the opening of HCN’s fifth campus in Toledo in January 2017 and the planned opening of HCN’s sixth campus in Indianapolis, Indiana in the second quarter of 2020, we have been marketing in geographic areas in which HCN did not previously have a campus.

Although enrollment increased in 2020, there is no assurance that the increase will be sustained, including as impacts of the COVID-19 pandemic abate.

We experienced decreases in enrollment at HCN in 2019, which resulted in a significant decline in revenue in our HCN Segment.

We believe the decline in enrollments was likely partly associated with the implementation of new academic achievement and admissions requirements, as well as negative perceptions by certain current and prospective student cohorts, among other potential factors.

As part of our strategy, we intend to continue to open new campuses for HCN, such as the new campus in Indianapolis, Indiana that began operations in April 2020, and our new campus in Akron, Ohio that we expect to begin operations in April 2021.

Such actions require us to obtain appropriate federal, state, and accrediting agency approvals and to comply with any requirements from those agencies related to a new location.

We continue to work on identifying the appropriate balance of academic achievement requirements, admissions requirements, and attracting appropriate students, as well as identifying and remediating the factors impacting enrollments, but cannot predict whether our initiatives and efforts will be successful over the long term.

In addition, with the opening of HCN’s sixth campus in Indianapolis, Indiana in April 2020 and proposed opening of HCN’s seventh campus in Akron, Ohio in April 2021, we have been and will be marketing in geographic areas in which HCN did not previously have a campus.

If in the future we are unable to effectively market HCN’s programs, we may not be able to successfully maintain and increase HCN enrollments, which would negatively affect our operating results.

Changes our institutions may make to their operations to improve the student experience and enhance their ability to identify and enroll students who are likely to succeed may adversely affect our institutions’ enrollment, profitability, financial condition, results of operations, and cash flows.

In order to improve the learning experience of our students and to attract students who are likely to persist in our institutions’ programs, we have identified, and continue to work to identify, potential changes and initiatives that we believe will more effectively attract and enroll college-ready students, support those students, and help improve those students’ educational outcomes, including through systems, faculty-related initiatives and co-curricular initiatives to increase the level of engagement and collaboration in the classroom and to strengthen the bond between APUS and its students.

APUS has made multiple changes to its admissions assessment process and may further modify it in the future in order to better identify college-ready students.

For example, APUS implemented a process in 2017 requiring enhanced certification of prospective non-military students’ prior transcripts to confirm their authenticity and evaluate them for transfer credit.

Additional initiatives may include the following:

further changing admissions standards and requirements;

updates to the admissions process and procedures;

implementing more stringent satisfactory academic progress standards;

changing tuition costs and payment options;

experimenting with additional CBE programs and other alternative delivery methods;

altering our institutions’ marketing efforts to target the appropriate prospective students.

HCN has also been implementing changes, including changes to its curriculum, admissions, and academic achievement and course retake policies, that are designed to improve NCLEX scores and retention rates over time.

These initiatives may adversely impact our institutions’ business, financial condition, results of operations, and cash flows, particularly in the near term.

These initiatives require significant time, energy, and resources.

We may not succeed in achieving our objectives due to organizational, operational, regulatory, resource, or other constraints.

If our efforts are not successful, we may experience reduced enrollment, increased expense, or other impacts on our business that materially and adversely impact our results of operations, cash flows, and financial condition.

Even if these initiatives successfully lead to the identification and enrollment of students who are likely to succeed and to improvements in student experience, they could result in adverse impacts on enrollments.

Due to the many factors that can impact enrollments, we may not appropriately identify the cause of any adverse impacts, and therefore may not be able to appropriately modify our initiatives.

If we are unable to, or suffer any delay in our ability to, obtain appropriate approvals, open, accredit, and attract additional students to new campus locations, offer programs at new campuses in a cost-effective manner, identify appropriate clinical placements, or otherwise manage effectively the operations of newly established campuses, our results of operations and financial condition could be adversely affected.

In addition, the inability to expand existing programs efficiently, or successfully, including as a result of constraints on our operations due to COVID-19, pursue new program initiatives, and add new campuses would harm our ability to grow our business and could have an adverse impact on our financial condition.

If APUS does not have strong relationships with, and access to, various military installations and installation education centers, our ability to maintain enrollments from military students and our future growth may be impaired.

As of December 31, 2019 , approximately 57% of APUS’s students self-reported that they served in the military on active duty at the time of initial enrollment, and a significant portion of APUS students rely on DoD tuition assistance programs to pay for their education.

As of December 31, 2020, approximately 61% of APUS’s students self-reported that they served in the military on active duty at the time of initial enrollment, and a significant portion of APUS students rely on TA to pay for their education.

We are highly dependent on our relationship with the military and its members, and our ability to attract and retain military service members as students.

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DoD has issued briefings that prohibit base commanders from authorizing educational institutions to hold regular or recurring office hours solely to provide counseling and prohibit former military members from accessing installations to represent an educational institution using their government ID card privileges.

This has adversely affected our efforts to support existing students and recruit new students.

If we are not able to improve our access to military installations and our existing students on those installations, or find alternative methods to serve those students, our military enrollments could continue to decline.

Furthermore, the DoD MOU, which specifies terms and conditions of participation in DoD tuition assistance programs and is discussed in more depth in “Regulatory Environment - Department of Defense” in Part I, Item 1 of this Annual Report, and the related increased focus by DoD on relationships with and oversight of educational providers, or additional DoD restrictions, could lead to further adverse changes in the nature of our relationships with military installations and their education centers and our access to military service members.

This has adversely affected our efforts to support existing students and serve new students.

Furthermore, the DoD MOU, which specifies terms and conditions of participation in TA and is discussed in more depth in “Regulatory Environment - Department of Defense” in Part I, Item 1 of this Annual Report, and the related increased focus by DoD on relationships with and oversight of educational providers, or additional DoD restrictions, could lead to further adverse changes in the nature of our relationships with military installations and their education centers and our access to military service members.

An inability to maintain strong relationships with installation education centers and with military service members would have an adverse effect on APUS’s ability to attract and retain qualified students, resulting in an adverse effect on our financial condition.

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Events not directly related to education programs that could occur in the future could lead to a reduction in registrations from students on active duty.

For example, large-scale personnel reductions or other significant drawdowns of U.S.

active duty military forces would likely have a negative effect on enrollment and course registrations.

For example, APUS experienced an increase in net course registrations in 2020, which was driven in part by active-duty service members, and which we believe may have been due in part to the impact of the COVID-19 pandemic.

The end of the pandemic could adversely affect enrollments and course registrations by active duty service members.

Large-scale personnel reductions or other significant drawdowns of U.S.

active duty military forces would also likely have a negative effect on enrollment and course registrations.

Increased operations and overseas deployments across all branches of the military and the related increased demands on many active duty service members, combined with limited internet access associated with some deployments, could also negatively impact the ability of certain active duty military students to pursue higher education.

Military budget cuts or constraints could also negatively affect us by leading to force reductions or cuts to services and tools that we or APUS’s students rely upon for recruitment, enrollment, access, and tuition assistance.

Military budget cuts or constraints could negatively affect us by leading to force reductions or cuts to services and tools that we or APUS’s students rely upon for recruitment, enrollment, access, and tuition assistance.

Even temporary changes to military activity and budgets may adversely affect operations.

For example, funding for the federal government, including the DoD, lapsed in January 2018 and February 2018, resulting in partial shutdowns that lasted for a few days and several hours, respectively.

Funding for some portions of the federal government, not including DoD, lapsed on December 22, 2018, resulting in a partial government shutdown that lasted for 35 days.

In addition, as a result of increased demand stemming from improvements in service delivery and raised limits on annual benefits available per sailor, tuition assistance benefits available to sailors for the fiscal year ending September 30, 2019 were exhausted by the end of May 2019, and effective May 28, 2019 the Navy ceased approving tuition assistance program funds for eligible sailors until the start of the new government fiscal year on October 1, 2019.

The temporary exhaustion of Navy tuition assistance program funds had a significant negative impact on our results of operations for the third quarter of 2019, and negatively impacted October 2019 revenue by approximately $0.4 million.

Any future government shutdown or suspension of DoD tuition assistance programs could have a material adverse effect on APUS’s enrollments.

We will remain subject to the risk of events that occur within and with respect to the military, even where they do not directly relate to the use of DoD tuition assistance programs.

Funding for some portions of the federal government, including the Department of Homeland Security and Coast Guard, but not the DoD, lapsed on December 22, 2018, resulting in a partial government shutdown that lasted for 35 days.

In addition, as a result of increased demand stemming from improvements in service delivery and raised limits on annual benefits available per sailor, tuition assistance benefits available to sailors for the fiscal year ending September 30, 2019 were exhausted by the end of May 2019, and the Navy ceased approving tuition assistance program funds for eligible sailors until the start of the new government fiscal year on October 1, 2019.

The temporary exhaustion of Navy tuition assistance program funds had a significant negative impact on our results of operations for the third quarter of 2019.

Any future government shutdown or suspension of TA could have a material adverse effect on APUS’s enrollments.

We will remain subject to the risk of events that occur within and with respect to the military, even where they do not directly relate to the use of TA.

Because of our dependence on active duty military students, changes that occur within and with respect to the military could have a material adverse effect on our operations.

DoD tuition assistance programs offered to service members of the U.S.

Armed Forces constituted approximately 39% of APUS’s adjusted net course registrations for 2019 , and our revenue and number of students would decrease if APUS is no longer able to receive funds under these tuition assistance programs or if tuition assistance is reduced, eliminated, or suspended.

Our revenue and number of students would decrease if APUS is no longer able to receive funds under DoD tuition assistance programs or if tuition assistance is reduced, eliminated, or suspended.

Service members of the U.S.

Armed Forces are eligible to receive tuition assistance from their branch of service through the DoD tuition assistance programs.

Service members may use DoD tuition assistance programs to pursue postsecondary education at institutions that are accredited by an accrediting agency recognized by ED and that satisfy other requirements, including execution of, and compliance with, an MOU that specifies terms and conditions of participation in DoD tuition assistance programs.

Students participating in DoD tuition assistance programs constituted approximately 39% of APUS’s adjusted net course registrations for 2019 .

We do not know the scale or nature of future actions that may be taken with respect to DoD tuition assistance programs, which could include eliminating those programs, reducing the funds, benefits, or level of reimbursement available thereunder, changing the eligibility criteria for beneficiaries, enacting new restrictions on institutional participation or imposing other eligibility criteria on institutions, all of which could impact enrollments from service members.

Armed Forces are eligible to receive tuition assistance from their branch of service through the TA.

Service members may use TA to pursue postsecondary education at institutions that are accredited by an accrediting agency recognized by ED and that satisfy other requirements, including execution of, and compliance with, an MOU that specifies terms and conditions of participation in TA.

Students participating in TA constituted approximately 43% of APUS’s adjusted net course registrations for 2020.

We do not know the scale or nature of future actions that may be taken with respect to TA, which could include eliminating those programs, reducing the funds, benefits, or level of reimbursement available thereunder, changing the eligibility criteria for beneficiaries, enacting new restrictions on institutional participation or imposing other eligibility criteria on institutions, all of which could impact enrollments from service members.

Other administrative changes to DoD programs could also have negative effects on our enrollments.

For example, as discussed in “Regulatory Environment - Department of Defense,” in March 2013, DoD restricted the ability of service members who have not previously taken a postsecondary education course and are in certain overseas duty locations to receive DoD tuition assistance for courses offered by institutions of higher education, such as APUS, that are not parties to contracts with DoD to provide DoD voluntary education programs at those locations.

For example, as discussed in “Regulatory Environment - Department of Defense,” in March 2013, DoD restricted the ability of service members who have not previously taken a postsecondary education course and are in certain overseas duty locations to receive TA for courses offered by institutions of higher education, such as APUS, that are not parties to contracts with DoD to provide DoD voluntary education programs at those locations.

As a result, our ability to retain existing students or enroll new students who are service members at those locations was curtailed.

Changes to eligibility requirements under the DoD tuition assistance programs have already occurred, and we expect there could be additional changes to the programs in the future.

For example, as discussed in “Regulatory Environment - Department of Defense,” several of the military services announced changes to their tuition assistance programs that took effect in federal fiscal years 2014 and 2018.

In addition, effective October 1, 2019, all Navy service members must have a minimum of two years of service before becoming eligible to use tuition assistance or the Navy College Program for Afloat College Education, funding is capped at twelve semester hours per fiscal year, and career funding is capped at 120 semester hours.

Changes to eligibility requirements under TA have already occurred, and we expect there could be additional changes to the programs in the future.

For example, effective October 1, 2019, all Navy service members must have a minimum of two years of service before becoming eligible to TA or the Navy College Program for Afloat College Education, funding is capped at twelve semester hours per fiscal year, and career funding is capped at 120 semester hours, and effective October 1, 2020, funding is capped at 18 semester hours per fiscal year.

These policies could have a negative impact on our enrollments.

Additional changes to DoD tuition assistance programs could occur due to Congressional action or DoD policy and funding changes.

Annual tuition assistance funding is limited and could be exhausted in any given year due to budget constraints or changes in demand or policy.

For example, as a result of increased demand stemming from improvements in service delivery and raised limits on annual benefits available per sailor, tuition assistance benefits available to sailors for the fiscal year ending September 30, 2019 were exhausted by the end of May 2019, and effective May 28, 2019 the Navy ceased approving tuition assistance program funds for eligible sailors until the start of the new government fiscal year on October 1, 2019.

We are unable to predict whether and to what extent the Navy will continue to impose limitations on tuition assistance program approvals as a result of limited funding.

Additional changes to TA could occur due to Congressional action or DoD policy and funding changes.

Annual TA funding is limited and could be exhausted in any given year due to budget constraints or changes in demand or policy.

For example, as a result of increased demand stemming from improvements in service delivery and raised limits on annual benefits available per sailor, TA benefits available to sailors for the fiscal year ended September 30, 2019 were exhausted by the end of May 2019, and the Navy ceased approving TA funds for eligible sailors until the start of the new government fiscal year on October 1, 2019.

The temporary exhaustion of Navy TA funds had a significant negative impact on our results of operations for the third quarter of 2019.

We are unable to predict whether and to what extent the Navy will continue to impose limitations on TA approvals as a result of limited funding.

Furthermore, in March 2020, the Navy announced a new “Education Strategy for Seapower 2020” that is intended to be a new comprehensive education strategy.

While the details and impact of this particular strategy are still uncertain, we expect each military branch and the DoD to continually evaluate their approaches to education, and any resulting changes could have an impact on the funds available to service members to pursue their education at our institutions.

As part of this strategy, the Navy, in cooperation with the U.S.

Marine Corps and the U.S.

Coast Guard, in January 2021 began piloting online courses for the new United States Naval Community College, a community college supporting naval education for enlisted service members, with plans to enroll as many as 5,000 students into targeted associate’s degree programs with partner colleges and universities in a second pilot phase beginning in 2022.

The Armed Forces may also begin offering distance learning through their own institutions.

We expect each military branch and the DoD to continually evaluate their approaches to education, and any resulting changes could have an impact on the funds available to service members to pursue their education at our institutions.

Changes in funding allocations could have a material adverse effect on APUS’s enrollments.

If we are no longer able to receive funds from DoD tuition assistance programs, or if those programs are modified, reduced, eliminated, or temporarily suspended, our enrollments and revenue could be significantly reduced, which would result in a material adverse effect on our results of operations and financial condition.

We also rely on the ability of the Armed Forces to process service members’ participation in the TA programs, and from time to time the DoD or various branches of the Armed Forces have had changes to its processes that have impacted the ability of service members’ to participate in the TA programs and register for courses.

On February 11, 2021, the Army suspended access to its “ArmyIgnitED” portal, which is the portal used by soldiers to participate in TA programs, as part of a scheduled upgrade to the portal.

The suspension is scheduled to last through March 7, 2021, but technical difficulties on March 8, 2021 caused the launch of the upgraded portal to be delayed.

During the suspension, soldiers, Army education counselors, and education institutions such as APUS do not have access to the portal and soldiers cannot register for courses through the Army’s TA program.

There is no assurance when the portal will be operational, or that if operational it will work correctly or efficiently or will not have other impacts on our ability to participate in the TA programs or receive funds under those programs.

If we are no longer able to receive funds from TA, or if those programs are modified, reduced, eliminated, or temporarily suspended, our enrollments and revenue could be significantly reduced, which would result in a material adverse effect on our results of operations and financial condition.

In order to improve the learning experience of our students and to attract students who are likely to persist in our institutions’ programs, we have identified, and continue to work to identify, potential changes and initiatives that we believe will more effectively attract and enroll college-ready students, support those students, and help improve those students’ educational outcomes, including through systems, faculty-related initiatives, and co-curricular initiatives to increase the level of engagement and collaboration in the classroom and to strengthen the bond between APUS and its students.

APUS has made multiple changes to its admissions assessment process and may further modify it in the future in order to better identify college-ready students.

Additional initiatives may include the following:

• revising admissions standards and requirements;

• updates to the admissions process and procedures;

• implementing more stringent satisfactory academic progress standards;

• changing tuition costs and payment options;

• experimenting with additional CBE programs and other alternative delivery methods;

• altering our institutions’ marketing efforts to target the appropriate prospective students.

These initiatives may adversely impact our institutions’ business, financial condition, results of operations, and cash flows, particularly in the near term.

These initiatives require significant time, energy, and resources.

We may not succeed in achieving our objectives due to organizational, operational, regulatory, resource, or other constraints.

Due to the many factors that can impact enrollments, we may not appropriately identify the cause of any adverse impacts, and therefore may not be able to appropriately modify our initiatives.

If our institutions are unable to successfully adjust to future market demands by updating and expanding the content of existing programs and developing new programs, specializations, and modes of teaching on a timely basis and in a cost-effective manner, our performance may be impaired.

We believe that our institutions need to continuously update and expand the content of their existing programs and develop new programs, specializations, and modes of teaching in order to continue to retain and attract qualified students.

However, the updates and expansions of our institutions’ existing programs and the development of new programs and specializations may not be accepted by their accreditors, state regulators, ED, existing or prospective students, or employers.

If we cannot respond to changes in market requirements, our business may be adversely affected.

Even if our institutions are able to develop acceptable new programs, they may not be able to introduce these new programs as quickly as students require or as quickly as competitors introduce competing programs.

To offer a new academic program, our institutions may be required to obtain appropriate federal, state, and accrediting agency approvals, which may be conditioned or delayed in a manner that could significantly affect our growth plans.

If we are unable to respond adequately to changes in market requirements due to financial constraints, regulatory limitations, or other factors, our institutions’ ability to attract and retain students could be impaired and our financial results could suffer.

Establishing new academic programs, specializations, and modes of teaching or modifying or eliminating existing programs requires our institutions to make investments in management, academic resources including faculty, and capital expenditures, incur marketing expenses, and reallocate other resources.

Our institutions may have limited experience providing courses in new fields of study or new modes of teaching (such as CBE, micro-credentials, or other non-degree credentials) and may need to modify systems and strategies or enter into arrangements with other institutions and organizations to provide new programs effectively and profitably.

If our institutions are unable to establish new academic programs, increase the number of students enrolling in new academic programs, offer programs in a cost-effective manner, or otherwise manage effectively the operations of those programs, our results of operations and financial condition could be adversely affected.

We have limited experience participating in the DoD’s credentialing assistance programs, and changes to credentialing assistance programs or funding could have an adverse impact on our business strategy and results of operations.

As discussed in “Regulatory Environment - Student Financing Sources and Related Regulations/Requirements - Department of Defense” in Part I, Item 1 of this Annual Report, branches of the U.S.

military offer credentialing assistance, which links soldiers to and in many cases provides funds for approved training courses or exams related to occupational

certifications, and associated books, supplies and materials.

military offer credentialing assistance, which links soldiers to and in many cases provides funds for approved training courses or exams related to occupational certifications, and associated books, supplies and materials.

While benefits vary by service, service members may be eligible for assistance in paying for certifications, including by vouchers, reimbursement, or grants.

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The Army is now offering an expanded credentialing program called the Army Credentialing Assistance Program, or CA.

Students in the Army may use both DoD tuition assistance and credentialing assistance for CA, subject to a combined cap on benefit amounts.

Students in the Army may use both TA and credentialing assistance for CA, subject to a combined cap on benefit amounts.

As a result, soldiers that take advantage of one of these forms of assistance may not be able to use the other form to the extent that they otherwise might, which could adversely impact enrollments and our results of operations.

Over time, it is possible that increased use of credentialing assistance could result in fewer funds being used or available for tuition assistance.

In addition, to be eligible for credentialing assistance, students must meet certain eligibility requirements, including in some cases service time, experience and DoD tuition assistance eligibility requirements, and the training program must also be eligible.

In addition, to be eligible for credentialing assistance, students must meet certain eligibility requirements, including in some cases service time, experience and TA eligibility requirements, and the training program must also be eligible.

While we believe other service branches may follow the Army’s example in expanding their credentialing programs or pursue other approaches to enhancing support for credentialing, there can be no assurance that they will do so or that we will benefit from any such expansion or enhancement .

In addition, the DoD and military branches could eliminate credentialing assistance programs, reducing the funds, benefits, or level of reimbursement available for credentialing, change the eligibility criteria for beneficiaries, enact new restrictions on institutional participation or impose other eligibility criteria on institutions, all of which could impact enrollments from service members.

Changes to DoD tuition assistance programs and funds could also have an impact on credentialing assistance programs and funds, and vice versa.

If we cannot respond to changes in market requirements, our business may be adversely affected.

Changes to TA and funds could also have an impact on credentialing assistance programs and funds, and vice versa.

If we are unable to successfully pursue HCN’s program initiatives and expansions, including opening new HCN campuses, our future growth may be impaired.

We experienced decreases in enrollment at HCN in 2019, which resulted in a significant decline in revenue in our HCN Segment.

We experienced decreases in enrollment and revenue at HCN in 2019, which we believe were in part caused by policy changes in admissions and academic progression.

The success of HCN will depend on our ability to maintain and increase student enrollments in HCN’s programs and grow HCN’s on-campus offerings.

As part of our strategy, we intend to open new campuses for HCN, such as the new campus in suburban Toledo, Ohio that began operations in early 2017, and the new campus in Indianapolis, Indiana that we expect to begin operations in the second quarter of 2020.

Such actions require us to obtain appropriate federal, state, and accrediting agency

approvals and to comply with any requirements from those agencies related to a new location.

For example, under ABHES rules, HCN was not permitted to seek ABHES approval for a new location until twelve months after HCN received its initial ABHES accreditation in June 2018.

As part of our strategy, we intend to open new campuses for HCN, such as the new campus in Indianapolis, Indiana, that began operations in April 2020 and the new campus in Akron, Ohio, that we expect to begin operations in April 2021.

Such actions require us to obtain appropriate federal, state, and accrediting agency approvals and to comply with any requirements from those agencies related to a new location.

Adding new locations may also require significant financial investments, human resource capabilities, and new clinical placement relationships.

In addition, regulatory authorities may place limitations or restrictions on new programs or campuses, including by only provisionally accrediting programs or limiting the number of initial enrollees.

For example, in November 2019, the Indiana State Board of Nursing voted to grant initial accreditation for a PN Program at HCN’s Indianapolis campus, but growth beyond an initial cohort of up to 30 students for the first year is subject to HCN’s ability to petition to increase the number of admissions after a site visit that will occur upon graduation of the first cohort.

For example, in November 2019, the Indiana State Board of Nursing voted to grant initial accreditation for a PN Program at HCN’s Indianapolis campus, but growth beyond an annual cohort of up to 30 students was subject to HCN’s ability to petition to increase the number of admissions after a site visit that will occur upon graduation of the first cohort, which is expected to happen within the first two years of the campus’ opening.

The Indiana State Board of Nursing will not grant the Indianapolis campus full accreditation status until the first cohort graduates and may not grant full accreditation at that time if the program has a pass rate lower than one standard deviation below the average national pass rate.

If we are unable to, or suffer any delay in our ability to, obtain appropriate approvals, attract additional students to new campus locations, offer programs at new campuses in a cost-effective manner, identify appropriate clinical placements, or otherwise manage effectively the operations of newly established campuses, our results of operations and financial condition could be adversely affected.

In addition, the inability to expand efficiently or successfully existing programs, pursue new program initiatives, and add new campuses would harm our ability to grow the business and could have an adverse impact on our financial condition.

Strong competition in the postsecondary education market could decrease our institutions’ market share and increase our cost of acquiring students.

If we are unable to, or suffer any delay in our ability to, obtain appropriate approvals, attract additional students to new campus locations, offer programs at new campuses in a cost-effective manner, identify appropriate clinical placements, or otherwise effectively manage the operations of newly established campuses, our results of operations and financial condition could be adversely affected.

In addition, the inability to expand existing programs efficiently or successfully, pursue new program initiatives, and add new campuses would harm our ability to grow the business and could have an adverse impact on our financial condition.

Continued strong competition in the postsecondary education market could impact our institutions’ market share and increase our cost of acquiring students.

Within the postsecondary education market, our institutions compete primarily with not-for-profit public and private two-year and four-year colleges, as well as other for-profit schools, particularly those that offer online learning programs.

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These institutions may have instructional and support resources, or course delivery tools, that are superior to those of our institutions and other for-profit schools.

Many of these competitors, whether for-profit, not-for-profit, or public, are also able to leverage their greater scale and size to more efficiently compete.

Many of these competitors, whether for-profit, not-for-profit, or public, are also able to leverage their greater scale and size to compete more efficiently.

Many of our competitors also have substantially greater name recognition and financial and other resources than we have, which may enable them to compete more effectively for potential students, or to provide instructional and support resources that are superior to those of our institutions and other for-profit schools.

In addition, the DoD and military services may establish their own undergraduate education programs and begin offering distance learning for graduate degrees through their own institutions.

In addition, the Armed Forces have established, and may in the future establish, their own postsecondary education programs.

For example, the Department of the Navy, in cooperation with the U.S.

Marine Corps and the U.S.

The Armed Forces may also begin offering distance learning through their own institutions.

Within the postsecondary education market generally, we have experienced increased competition, including the entrance of additional providers of online and non-traditional programs, a shift of for-profit institutions to not-for-profit status, and declines or slower growth in the total postsecondary student population.

According to the National Student Clearinghouse, enrollment in Title IV postsecondary degree-granting institutions in the fall of 2019 decreased 1.3%, compared to the fall of 2018, with a decrease of 2.1% taking place among four-year for-profit schools.

According to the National Student Clearinghouse, enrollment in Title IV postsecondary degree-granting institutions in the fall of 2020 decreased 2.5% compared to the fall of 2019, although four-year for-profit schools.

saw an increase of 5.3%.

Longer term projections suggest that previous growth in enrollment in postsecondary degree-granting institutions is slowing.

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We expect to continue to face greater competition from non-traditional offerings, provided by both educational institutions and non-traditional providers.

In recent years, competing institutions and others have started providing non-traditional education programs without charge or at low costs, including CBE programs, coding bootcamps, and micro-credentialing.

We believe that our institutions will continue to face new competition from non-traditional programs, including lower cost programs.

While we are working to develop our own alternatives in some of these areas, including through the launch of Momentum, a collection of CBE programs at APUS, in the first quarter of 2017, other institutions have programs that are more fully developed, and our offerings may not receive market acceptance.

Since May 2018, APUS has limited enrollments in Momentum until system infrastructure is upgraded.

We are working to develop our own alternatives in some of these areas.

For example, in the first quarter of 2017, we launched Momentum, a collection of CBE programs at APUS.

However, other institutions have programs that are more fully developed, and our offerings may not be successful or receive market acceptance.

We have not yet been successful with Momentum, and there is no assurance that we will be.

Our institutions may not be able to compete successfully against current or future competitors and may face competitive pressures that could adversely affect their business or results of operations.

Increased availability of federal student financial aid for CBE programs could create additional competition and drive additional students toward non-traditional

education programs.

Increased availability of federal student financial aid for CBE programs could create additional competition and drive additional students toward non-traditional education programs.

These competitive factors could cause our institutions’ enrollments, revenue, and profitability to decrease significantly.

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We anticipate that APUS will continue to see strong competition within the military market, which continues to be a primary market for APUS.

There are a number of for-profit schools and not-for-profit institutions that focus on the military market because of the size of the market and the availability of funding, and some for-profit schools seek to attract students eligible for DoD tuition assistance programs, VA education benefits, or both, at least in part as a strategy of those institutions to satisfy the 90/10 Rule, which is described in “Regulatory Environment - Student Financing Sources and Related Regulations/Requirements - Department of Education - Regulation of Title IV Financial Aid Programs - The ‘90/10 Rule.’” Some of these institutions may develop relationships with the military and education service officers that are stronger than APUS’s, which could have an adverse effect on APUS’s ability to attract and retain qualified students, and ultimately, on our financial condition.

There are a number of for-profit schools and not-for-profit institutions that focus on the military market because of the size of the market and the availability of funding, and some for-profit schools seek to attract students eligible for TA, VA education benefits, or both, at least in part as a strategy of those institutions to satisfy the 90/10 Rule, which is described in “Regulatory Environment - Student Financing Sources and Related Regulations/Requirements - Department of Education - Regulation of Title IV Financial Aid Programs - The ‘90/10 Rule.’” Some of these institutions may develop relationships with the military and education service officers that are stronger than APUS’s, which could have an adverse effect on APUS’s ability to attract and retain qualified students, and ultimately, on our financial condition.

In addition, the Armed Forces have established, and may in the future establish, their own postsecondary education programs.

For example, the Department of the Navy, in cooperation with the U.S.

Marine Corps and the U.S.

Coast Guard, in January 2021 began piloting

online courses for the new United States Naval Community College, a community college supporting naval education for enlisted service members, with plans to enroll as many as 5,000 students into targeted associate’s degree programs with partner colleges and universities in a second pilot phase beginning in 2022.

Risks Related to the Regulation of Our Industry

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We and our institutions are subject to extensive regulation by (i) accrediting agencies, (ii) state regulatory bodies, and (iii) the federal government through ED.

APUS and HCN also are subject to DoD and VA oversight because APUS and HCN participate in DoD tuition assistance programs and veterans’ education benefits programs administered by the VA.

APUS and HCN also are subject to DoD and VA oversight because APUS and HCN participate in TA and veterans’ education benefits programs administered by the VA.

Regulations, standards, and policies of these organizations address the vast majority of our institutions’ operations, including their educational programs, facilities, instructional and administrative staff, administrative procedures, marketing, recruiting, financial operations, and financial condition.

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restricting or revoking our institutions’ accreditation, licensure, or other approval to operate;

limiting, suspending, or terminating our institutions’ eligibility to participate in Title IV programs, DoD tuition assistance programs, or VA education benefit programs;

limiting, suspending, or terminating our institutions’ eligibility to participate in Title IV programs, TA, or VA education benefit programs;

requiring us to repay funds, post a letter of credit, or become subject to payment methods for Title IV programs that are not the advance payment system;

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The regulations, standards, and policies of ED, state regulatory bodies, and our institutions’ accrediting agencies change frequently and are subject to interpretive ambiguities.

Recent and pending changes in, or new interpretations of, applicable laws, regulations, standards, or policies, or our noncompliance with any applicable laws, regulations, standards, or policies, could have a material adverse effect on our accreditation, authorization to operate in various states, permissible activities, receipt of funds under DoD tuition assistance programs, ability to participate in Title IV programs, ability to participate in VA education benefit programs, or costs of doing business.

Recent and pending changes in, or new interpretations of, applicable laws, regulations, standards, or policies, or our noncompliance with any applicable laws, regulations, standards, or policies, could have a material adverse effect on our accreditation, authorization to operate in various states, permissible activities, receipt of funds under TA, ability to participate in Title IV programs, ability to participate in VA education benefit programs, or costs of doing business.

We cannot predict with certainty how these regulatory requirements will be applied or whether we will be able to comply, or will be deemed by others to have complied, with all of the requirements.

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These lawsuits in some cases can be prosecuted by a private plaintiff in respect of some action taken by us, even if ED or another regulatory body does not agree with the plaintiff’s theory of liability, or the government can intervene and become a party to the lawsuit.

These lawsuits have the potential to generate significant financial liability linked to our receipt of government funds, including Title IV funding and DoD tuition assistance funds.

These lawsuits have the potential to generate significant financial liability linked to our receipt of government funds, including Title IV funding and TA funds.

If our institutions fail to maintain their institutional accreditation, they would lose the ability to participate in DoD tuition assistance programs and Title IV programs.

Accreditation by an accrediting agency that is recognized by ED is required for participation in DoD tuition assistance programs and Title IV programs.

APUS and HCN participate in DoD tuition assistance programs and Title IV programs.

described more fully in each operating segment’s section in “Our Institutions - Accreditation” and “Regulatory Environment - Accreditation,” APUS is accredited by HLC and HCN is accredited by ABHES, which are institutional accrediting agencies recognized by ED.

Accreditation by an accrediting agency that is recognized by ED is required for participation in TA and Title IV programs.

APUS and HCN participate in TA and Title IV programs.

As described more fully in each operating segment’s section in “Our Institutions - Accreditation” and “Regulatory Environment - Accreditation,” APUS is accredited by HLC and HCN is accredited by ABHES, which are institutional accrediting agencies recognized by ED.

Our institutions’ accrediting agencies may impose restrictions on their accreditation or may terminate their accreditation.

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Failure to meet accreditation criteria or standards or to comply with accreditation policies and requirements could result in the loss of accreditation at the discretion of the accrediting agency.

The complete loss of institutional accreditation at one of our institutions would, among other things, render the institution and its students ineligible to participate in DoD tuition assistance programs and Title IV programs, and have a material adverse effect on our enrollments, revenue, and results of operations.

HCN recently changed accrediting bodies and must satisfy accreditation standards, including specific student achievement indicators, with which it has not historically had to comply.

HCN is accredited by ABHES.

Some of the ABHES accreditation standards differ from those HCN historically needed to meet under the requirements of ACICS, HCN’s former accreditor, which accredited HCN until October 1, 2018.

We have limited experience complying with ABHES requirements.

ABHES imposes certain limitations on newly accredited institutions, including a prohibition on applying for a new non-main or satellite campus during the first twelve months after receiving initial accreditation.

In addition, ABHES annually reviews student achievement indicators, including retention rate, placement rate, and licensing and credentialing examination pass rate.

The complete loss of institutional accreditation at one of our institutions would, among other things, render the institution and its students ineligible to participate in TA and Title IV programs, and have a material adverse effect on our enrollments, revenue, and results of operations.

The postsecondary education regulatory environment has changed and may change in the future as a result of U.S.

federal elections, including as a result of the 2020 U.S.

federal elections.

As a result of the 2020 U.S.

federal elections, Democrats, who tend to support more regulation of and restrictions on for-profit institutions, gained control of the executive branch and both houses of Congress.

The new Presidential administration and new Congress may act to change or eliminate currently effective legislation and ED regulations, or to enact new legislation, and ED, under new leadership, could initiate new rulemaking processes to alter existing regulations and could act to change existing ED policies and practices with respect to matters related to postsecondary education institutions.

For example, the Trump Administration delayed the implementation of, repealed, and amended certain regulations promulgated during the prior administration.

In addition, the new Congress could seek to act under the Congressional Review Act, which establishes legislative procedures through which Congress may adopt a joint resolution of disapproval to nullify certain agency final regulations within a certain time period after the regulations are finalized by the agency.

We cannot predict the extent to which the new Presidential administration and new Congress will act to change or eliminate or to implement new ED regulations, policies, and practices, nor can we predict the form that new regulations, policies, or practices may take.

We also cannot predict the extent any other potential regulatory or legislative activity as a result of the new Presidential administration and Congress may impact us or our institutions, nor can we predict the possible associated burdens and costs.

A failure of HCN to satisfy ABHES accreditation standards, including specific student achievement indicators, could have a material adverse impact on HCN’s student enrollment and our and HCN’s revenue, cash flows, and results of operations .

ABHES annually reviews student achievement indicators, including retention rate, placement rate, and licensing and credentialing examination pass rate.

Under ABHES policy, ABHES may withdraw accreditation at any time if it determines that an institution fails to demonstrate at least a 70% retention rate for each program, a 70% placement rate for each program, and a 70% pass rate on mandatory licensing and credentialing examinations, or fails to meet state-mandated results for credentialing or licensure.

Alternatively, ABHES may in its discretion provide an opportunity for a program to come into compliance within a period of time specified by ABHES, and ABHES may extend the period for achieving compliance if a program demonstrates improvement over time or other good cause.

For the reporting year ended June 30, 2018, several HCN programs did not satisfy ABHES’s threshold requirements for retention rates or placement rates.

As a result, in February 2019, ABHES directed HCN to provide evidence to ABHES that the relevant programs had achieved a retention rate of at least 70% for the period from July 1, 2018 through March 31, 2019 and a placement rate of at least 70% for the reporting year ended June 30, 2018, along with additional documentation and analysis related to those rates and pertinent action plans.

HCN timely submitted the required progress report.

For the reporting year ending June 30, 2019, each of HCN’s programs at each of HCN’s campuses satisfied ABHES’s placement rate requirements but failed to satisfy ABHES’s threshold requirements for retention rates.

In August 2019, ABHES notified HCN that ABHES had placed HCN’s Cleveland, Columbus, Dayton, and Toledo locations on outcomes reporting status, which requires submission of additional documentation regarding student outcomes and action plans for improving these outcomes, with respect to the reporting year ended June 30, 2018.

For the reporting year ended June 30, 2018, several HCN programs did not satisfy ABHES’s threshold requirements for retention rates or placement rates and, for the reporting year ended June 30, 2019, each of HCN’s programs at each of HCN’s campuses satisfied ABHES’s placement rate requirements but failed to satisfy ABHES’s threshold requirements for retention rates.

ABHES determined that the PN Program at each of the Columbus, Dayton, and Toledo campuses did not satisfy ABHES’s retention rate requirement and that it was unable to verify that the ADN Program at each of the Cleveland and Toledo campuses had met ABHES’s placement rate requirement.

In August 2019, ABHES notified HCN that the relevant programs at the Cleveland, Dayton, and Toledo campuses must come into compliance by May 1, 2020 and that the PN Program at the Columbus campus must come into compliance by May 1, 2021.

In October 2019, HCN notified ABHES that the PN Programs at each of the Dayton, Toledo, and Columbus campuses failed to satisfy ABHES’s threshold requirements for retention rates for the reporting year ended June 30, 2019.

In February 2020, ABHES notified HCN that it had taken additional actions with respect to certain HCN programs at certain locations related to those programs’ performance in relation to ABHES student achievement indicators.

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(ii) removed the ADN programs at the Cleveland and Toledo campuses from outcomes reporting status after placement rates for those programs at those locations met the 70% compliance threshold;

(iii) continued outcomes reporting status for the PN program at the Columbus campus because it has not met the retention rate

compliance threshold and reconfirmed that it has until May 1, 2021 to do so;

(iii) continued outcomes reporting status for the PN program at the Columbus campus because it has not met the retention rate compliance threshold and reconfirmed that it has until May 1, 2021 to do so;

and (iv) directed HCN to provide evidence to ABHES that the ADN programs at each of the Columbus, Cleveland, Cincinnati, Dayton, and Toledo campuses and the PN programs at the Cleveland and Cincinnati campuses met the retention rate compliance threshold for the period from July 1, 2019 through March 31, 2020 and informed HCN that those programs must meet the compliance threshold by May 1, 2021.

There can be no assurance that HCN will be able to demonstrate compliance by the relevant deadlines in all cases.

If HCN is unable to bring the programs into compliance during the timeframe established by ABHES, unless such timeframe is extended for good cause, ABHES may take other action, up to and including withdrawing accreditation for those programs.

On April 22, 2020, HCN notified ABHES that, as of March 31, 2020, HCN met the 70% retention rate threshold at each campus location.

For the reporting year July 1, 2019 through June 30, 2020, HCN’s programs satisfied ABHES’s threshold requirements for retention rates, placement rates, and mandatory licensure and credentialing examination pass rates.

There can be no assurance that HCN will be able to

continue to demonstrate compliance in all cases.

If HCN is unable to bring programs into compliance during any timeframe established by ABHES, unless such timeframe is extended for good cause, ABHES may take other action, up to and including withdrawing accreditation for those programs.

In addition, adverse actions taken by ABHES may trigger reporting requirements and ED action under ED’s Borrower Defense Regulations, see “Regulatory Environment - Student Financing Sources and Related Regulations/Requirements - Department of Education - Regulation of Title IV Financial Aid Programs - Borrower Defenses.”

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The actions HCN takes to comply with ABHES requirements may not be successful in resolving existing issues and, if those actions are targeted at specific campuses or programs, may fail to prevent additional issues arising with respect to those or other campuses or programs.

Similarly, even if HCN is successful in the long term in complying with these standards, the actions HCN takes to comply could result in increased costs or decreased enrollments.

Similarly, even if HCN is successful in the long term in complying with these standards, the actions HCN takes to comply could result in increased costs or decreased enrollments, and impairment of goodwill.

Participation in the DoD tuition assistance programs requires compliance with numerous regulations with respect to which the failure to comply could lead to a loss of an ability to participate in these programs or other adverse events.

In order to participate in the DoD tuition assistance programs, institutions must, among other things, comply with an MOU that specifies terms and conditions of participation in DoD tuition assistance programs.

In order to participate in TA, institutions must, among other things, comply with an MOU that specifies terms and conditions of participation in TA.

By signing the MOU, APUS and HCN have agreed to participate in DoD’s Voluntary Education Institutional Compliance Program, or ICP.

An institution that is found noncompliant with DoD requirements through the ICP and demonstrates an unwillingness to resolve a finding may be subject to a range of penalties from a written warning to termination of the institution’s participation in the DoD tuition assistance programs.

For example, as more fully described in “Regulatory Environment - Compliance with Regulatory Standards and the Effect of Regulatory Violations - Compliance Reviews,” in February 2018, DoD issued a report that made two findings about APUS.

First, DoD found that attire worn by an individual providing testimonials on APUS’s public-facing website could be construed as similar to a distinctive part of a military uniform.

Second, DoD found that APUS had failed to provide sufficient information relating to the financial aid process, including a timeline for applying for financial aid.

APUS submitted a corrective action plan and evidence of corrective actions, and in December 2018, DoD notified APUS that all corrective actions had been reviewed and accepted by DoD.

If we are no longer able to receive funds from DoD tuition assistance programs, or if those programs are reduced, eliminated, or temporarily suspended, our enrollments and revenue could be significantly reduced, which would result in a material adverse effect on our results of operations and financial condition.

For example, as more fully described in “Regulatory Environment - Compliance with Regulatory Standards and the Effect of Regulatory Violations - Compliance Reviews,” upon request, in May 2020, APUS submitted a self-assessment in connection with the ICP.

On November 30, 2020, DoD issued a report finding that APUS did not clearly articulate certain policies or clearly make certain disclosures.

APUS has submitted its corrective action plan and is required to submit related evidentiary support by May 31, 2021.

If we are no longer able to receive funds from TA, or if those programs are reduced, eliminated, or temporarily suspended, our enrollments and revenue could be significantly reduced, which would result in a material adverse effect on our results of operations and financial condition.

Our institutions’ student enrollments could decline if they fail to maintain accreditation.

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In February 2018, NACIQI, the panel charged with advising ED on whether to recognize accrediting agencies for Title IV purposes, voted to recommend that ED renew HLC’s recognition for five years.

If HLC were to

lose its recognition as an accrediting agency and APUS was unable to obtain recognition from another recognized accrediting agency, APUS would lose its eligibility to participate in Title IV programs and DoD tuition assistance programs.

If HLC were to lose its recognition as an accrediting agency and APUS was unable to obtain recognition from another recognized accrediting agency, APUS would lose its eligibility to participate in Title IV programs and TA.

The inability of APUS to participate in Title IV programs would have a material adverse effect on enrollments, revenue, financial condition, and results of operations.

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In 2016, NACIQI voted to recommend that ED renew ABHES’s recognition for five years.

If ABHES were to lose its recognition as an accrediting agency and HCN was unable to obtain recognition from another recognized accrediting agency, HCN would lose its eligibility to participate in Title IV programs and DoD tuition assistance programs.

The ineligibility of HCN to participate in Title IV programs would have a material adverse effect on HCN’s enrollments, revenue, financial condition, and results of operations.

The failure of our institutions or their accrediting agencies to comply with Department of Education regulations setting forth new standards and procedures related to institutional eligibility to participate in Title IV and ED’s recognition of accrediting agencies could affect our institutions’ eligibility to participate in Title IV programs.

In October 2018, ED announced that it would establish the Accreditation and Innovation Committee to prepare proposed regulations related to, among other things, ED’s recognition of accrediting agencies and institutional and program eligibility issues, including state authorization and programs offered through distance education.

In April 2019, the Accreditation and Innovation Committee reached consensus on the package of proposed regulatory language.

In June 2019, ED published certain portions of the agreed-upon regulatory language, including those provisions related to accreditation and state authorization, in a notice of proposed rulemaking.

On November 1, 2019, ED published final regulations concerning accreditation and state authorization, portions of which relating to accreditation generally will be effective on July 1, 2020.

The final regulations revise ED’s process for recognition and review of accrediting agencies and the criteria used by ED to recognize accrediting agencies.

The regulations also revise ED’s requirements for accrediting agency oversight of accredited institutions and programs by generally providing accrediting agencies with greater autonomy and flexibility.

On December 11, 2019, in a notice of proposed rulemaking, ED published additional portions of the agreed-upon regulatory language, including provisions related to the participation of faith-based entities in the Title IV programs and certain rules related to the TEACH Grant program.

ED has indicated that it will issue an additional notice of proposed rulemaking to address other provisions in the agreed-upon regulatory language developed as part of the negotiated rulemaking.

We are unable to predict the result of any other current or future rulemakings, or the impact of such rulemakings on our business.

However, the failure of our institutions or their accrediting agencies to comply with any final regulations could affect our institutions’ eligibility to participate in Title IV programs and therefore have a material adverse effect on our business, financial condition, and results of operations.

National or regional accreditation agencies may prescribe more rigorous accreditation standards or special forms of monitoring or action plans for our institutions, which could have a material adverse effect on our student enrollment, revenue, and cash flows.

The accreditation standards of the regional or national accreditation agencies that accredit our institutions can and do vary, and the accreditation agencies may prescribe more rigorous standards than are currently in place.

The ineligibility of

HCN to participate in Title IV programs would have a material adverse effect on HCN’s enrollments, revenue, financial condition, and results of operations.

Institutional accreditation agencies may prescribe more rigorous accreditation standards or special forms of monitoring or action plans for our institutions, which could have a material adverse effect on our student enrollment, revenue, and cash flows.

The accreditation standards of accreditation agencies that accredit our institutions can and do vary, and accreditation agencies may prescribe more rigorous standards than are currently in place.

Complying with more rigorous accreditation standards could require significant changes to the way we operate our business and increase our administrative and other costs.

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If one of our institutions does not meet its accreditation requirements, its accreditation could be limited, modified, suspended, or terminated.

Failure to maintain accreditation would make such institution ineligible to participate in DoD tuition assistance programs and Title IV programs, which could have a material adverse effect on the institution’s student enrollment and revenue.

Failure to maintain accreditation would make such institution ineligible to participate in TA and Title IV programs, which could have a material adverse effect on the institution’s student enrollment and revenue.

Accrediting bodies may adopt new or revised criteria, standards, and policies that are intended to monitor, regulate, or limit the growth of for-profit institutions like ours.

For example, as discussed more fully in “Regulatory Environment - Accreditation,” HLC has adopted a policy to allow HLC to designate publicly an institution as “in financial distress” or “under governmental investigation” where such situations have the potential to impact the institution’s operations and HLC believes the public should have information in making a decision to attend or continue to attend the institution.

As discussed in “Regulatory Environment - Accreditation,” HLC imposed a “governmental investigation” designation on APUS in February 2018 in connection with a CID issued to APUS by the Attorney General of Massachusetts in July 2017.

HLC removed the governmental investigation designation in August 2018 in light of action taken to resolve the CID.

For example, in 2016, HLC adopted a policy to allow it to designate publicly an institution as “in financial distress” or “under governmental investigation” in situations where HLC believes the public should have information when deciding whether to attend or continue to attend the institution.

HLC imposed a “governmental investigation” designation on APUS in February 2018 in connection with a Civil Investigative Demand, or CID, issued to APUS by the Attorney General of Massachusetts in July 2017, and removed the governmental investigation designation in August 2018 in light of action taken to resolve the CID.

If our institutions fail to maintain state authorization in the states where they are physically located, the institutions would lose their ability to grant degrees and other credentials in that state and to participate in Title IV programs and DoD tuition assistance programs.

As discussed in “Regulatory Environment - State Licensure/Authorization,” to participate in Title IV programs and DoD tuition assistance programs, an institution must be legally authorized by the relevant education agency of the state in which it is physically located.

Loss of state authorization by one of our institutions in the state in which it is physically located would cause that institution to be ineligible to participate in Title IV programs and DoD tuition assistance programs and to be unable to operate in the state and grant credentials.

In addition, if one of our institutions were to lose its state authorization, it would lose its institutional accreditation, and if HCN were to lose approval from OBN for the Diploma in Practical Nursing or the Associate Degree in Nursing, or from the Indiana Board of Nursing for the Diploma in Practical Nursing, students in the program lacking approval would not be eligible to apply for licensure by examination to practice nursing in Ohio or Indiana, respectively.

As discussed in “Regulatory Environment - State Licensure/Authorization,” to participate in Title IV programs and TA, an institution must be legally authorized by the relevant education agency of the state in which it is physically located.

Loss of state authorization by one of our institutions in the state in which it is physically located would cause that institution to be ineligible to participate in Title IV programs and TA and to be unable to operate in the state and grant credentials.

In addition, if one of our institutions were to lose its state authorization, it would lose its institutional accreditation, and if HCN were to lose approval from OBN for the PN or the ADN, or from the Indiana Board of Nursing for the PN, students in the program lacking approval would not be eligible to apply for licensure by examination to practice nursing in Ohio or Indiana, respectively.

ED regulations provide that an institution is considered legally authorized by a state if the state has a process to review and appropriately act on complaints concerning the institution, including enforcing applicable state laws, and the institution complies with any applicable state approval or licensure requirements.

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Changes in requirements to participate in SARA or changes to state laws and regulations and the interpretation of those laws and regulations by the applicable regulators may limit our ability to offer educational programs and award degrees.

If one of our institutions were to fail to comply with SARA requirements or state licensing or authorization requirements to provide distance education in a non-SARA jurisdiction, the institution could lose its ability to participate in SARA or may be subject to the loss of state licensure or authorization to provide distance education in that non-SARA jurisdiction, respectively.

If one of our institutions were to fail to comply with SARA requirements or state licensing or authorization requirements to provide distance education in California, currently the only non-SARA state, the institution could lose its ability to participate in SARA

or may be subject to the loss of state licensure or authorization to provide distance education in California.

If one of our institutions were to fail to comply with state requirements to obtain licensure or authorization, it could be subject to injunctive actions or penalties.

On December 19, 2016, ED published the Distance Education Rule, which is more fully described in “Regulatory Environment ‑ State Licensure/Authorization”, addressing, among other issues, state authorization of programs offered through distance education.

After a delay and subsequent court order, the Distance Education Rule took effect on May 26, 2019.

In December 2016, ED published the Distance Education Rule, which is more fully described in “Regulatory Environment ‑ State Licensure/Authorization”, addressing, among other issues, state authorization of programs offered through distance education.

After a delay and subsequent court order, the Distance Education Rule took effect in May 2019.

The Distance Education Rule requires an institution offering distance education programs to be authorized on a state-by-state basis, if such authorization is required by the state, in order to award Title IV aid to such students.

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In October 2018, ED announced its intent to establish a negotiated rulemaking committee to prepare proposed regulations related to, among other things, disclosure and other requirements of state authorization.

On November 1, 2019, ED published final regulations concerning accreditation and state authorization, which generally will be effective on July 1, 2020, except that institutions may in their discretion implement early regulations relating to state authorization and institutional information disclosures.

On November 1, 2019, ED published final regulations concerning accreditation and state authorization, which went into effect on July 1, 2020, except that institutions may in their discretion implement early regulations relating to state authorization and institutional information disclosures.

The final regulations related to state authorization effectively replace the Distance Education Rule.

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and whether the institution or program has any required accreditation.

For example, certain states have refused to license or certify students from particular APUS initial teacher licensure programs on grounds that the program did not meet one or more of the state’s specific licensure requirements or was not approved by the state for purposes of professional licensure.

APUS has determined not to enroll new students in any of its initial teacher licensure programs.

To apply for licensure to practice nursing in Ohio, an applicant must have successfully completed a nursing education program that is approved by the OBN.

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In March 2017, the OBN placed HCN’s ADN Program on provisional approval because the ADN Program has not met the OBN pass rate standard for four consecutive years.

In March 2019, the OBN found that HCN’s ADN Program did not meet the OBN pass rate standard in 2018 for a sixth consecutive year.

In March 2019, the OBN found that HCN’s ADN Program did not meet the OBN pass rate standard in 2019 for a seventh consecutive year.

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If ED determines that a provisionally-certified institution is unable to meet its responsibilities, it may seek to revoke the institution’s certification to participate in Title IV programs with fewer due process protections for the institution than if it were fully-certified.

APUS is certified to participate in Title IV programs through September 30, 2020 and will be required to apply timely for recertification in order to continue to participate in the Title IV programs after that date.

As discussed more fully in “Regulatory Environment - Compliance with Regulatory Standards and the Effect of Regulatory Violations - Compliance Reviews,” in September 2016, ED began a program review of APUS’s administration of the Title IV programs during the 2014-2015 and 2015-2016 award years, and that program review remains open and ongoing.

If the program review and any associated liabilities remain unresolved at the time ED acts on APUS’s recertification application and ED decides to recertify APUS, we believe such recertification is likely to be on a provisional basis because of the unresolved program review and associated liabilities.

In June 2020, APUS timely applied for recertification to participate in Title IV programs.

On September 9, 2020, ED notified APUS that it had completed its review of APUS’s application and had granted APUS provisional certification until June 30, 2023.

ED issued APUS a provisional program participation agreement, or PPPA, outlining the terms of provisional certification.

As described in the PPPA, the reason ED granted approval on a provisional basis is because APUS was subject to an open program review at the time of the PPPA renewal.

As discussed more fully in “Compliance with Regulatory Standards and the Effect of Regulatory Violations - Compliance Reviews,” in September 2016, ED began a program review of APUS’s administration of the Title IV programs during the 2014-2015 and 2015-2016 award years.

That program review was closed on January 27, 2021 with no findings and no further action required.

HCN is certified to participate in Title IV programs through September 30, 2021 and will be required to apply timely for recertification in order to continue to participate in the Title IV programs after that date.

If ED were to withdraw or not renew our institutions’ certification to participate in Title IV programs, our students would no longer be able to receive Title IV program funds or DoD tuition assistance program funds, which would have a material adverse effect on our enrollments, revenue, results of operations, and financial condition.

If ED were to withdraw or not renew our institutions’ certification to participate in Title IV programs, our students would no longer be able to receive Title IV program funds or TA funds, which would have a material adverse effect on our enrollments, revenue, results of operations, and financial condition.

If our institutions are unable to successfully maintain certification or obtain recertification to participate in Title IV programs, they will not be able to participate in DoD tuition assistance programs.

If our institutions are unable to successfully maintain certification or obtain recertification to participate in ED’s Title IV programs, they will not be able to participate in DoD tuition assistance programs because the DoD MOU requires an institution to be certified to participate in Title IV programs in order to participate in DoD tuition assistance programs.

Loss of participation in the DoD tuition assistance programs would have a material adverse effect on our enrollments, revenue, results of operations, and financial condition.

If our institutions are unable to successfully maintain certification or obtain recertification to participate in ED’s Title IV programs, they will not be able to participate in TA because the DoD MOU requires an institution to be certified to participate in Title IV programs in order to participate in TA.

Loss of participation in TA would have a material adverse effect on our enrollments, revenue, results of operations, and financial condition.

A failure to demonstrate “administrative capability” may result in the loss of eligibility to participate in Title IV programs.

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An obligation to post a letter of credit, or to accept other conditions, such as a change in our system of Title IV payment from ED for purposes of disbursement, could increase our costs of regulatory compliance, or affect our cash flow.

In the 2016 Borrower Defense Regulations, ED modified its financial responsibility standards to provide that an institution (other than a public institution) may not be able to meet its financial or administrative obligations, and is therefore not financially responsible, if it is subject to one or more triggering events occurring on or after July 1, 2017.

On September 23, 2019, ED published the 2020 Borrower Defense Regulations, which, among other things, amend ED’s financial responsibility provisions in several respects.

Like the 2016 Borrower Defense Regulations, the 2020 Borrower Defense Regulations identify certain conditions or other triggering events that have or may have an adverse material effect on the institution’s financial condition, in response to which ED would or could require that the institution submit some form of financial protection to ED.

If, under the Borrower Defense Regulations, ED determines that one of our institutions is not financially responsible because of one or more triggering events, the institution would be required to provide an irrevocable letter of credit equal to at least 10% of the amount of federal student financial aid funds received by the institution for the past year.

The 2020 Borrower Defense Regulations identify certain conditions or other triggering events that have or may have an adverse material effect on the institution’s financial condition, in response to which ED would or could require that the institution submit some form of financial protection to ED.

For more on the financial responsibility provisions of the Borrower Defense Regulations, see “Regulatory Environment - Student Financing Sources and Related Regulations/Requirements - Department of Education - Regulation of Title IV Financial Aid Programs - Borrower Defenses.” If, under the 2020 Borrower Defense Regulations, ED determines that one of our institutions is not financially responsible because of one or more triggering events, the institution would be required to provide an irrevocable letter of credit equal to at least 10% of the amount of federal student financial aid funds received by the institution for the past year.

If one of our institutions is found not to have satisfied ED’s financial responsibility requirements, it could be limited in its access to, or lose, Title IV program funds, which would limit our potential for growth and adversely affect our enrollment, revenue, and results of operations.

If we, as the parent company of an eligible institution, are found not to have satisfied ED’s financial responsibility measures, all of our institutions could be limited in their access to, or lose, Title IV program funds, which would limit our potential for growth and adversely affect our enrollment, revenue, results of operations, and financial position.

ED rules now in effect and subsequent rules that take effect July 1, 2020, each setting forth new standards and procedures related to borrower defense-to-repayment claims, and requirements related to dispute resolution, may create significant liability that could have a material adverse effect on our business.

Under the HEA, ED is authorized to specify in regulations which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a Direct Loan.

ED rules that took effect July 1, 2020 setting forth new standards and procedures related to borrower defense-to-repayment claims and requirements related to dispute resolution may create significant liability that could have a material adverse effect on our business.

Under the HEA, ED is authorized to specify in regulations which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a loan under the Direct Loan Program, or a Direct Loan.

Regulations in effect prior to the 2016 Defense Regulations permitted a borrower to assert a borrower defense to repayment of a Direct Loan if the institution’s acts or omissions give rise to a cause of action against the institution under state law.

The 2016 Borrower Defense Regulations, which in part govern which acts or omissions of an institution of higher education a student borrower may assert as a defense to repayment of a loan made under the Direct Loan Program, or a Direct Loan, and certain other matters, create a new federal standard for borrower defenses, new limitation periods for borrower defense claims, and new processes for resolution of such claims.

The 2016 Borrower Defense Regulations, which in part govern which acts or omissions of an institution of higher education a student borrower may assert as a defense to repayment of a Direct Loan, and certain other matters, create a new federal standard for borrower defenses, new limitation periods for borrower defense claims, and new processes for resolution of such claims.

Certain portions of the 2016 Borrower Defense Regulations became effective October 16, 2018 after ED’s delay of the effective date of those regulations and a court decision in legal challenges to the delay.

On September 23, 2019, ED published the 2020 Borrower Defense Regulations, which among other things establish a new federal standard for evaluating, and a new process for adjudicating, borrower defenses to repayment of loans made under the Direct Loan Program on or after July 1, 2020.

The 2016 Borrower Defense Regulations thereafter will continue to apply to all loans made under the Direct Loan Program on or after July 1, 2017 and before July 1, 2020.

On September 23, 2019, ED published the 2020 Borrower Defense Regulations, which became effective July 1, 2020 and which among other things establish a new federal standard for evaluating and a new process for adjudicating, borrower defenses to repayment of loans made under the Direct Loan Program on or after July 1, 2020.

The 2016 Borrower Defense Regulations thereafter continue to apply to all loans made under the Direct Loan Program on or after July 1, 2017 and before July 1, 2020.

For more information on the Borrower Defense Regulations, see “Regulatory Environment - Student Financing Sources and Related Regulations/Requirements - Department of Education - Regulation of Title IV Financial Aid Programs - Borrower Defenses.”

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In recent years, Congress has considered various proposals that would modify the 90/10 Rule.

At this time we cannot predict whether Congress will pass legislation to modify the 90/10 Rule.

In February and March 2021, the House and Senate each passed versions of the American Rescue Plan Act of 2021, which each include a provision that amends the 90/10 Rule to count all federal education assistance, including TA and VA education benefits, towards the “90%” portion of the calculation.

The bill requires additional Congressional approval and Presidential signature prior to enactment.

If the bill is enacted in the form passed by the Senate, the revised 90/10 Rule would be subject to negotiated rulemaking, and we expect the Department of Education to seek in that process to define federal education assistance to include TA and VA education benefits.

Under the bill, the revised 90/10 Rule would go into effect no earlier than July 1, 2023.At this time we cannot predict whether Congress will pass additional legislation to modify the 90/10 Rule, including to decrease the limit on Title IV funds from 90% to 85%.

Such proposals, or other similar legislation, should they become law, could have a material adverse impact on the operations of our institutions.

The 90/10 Rule percentage for our institutions could increase in the future, depending on the impact of future changes in our enrollment mix, and regulatory and other factors outside our control, including, for APUS, any reduction in tuition assistance provided by DoD for service members and education benefits provided by the VA for veterans, or changes in the treatment of such funding for purposes of the 90/10 Rule calculation.

Currently, DoD tuition assistance and VA education benefits are not treated as Title IV revenue under the 90/10 Rule and, therefore, such funding is included in the “10%” portion of the rule calculation.

A reduction in the availability of this type of funding, or a change (through legislation, regulatory action, or an executive order) that requires that those funds be treated in the same manner as Title IV funding under the 90/10 Rule, would increase our institutions’ 90/10 Rule percentage.

The 90/10 Rule percentage for our institutions could increase in the future, depending on the impact of future changes in our enrollment mix, and regulatory and other factors outside our control.

Currently, TA and VA education benefits are not treated as Title IV revenue under the 90/10 Rule and, therefore, such funding is included in the “10%” portion of the rule calculation.

The changes proposed by the American Rescue Plan Act of 2021 do include federal education assistance, which we expect the Department of Education to seek to define as including TA and VA education benefits, in the “90%” portion of the calculation.

If this legislation is enacted, our institutions’ 90/10 Rule percentage will increase.

It could also cause other education institutions to decrease their focus on serving military-affiliated students using TA benefits, and while that could have a positive impact on our enrollments from those students, it could also have an adverse impact on our ability to meet the requirements of the 90/10 Rule.

For the past three years, HCN has derived more than 80% of its total revenue on a cash accounting basis from Title IV programs as calculated under ED’s regulations.

If HCN is unable to attract students who do not depend on Title IV program aid, such as students who finance their own education or receive full or partial tuition reimbursement from their employers, or through VA benefits, HCN’s 90/10 Rule percentage may increase.

If any of our institutions violates the 90/10 Rule and loses eligibility to participate in Title IV programs, it would also lose the ability to participate in the DoD tuition assistance programs because DoD requires institutions to participate in the Title IV programs in order to participate in the tuition assistance programs, and ineligibility of either or both of our institutions to participate in Title IV programs and DoD tuition assistance would have a material adverse effect on our enrollments, revenue, results of operations, and cash flows.

A failure by our institutions to comply with the Department of Education’s incentive payment rule could result in sanctions.

If any of our institutions violates the 90/10 Rule and loses eligibility to participate in Title IV programs, it would also lose the ability to participate in the TA because DoD requires institutions to participate in the Title IV programs in order to participate in TA, and ineligibility of either or both of our institutions to participate in Title IV programs and TA would have a material adverse effect on our enrollments, revenue, results of operations, and cash flows.

A failure by our institutions to comply with the Department of Education’s incentive payment rule could result in sanctions and liability under the False Claims Act.

If one of our institutions pays a bonus, commission, or other incentive payment in violation of the HEA’s prohibition on such payments, commonly referred to as the incentive payment rule, the institution could be subject to sanctions, which could have a material adverse effect on our business.

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In June 2015, ED announced that it will calculate institutional liability for noncompliance with the incentive payment rule by calculating the cost to ED of the Title IV funds improperly received by the institution, including the cost to ED of all of the Title IV funds received by the institution over a particular period of time if those funds were obtained through implementation of a policy or practice in which students were recruited in violation of the incentive payment rule.

As described in “Regulatory Environment - Student Financing Sources and Related Regulations/Requirements - Department of Education - Regulation of Title IV Financial Aid Programs - Incentive Payment Rule,” changes in the interpretation of the regulation may create uncertainty about what constitutes impermissible incentive payments.

Ambiguities as to how the incentive payment rule is interpreted also may influence our approach, or limit our alternatives, with respect to employment policies and practices and consequently may negatively affect our ability to recruit and retain employees, and, as a result, our business could be materially and adversely affected.

The DoD MOU requires that institutions participating in the DoD tuition assistance programs have policies in place compliant with regulations issued by ED related to restrictions on payment of incentive compensation.

In addition, the Improving Transparency of Education Opportunities for Veterans Acts bans incentive compensation based on success in securing enrollments or financial aid with regard to VA benefits.

In addition, third parties may file “qui tam” or “whistleblower” suits on behalf of the federal government under the Federal False Claims Act alleging violation of the incentive payment provision.

The DoD MOU requires that institutions participating in TA have policies in place that are compliant with regulations issued by ED related to restrictions on incentive payments.

In addition, the Improving Transparency of Education Opportunities for Veterans Acts bans incentive payments based on success in securing enrollments or financial aid with regard to VA benefits.

In addition, third parties may file “qui tam” or “whistleblower” suits on behalf of the federal government under the Federal False Claims Act alleging violation of the incentive payment rule.

Such suits may prompt ED investigations, and the federal government may determine to intervene in the lawsuits.

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Educational institutions will lose eligibility to participate in Title IV programs if their cohort default rate exceeds 40% for any given year or is equal to or greater than 30% for three consecutive years.

Due to economic conditions spurred by COVID-19, borrowers may face difficulties in maintaining payments on their student loans.

While Congress and ED have implemented a temporary freeze on student loan payments and interest accruals until at least September 30, 2021, borrowers may still face economic constraints that cause higher default rates in the next few years.

Additionally, our institutions’ cohort default rates for the next few years may be artificially lowered due to the administrative leniency for borrowers during the COVID-19 forbearance period.

When the administrative forbearance period ends, borrowers may face difficulty in making payments on these federal student loans that have been paused for several years.

This could result in a future year with a substantially higher cohort default rate than in years prior to it.

If one of our institutions is required to develop a formal default prevention plan, it may increase our administrative costs which would adversely impact our results of operations.

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Such attention could also lead to Congressional proposals to increase the measuring period, which could negatively impact our default rates.

In the past, members of Congress have also introduced proposed legislation that would assess institutions a share of the costs associated with default of student loans by students who were enrolled in the institutions’ education programs and would tie an institution’s obligation to make such “risk-sharing” payments to the institution’s eligibility to participate in the Title IV programs.

sharing” payments to the institution’s eligibility to participate in the Title IV programs.

If one of our institutions loses its eligibility to participate in Title IV programs because of high student loan default rates, students would no longer be eligible to use Title IV program funds at that institution, which would significantly reduce that institution’s enrollments and revenue and have a material adverse effect on our results of operations.

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HCN’s Title IV compliance audit for the year ended December 31, 2012, identified a deficiency related to timely return of Title IV program funds.

In a Final Audit Determination Letter in February 2014, ED determined that HCN was not required to repay the liability to ED and directed HCN to adopt procedures to prevent reoccurrence.

However, HCN was required to post an irrevocable letter of credit in the amount of approximately $130,000, which was released by ED in February 2018.

APUS’s Title IV compliance audit for the year ended December 31, 2016 identified a finding related to return of Title IV funds calculations that were not properly computed.

In a Final Audit Determination letter dated January 29, 2018, ED conveyed its finding that funds had not been returned timely.

ED also noted that a similar finding had been made in an open program review with respect to which APUS has not yet received a program review report.

In connection with the finding, ED

required APUS to post a letter of credit in the amount of approximately $700,000.

ED ultimately determined that HCN was not required to repay the liability to ED and directed HCN to adopt procedures to prevent reoccurrence, and HCN was required to post an irrevocable letter of credit in the amount of approximately $130,000, which was released by ED in February 2018.

In addition, for example, APUS’s Title IV compliance audit for the year ended December 31, 2016 identified a finding related to return of Title IV funds calculations that were not properly computed.

ED also noted that a similar finding had been made in a program review that ED subsequently closed on January 27, 2021.

In connection with the finding, ED required APUS to post a letter of credit in the amount of approximately $700,000.

APUS posted the letter of credit on March 28, 2018 and it expired December 31, 2019.

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If ED determines that an institution has engaged in substantial misrepresentation, ED may:

(i) if the institution is provisionally certified, revoke an institution’s program participation agreement or impose limitations on its participation in Title IV programs;

(i) if the institution is provisionally certified, as APUS currently is, revoke an institution’s program participation agreement or impose limitations on its participation in Title IV programs;

(ii) deny participation applications made on behalf of the institution;

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Our institutions must comply with certain campus safety and security reporting requirements as well as other requirements in the Clery Act.

The Clery Act requires an institution to report to ED and disclose in its annual security report, for the three most recent calendar years, statistics concerning the number of certain crimes that occurred within the institution’s so-called “Clery geography.” APUS historically has not had to comply with the Clery Act because it is a wholly online institution.

As a result of opening a Veteran’s Center in Charles Town, WV, APUS determined that it is no longer subject to that exclusion and issued its first annual security report in 2016.

The Clery Act requires an institution to report to ED and disclose in its annual security report, for the three most recent calendar years, statistics concerning the number of certain crimes that occurred within the institution’s so-called “Clery geography.” As a result of opening a Veteran’s Center in Charles Town, West Virginia, APUS determined that was no longer subject to that exclusion and issued its first annual security report in 2016.

HCN publishes an annual security report as required by the Clery Act.

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APUS’s educational programs are made available to students through personal computers, mobile devices and other technological devices.

In addition to its on-campus offerings, HCN also provides course content for students through personal computers, mobile devices, and other technological devices.

For each of these programs, the curriculum makes use of a combination of graphics, pictures, videos, animations, sounds, and interactive content.

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Claims and lawsuits brought against us or one of our institutions may result in reputational damage, even if such claims and lawsuits are without merit.

Any one of these sanctions could materially adversely affect our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our institutions, which may materially adversely affect our ability to operate.

ED is currently conducting a program review of APUS’s administration of the Title IV programs, and we cannot predict the outcome of the review.

In September 2016, ED began a program review of APUS’s administration of the Title IV programs during the 2014-2015 and 2015-2016 award years.

As part of the program review, ED conducted a site visit in September 2016.

The program review remains open and ongoing.

We anticipate that certain findings addressed in the 2016 Title IV compliance audit Final Audit Determination letter dated January 29, 2018 will be resolved through the program review process, including a finding that return of Title IV funds calculations were incorrectly computed for some students and a finding that APUS had incorrectly reported the students’ enrollment status to the National Student Loan Data System for some students.

In addition, APUS is certified to participate in Title IV programs through September 30, 2020 and will be required to apply timely for recertification in order to continue to participate in the Title IV programs after that date.

At this time, we cannot predict the outcome of the program review, when it will be completed, or whether it will impose any liability or other limitations on APUS as a result of the review.

Any one of these sanctions could materially

adversely affect our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our institutions, which may materially adversely affect our ability to operate.

Investigations by state Attorneys General, Congress, and governmental agencies may result in increased regulatory burdens and costs.

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A number of state attorneys general have launched investigations into for-profit postsecondary education institutions.

In August 2017, we received from the Attorney General of Massachusetts a CID relating to an investigation of alleged unfair or deceptive acts or practices by American Military University in connection with the recruitment and retention of students and the financing of education.

For example, in August 2017, we received from the Attorney General of Massachusetts a CID relating to an investigation of alleged unfair or deceptive acts or practices by AMU in connection with the recruitment and retention of students and the financing of education.

The CID required the production of documents and information relating to recruitment, enrollment, job placement and other matters.

On August 6, 2018, APUS entered into an AOD to resolve the inquiry.

In August 2018, APUS entered into an AOD to resolve the inquiry.

Pursuant to the terms of the AOD, and without any finding or admission of wrongdoing on APUS’s part, APUS paid $270,000 to the Attorney General and agreed to otherwise comply with applicable Massachusetts regulations.

Other state attorneys general may also initiate inquiries into us or our subsidiaries.

Other state attorneys general may also initiate inquiries into us or our institutions.

Actions by state attorneys general and other governmental agencies, whether or not involving us or our institutions, could damage our reputation and the reputation of our institutions and limit the ability to recruit and enroll students, which could reduce student demand for our institutions’ programs and adversely impact our revenue and cash flow from operations.

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Such allegations could also result in increased scrutiny and regulation by ED, Congress, accrediting bodies, state legislatures, state attorneys general, or other governmental authorities with respect to all for-profit institutions, including us and our institutions.

For these reasons or others, not-for-profit or public educational institutions may take actions to differentiate themselves from the for-profit educational institutions, including by choosing not to enter into collaborations with for-profit institutions, including us, or by excluding for-profit institutions from membership in industry groups.

For these reasons or others, not-for-profit or public educational institutions may act to differentiate themselves from the for-profit educational institutions, including by choosing not to enter into collaborations with for-profit institutions, including us, or by excluding for-profit institutions from membership in industry groups.

Similarly, some corporations may choose not to collaborate with for-profit providers such as us for programs for their employees or for other training purposes.

For example, when Walmart announced that it will not be renewing its partnership agreement with APUS, it announced a new program that only involved not-for-profit institutions.

If we undergo a change in ownership or control, the Department of Education will place our institutions on provisional certification, and the terms of that provisional certification could limit our institutions’ potential for growth and adversely affect our institutions’ enrollment, our revenue, and results of operations.

If we undergo a change in ownership or control, the Department of Education will place our institutions on provisional certification to the extent they are not already on provisional status, and the terms of that provisional certification could limit our institutions’ potential for growth and adversely affect our institutions’ enrollment, our revenue, and results of operations.

ED’s regulations provide that a change of control of a publicly-traded corporation occurs if:

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The conditions of provisional certification or heightened scrutiny by ED could impact, among other things, our institutions’ ability to add educational programs, or additional locations, our ability to acquire other institutions, or our ability to make other significant changes.

In addition, if ED were to determine that our institutions were unable to meet their responsibilities while they were provisionally-certified, ED could seek to revoke our institutions’ certification to participate in Title IV programs with fewer due process protections than if they were fully-certified.

In addition, if ED were to determine that our institutions were unable to meet their responsibilities while they were provisionally-certified, as APUS currently is, ED could seek to revoke our institutions’ certification to participate in Title IV programs with fewer due process protections than if they were fully-certified.

Limitations on our institutions’ operations could, and the loss of our institutions’ certification to participate in Title IV programs would adversely affect our institutions’ enrollments, and our revenue and results of operations.

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If we or one of our institutions experiences a change of ownership or control under the standards of applicable state regulatory bodies, accrediting agencies, ED, or other regulators, we or the institution governed by such agencies must notify or seek the approval of each relevant regulatory agency.

Transactions or events that constitute a change of control include significant acquisitions or dispositions of an institution’s common stock, significant changes in the composition of an institution’s Board of Directors, internal restructurings, acquisitions of institutions from other owners, or certain other transactions.

Some of these transactions or events may be beyond our control.

Our or our institutions’ failure to obtain, or a delay in receiving, approval of any change of control from the relevant regulatory agencies following a transaction involving a change of ownership or control could result in a suspension of operating authority, loss of accreditation, or suspension or loss of ability to participate in Title IV programs, which could have a material adverse effect on our institutions and our financial condition.

Our failure to obtain, or a delay in receiving, approval of any change of control from other states in which we are currently licensed or authorized could require our institutions to suspend activities in that state or otherwise impair our

institutions’ operations.

The potential adverse effects of a change of control could influence, among other things, future decisions by us and our stockholders regarding the sale, purchase, transfer, issuance, or redemption of our stock.

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We have previously incurred significant legal and other costs to respond to Congressional inquiries and could incur significant legal and other costs to respond to any future inquiries.

We cannot predict the extent to which, or whether, these hearings and investigations will result in legislation, further rulemaking affecting our participation in Title IV programs, or litigation alleging statutory violations, regulatory infractions, or common law causes of action.

Congress currently is in the process of considering comprehensive legislation to reauthorize the HEA.

In addition, as a result of the 2020 U.S.

federal elections, Democrats gained control of the executive branch and both houses of Congress.

We cannot predict the extent to which, or whether, Congress may refocus on for-profit educational institutions as a result of these elections, but Democrats tend to support more regulation of and restrictions on for-profit institutions.

We also cannot predict the extent to which, or whether, any hearings or investigations will result in legislation, further rulemaking affecting our participation in Title IV programs, or litigation alleging statutory violations, regulatory infractions, or common law causes of action.

The previous Congress considered comprehensive legislation to reauthorize the HEA.

We cannot predict whether, in what form, or when, the two houses of Congress will reauthorize the HEA or whether, or when, the President will sign reauthorization legislation.

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In recent years, Congress has considered various proposals that would modify the 90/10 Rule.

One current proposal would decrease the limit on Title IV funds from 90% to 85% and another current proposal would maintain the 90% limit but count DoD tuition assistance and VA education benefits toward that limit.

Such a proposal or other similar legislation, should it become law, could have a material adverse impact on the operations of our institutions.

In contrast, another proposal would have eliminated the 90/10 Rule.

At this time we cannot predict the likelihood that Congress or the President will modify the 90/10 Rule or take some other action to limit the use of DoD tuition assistance and VA education benefits at for-profit institutions.

To the extent that any laws or regulations are adopted that limit or condition the participation of for-profit schools or distance education programs in DoD tuition assistance programs or in Title IV programs, or that limit or condition the amount of DoD tuition assistance for which for-profit schools or distance education programs are eligible to receive, our financial condition could be materially and adversely affected.

One current proposal would decrease the limit on Title IV funds from 90% to 85%, another current proposal would maintain the 90% limit but count TA and VA education benefits toward that limit, and another current proposal would both decrease the limit on Title IV funds to 85% and count all federal education assistance funds toward that limit.

The changes proposed by the American Rescue Plan Act of 2021 would include TA and VA education benefits in the “90%” portion of the calculation.

If this legislation is enacted, our institutions’ 90/10 Rule percentage will increase.

These proposals or other similar legislation, should they become law, could have a material adverse impact on the operations of our institutions.

At this time we cannot predict the likelihood that Congress or the President will continue to modify the 90/10 Rule.

To the extent that any laws or regulations, including the American Rescue Plan Act of 2021, are adopted that limit or condition the participation of for-profit schools or distance education programs in TA or in Title IV programs, or that limit or condition the amount of TA for which for-profit schools or distance education programs are eligible to receive, our financial condition could be materially and adversely affected.

Congress has in the past changed, and may in the future change, eligibility standards and funding levels for federal student financial aid programs, DoD tuition assistance, and other programs.

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Congress completed the most recent reauthorization through multiple pieces of legislation and may reauthorize the HEA in a piecemeal manner in the future.

Congress currently is in the process of considering legislation to reauthorize the HEA.

Congress considered legislation to reauthorize the HEA during the 116th Congress, and is expected to consider such legislation again in the future.

Additionally, Congress determines the funding level for each Title IV program on an annual basis.

Future Congressional action, including in reauthorizations or appropriations acts, may result in numerous legislative changes, including those that could adversely affect the ability of our institutions to participate in Title IV programs, DoD tuition assistance programs, and the availability of such funding sources for our students.

Future Congressional action, including in reauthorizations or appropriations acts, may result in numerous legislative changes, including those that could adversely affect the ability of our institutions to participate in Title IV programs, TA, and the availability of such funding sources for our students.

Members of Congress frequently propose legislation to alter or amend the terms under which our institutions participate in the federal student financial aid programs.

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Congressional action may also require our institutions to modify their practices in ways that could result in increased administrative and regulatory expenses.

We are not in a position to predict whether any legislation will be passed by Congress or signed into law in the future.

We are not in a position to predict whether any particular legislation will be passed by Congress or signed into law in the future, but many commentators think it is now more likely that legislation may be enacted that could adversely affect the for-profit education sector given that Democrats, who tend to support more regulation of and restrictions on for-profit institutions, gained control of the executive branch and both houses of Congress as a result of the 2020 U.S.

federal elections.

The reallocation of funding among Title IV programs, material changes in the requirements for participation in such programs, or the substitution of materially different Title IV programs could reduce the ability of certain students to finance their education at our institutions and adversely affect our revenue and results of operations.

Recent and future regulatory developments may adversely impact our institutions’ enrollment, financial condition, results of operations, expenses, and cash flows.

ED has in the past published and in the future may publish additional rules that affect our institutions.

For example, on October 15, 2018, ED published in the Federal Register a notice of its intent to establish the Accreditation and Innovation Committee, including three subcommittees, to prepare proposed regulations on several topics related to the Title IV programs.

In April 2019, the Accreditation and Innovation Committee reached consensus on the package of proposed regulatory language.

Subsequently, ED has issued proposed and, in some cases, final rules related to the topics addressed by that committee.

For more information about the rulemaking processes currently underway, see “Regulatory Environment - Regulatory Activity - Federal Rulemakings.”

Recent and future regulatory developments other than rulemakings may adversely impact our institutions’ enrollment, financial condition, results of operations, expenses, and cash flows.

In addition to publishing rules, ED has in the past and may in the future take other actions that affect our institutions.

For example, in September 2015, ED publicly released its “College Scorecard” website, as discussed in more detail in “Regulatory Environment - Student Financing Sources and Related Regulations/Requirements - Regulation of Title IV Financial Aid Programs - College Scorecard.” Among other characteristics, the College Scorecard allows users to search for schools based upon programs offered, location, size, tax status, mission, and religious affiliation.

In May 2019, ED updated the College Scorecard to include additional information, including program-level outcomes data such as earnings and loan debt, and in November 2019 ED supplemented the College Scorecard to include program-level outcomes data such as median earnings and median loan debt.

We cannot determine the extent to which data collected and published by ED has impacted or may impact our institution’s enrollments, reputation, or operating results, including if students exclude our institutions from consideration because of the College Scorecard’s presentation of our graduation rate, the focus on tax status and our status as a for-profit business, or because of other factors.

We cannot predict the nature of any future rulemakings, actions, or interpretations that may be implemented or adopted by ED.

However, these and future regulatory developments may adversely impact our institutions’ enrollments, financial condition, results of operations, expenses, and cash flows.

Failure to comply with the various federal and state laws and regulations governing HCN’s recently launched program to extend credit to its students could subject us to fines, penalties, obligations to discharge loans and other injunctive requirements, which could have a material adverse effect on our financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.

In July 2018, HCN began offering extended payment plan options, and beginning with enrollments for the term beginning in January 2020, HCN added an additional extended payment program.

The extended payment plan options are designed to assist students with educational costs consisting of tuition, textbooks, and fees.

In 2019, ED updated the College Scorecard to include additional information, including more comprehensive graduation rates and program-level outcomes data such as median earnings and median loan debt.

In December 2020, ED further updated the College Scorecard to include data on average earnings two years out from graduation based on field of study and data on student loan repayment.

We cannot determine the extent to which data collected and published by ED has impacted or may impact our institution’s enrollments, reputation, or

operating results, including if students exclude our institutions from consideration because of the College Scorecard’s presentation of our graduation rate, the focus on tax status and our status as a for-profit business, or because of other factors.

We cannot predict the nature of any future actions that may be implemented by ED.

However, these and future developments may adversely impact our institutions’ enrollments, financial condition, results of operations, expenses, and cash flows.

Failure to comply with the various federal and state laws and regulations governing HCN’s program to extend credit to its students could subject us to fines, penalties, obligations to discharge loans and other injunctive requirements, which could have a material adverse effect on our financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.

In July 2018, HCN began offering an extended payment plan option.

The extended payment plan option is designed to assist students with educational costs consisting of tuition, textbooks, and fees.

Payment plans require monthly payments while the student is enrolled in a program and extend for a period up to six months after the last day of attendance or graduation.

The extended payment plans are subject to various federal and state laws and regulations, such as the Truth in Lending Act as implemented in Regulation Z, the Equal Credit Opportunity Act as implemented in Regulation B, and the Unfair, Deceptive or Abusive Acts or Practices provisions of Title X of the Dodd-Frank Act.

For more on these extended payment plan options and their regulation, see “Our Institutions - Hondros College of Nursing - Sources of Student Financing” and “Regulatory Environment - Student Financing Sources and Related Regulations / Requirements - Additional Sources of Student Payments” in Part I, Item 1 of this Annual Report.

We have limited experience in extending credit to our students and therefore in complying with these laws and regulations.

If we do not comply with laws and regulations applicable to this financing

program, we could be subject to fines, penalties, obligations to discharge loans and other injunctive requirements, which could have a material adverse effect on our financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.

The extended payment plan is subject to various federal and state laws and regulations, such as the Truth in Lending Act as implemented in Regulation Z, the Equal Credit Opportunity Act as implemented in Regulation B, and the Unfair, Deceptive or Abusive Acts or Practices provisions of Title X of the Dodd-Frank Act.

For more on this extended payment plan option and its regulation, see “Our Institutions - Hondros College of Nursing - Sources of Student Financing” and “Regulatory Environment - Student Financing Sources and Related Regulations / Requirements - Additional Sources of Student Payments” in Part I, Item 1 of this Annual Report.

If we do not comply with laws and regulations applicable to this financing program, we could be subject to fines, penalties, obligations to discharge loans and other injunctive requirements, which could have a material adverse effect on our financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.

Additionally, an adverse allegation, finding or outcome in any of these matters could also materially and adversely affect our ability to maintain, obtain or renew licenses, approvals or accreditation and maintain eligibility to participate in Title IV programs or serve as a basis for ED to discharge certain Title IV student loans and seek recovery for some or all of its resulting losses from us, either of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows, and result in the imposition of significant restrictions on us and our ability to operate.

Risks Related to Our Business

DoD’s MOU includes terms and conditions that impose extensive regulatory requirements on our institutions with respect to participation in DoD tuition assistance programs.

Each institution participating in DoD tuition assistance programs is required to sign an MOU outlining certain commitments and agreements between the institution and DoD prior to accepting funds from DoD tuition assistance programs.

In 2014, DoD promulgated new regulations and institutions were required to sign a new MOU, which we refer to as the DoD MOU, in order to continue to participate in DoD tuition assistance programs.

For more information about the requirements imposed by the DoD MOU, see “Regulatory Environment - Department of Defense.” We cannot predict precisely what type of immediate sanctions, if any, will be implemented before an institution loses the ability to participate in DoD tuition assistance programs for failure to comply with the DoD MOU.

We believe that DoD may also impose sanctions other than denying an institution the ability to participate in tuition assistance programs, including restricting student enrollment in tuition assistance programs, suspending an institution from enrolling new students, limiting access to military installations, subjecting the institution to heightened compliance oversight, or otherwise limiting an institution’s ability to participate in tuition assistance programs.

If we fail to comply with the requirements of the DoD MOU or any successor MOU, we will not be able to participate in DoD tuition assistance programs, which could have a significant adverse effect on our results of operations and financial condition.

Our business could be harmed if our institutions experience a disruption in their ability to process Title IV financial aid.

We collected a substantial portion of our fiscal year 2019 consolidated revenue from receipt of Title IV financial aid program funds.

Any processing disruptions by ED, by our institutions, or by third-party service providers may impact the ability of our institutions’ students to obtain Title IV financial aid on a timely basis.

If our institutions experience a disruption in their ability to process Title IV financial aid, either because of administrative challenges on their part or the part of their vendors, or the inability of ED to process Title IV funds on a timely basis, it could have a material adverse effect on our institutions’ business and on our financial condition, results of operations, and cash flows.

If our institutions experience a disruption in their ability to process Title IV financial aid because of administrative challenges on their part or the part of their vendors, ED could require that our institutions become subject to payment methods for Title IV programs that are not the advance payment system, which could have a material adverse effect on our institutions’ cash flows.

We have recently implemented a shared services model for services between APEI and APUS, and APEI and HCN, and challenges encountered due to the implementation of this model may cause strategic or operational challenges and adversely impact us.

Beginning in 2016, we began to invest capital and human resources in the transition and planned implementation of the shared services model pursuant to which APEI will provide services to APUS and HCN that were previously handled directly within APUS and HCN, as well as in changes to our systems and training of employees, among other things.

We also separated the roles of President of APUS and CEO of APEI, although subsequently our CEO, Dr.

Boston, resumed both positions until a new CEO of APEI was appointed effective September 23, 2019.

In December 2016, APUS submitted a change of structure application to HLC in connection with the proposed implementation of the shared services model.

In November 2018, HLC notified APUS that the HLC Board of Trustees approved the change in structure application and extended APUS’s accreditation following adoption of the shared services model, which we subsequently implemented.

As required by HLC policy and ED regulation, HLC conducted a focused site visit in May 2019.

The site visit team found that evidence of compliance with the commitments APUS made in its application and with HLC’s Eligibility Requirements and Criteria for Accreditation was sufficiently demonstrated and no further follow up was recommended.

In August 2019, HLC notified APUS that HLC’s Institutional Actions Council, which conducts reviews and takes action on accreditation recommendations, concurred with the site visit team’s findings.

As with any operational change, the implementation of the shared services model, and the evaluation and implementation of any leadership changes, could lead to strategic and operational challenges, distractions of management from other key initiatives, inefficiencies, or increased costs, any of which could adversely affect our business, financial condition, results of operations, and cash flows.

Efforts to diversify our business outside of the traditional areas served by our institutions may provide strategic and operational challenges that we are not prepared or able to address.

We intend to continue to explore opportunities to invest in the education industry, which could include purchasing or investing in other education-related companies or companies developing new technologies.

As we seek opportunities to expand our business and serve markets beyond those traditionally served by our institutions, we may encounter strategic and operational challenges different from those within our existing institutions.

Our institutions may have limited experience operating in new businesses and markets or new modes of teaching (such as CBE, micro-credentials, or other non-degree credentials) and may need to modify systems and strategies or enter into arrangements with other institutions and organizations.

In addition, our systems and infrastructure may not be able to respond quickly enough to support new business opportunities, or we may not otherwise be able to address the strategic or operational differences of these new opportunities.

If we are unable to successfully capitalize on new opportunities, the value of our common stock may decline over time, including because of the challenges of growing our core business under our current model.

As part of our business strategy, we have entered into, and may enter into or seek to enter into, business combinations and acquisitions that may be difficult to integrate, disrupt our business, dilute stockholder value, or divert management attention.

We may seek to enter into business combinations or acquisitions in the future.

In October 2020, we entered into a definitive agreement to acquire Rasmussen University.

We may seek to enter into additional business combinations or acquisitions in the future.

Acquisitions are typically accompanied by a number of risks, including:

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We also previously recorded a charge in 2016 to reduce the carrying value of our goodwill as a result of a determination that the fair value of HCN was less than its carrying value.

Our acquisition of an educational institution would also likely be considered a change in ownership and control of the acquired institution under applicable regulatory standards, as in the HCN acquisition.

For such an acquisition, we may need approval from ED, applicable state agencies and accrediting agencies, and possibly other regulatory bodies, a number of which can only be requested after completion of the acquisition.

The Rasmussen Acquisition will be, and our acquisition of any other educational institution would also likely be, considered a change in ownership and control of the acquired institution under applicable regulatory standards, as in the HCN acquisition.

For such an acquisition, we may need approval from ED, applicable state agencies and accrediting agencies, and

possibly other regulatory bodies, a number of which can only be requested after completion of the acquisition.

Our inability to obtain such approvals with respect to a completed acquisition could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

If we are not successful in completing acquisitions, we may incur substantial expenses and devote significant management time and resources without a productive result.

In addition, future acquisitions could result in dilutive issuances of securities or could require use of substantial portions of our available cash, as in the HCN acquisition, or issuances of debt, which could adversely affect our financial condition.

We have limited experience in making investments in other entities, and any such investments may not result in strategic benefits for our business or could expose us to other risks.

To assist us in achieving elements of our business strategy or to further develop our business capabilities, from time to time we will consider and may pursue strategic investments and acquisitions.

These transactions could include, among other things, investments in, partnerships or joint ventures with, or the acquisition of, other schools, service providers or education technology related companies, among other types of entities.

Investing in another entity requires expertise in evaluating another entity’s business and identifying strategic benefits of a potential investment in such entity, among other expertise.

These types of investments involve significant challenges and risks, including that the investment does not advance our business strategy, that we do not realize a satisfactory return on our investment, that we acquire unknown liabilities, or that management’s attention is diverted from our core business.

These events could harm our operating results or financial condition.

Any investments in other entities may also subject us to the operating and financial risks of such entities, and we rely on the internal controls and financial reporting controls of such entities.

We have made minority investments in entities in which we do not have sole control, which present risks in addition to those that apply to other investments or acquisitions.

These investments include our investment in a holding company that acquired and now operates New Horizons Worldwide, Inc., or New Horizons, our investment in preferred stock of Fidelis Education, Inc., or Fidelis Education, our investment in preferred stock of Second Avenue Software, Inc., or Second Avenue, and our investment in preferred stock of RallyPoint, an online social network for members of the military.

Although we have the right to representation on the Board of Directors of the holding company of New Horizons, the Board of Directors of Fidelis Education, and the Board of Directors of Second Avenue, and have observer rights for the Board of Directors of RallyPoint, we do not have the ability to control the policies, management or affairs of these entities, and generally we would not have that ability in any minority investment in an entity.

The interests of persons who control the entities in which we have invested and may invest may differ from our interests, and they may cause such entities to take actions that are not in our best interest, and we may become involved in disputes with such persons.

Our inability to control entities in which we make minority investments could negatively affect our ability to realize the strategic benefits of those investments.

We have made these minority investments to realize strategic benefits for our business, rather than to generate income or capital gains from these investments, and we may make future minority investments for similar purposes.

We cannot ensure that we will realize any strategic benefits from these investments in the near-term or at all.

To the extent that the strategic benefits of any investment are not timely realized, or the investment otherwise underperforms, we may wish to dispose of the investment.

Because our interests in entities in which we have made minority investments, such as New Horizons, Fidelis Education, Second Avenue, and RallyPoint are highly illiquid and not traded in any public market, we may not be able to timely dispose of these interests, or may have to sell at less than our carrying value.

Further, should the value of these investments become impaired, we may be required to reduce the carrying value of these investments.

For example, we recorded a non-cash, pretax impairment charge of $0.5 million for the fiscal year ended December 31, 2018, to reduce the carrying value of certain minority investments to their fair value.

Our inability to dispose of our interest in such an entity, or a reduction in the carrying value of such an entity on our books, would negatively affect our operating results.

In addition, future acquisitions could result in dilutive issuances of securities or could require use of substantial portions of our available cash, as in the HCN acquisition, or issuances of debt, as is anticipated in connection with the Rasmussen Acquisition, which could adversely affect our financial condition.

The Rasmussen Acquisition may not be completed on the anticipated timeline, or at all, and the failure to complete the Rasmussen Acquisition could adversely impact our business, results of operations, financial condition, and the market price of our common stock.

The closing of the Rasmussen Acquisition is subject to a number of conditions as set forth in the Rasmussen Agreement that must be satisfied or waived, including among others, (i) regulatory review by ED, approval by HLC, and approval of or notices to other regulatory and accrediting bodies, (ii) filings with and consents required to be made or obtained under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the expiration of any related waiting period, (iii) enrollment in Rasmussen University’s nursing programs, in the term prior to closing, not having declined by more than five percent from enrollment as of the start of the same academic term in the prior academic year, and (iv) ED approval of Rasmussen University’s March 2019 prior change in ownership.

There can be no assurance that all required approvals will be obtained or that all other closing conditions will otherwise be satisfied or waived, and, if all required approvals are obtained and all closing conditions are satisfied or waived, we can provide no assurance as to the terms, conditions and timing of such approvals or that the Rasmussen Acquisition will be completed in a timely manner or at all.

Certain of the conditions to completion of the Rasmussen Acquisition are not within either our or Rasmussen University’s control, and we cannot predict when or if these conditions will be satisfied or waived.

Even if regulatory approval is obtained, it is possible conditions will be imposed that could result in a material delay in, or the abandonment of, the Rasmussen Acquisition or otherwise have an adverse effect on us.

The Rasmussen closing is also dependent on the accuracy of representations and warranties made in the Rasmussen Agreement (subject to customary materiality qualifiers and other customary exceptions) and the performance in all material respects by the parties of obligations imposed under the Rasmussen Agreement.

If the Rasmussen Acquisition is not completed within the expected timeframe or at all, we may be subject to a number of material risks.

The price of our common stock may decline to the extent that current market prices reflect a market assumption that the Rasmussen Acquisition will be completed.

In addition, some costs related to the Rasmussen Acquisition must be paid whether or not the Rasmussen Acquisition is completed, and we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed transaction, as well as the diversion of management and resources towards the Rasmussen Acquisition, for which we will have received little or no benefit if completion of the Rasmussen Acquisition does not occur.

We may also experience negative reactions from our investors, students, and employees and faculty.

We are relying on the availability of financing under a commitment letter for debt financing, or alternative financing, to fund a portion of the purchase price for the Rasmussen Acquisition.

We plan to finance a portion of the aggregate purchase price for the Rasmussen Acquisition.

In connection with the Rasmussen Acquisition, we entered into a commitment letter for (i) a senior secured term loan facility in the aggregate principal amount of $175 million, or the Term Facility, and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $20 million, or together with the Term Facility, the Facilities, the terms of which are expected to be finalized on or prior to the closing.

The obligations of the lenders under the commitment letter are subject to conditions, which may not be met.

We currently expect to pay up to $175 million of the cash consideration for the Rasmussen Acquisition with proceeds from the Facilities.

There can be no guarantee that we will be able to close the Facilities or any alternative financing arrangements on commercially reasonable terms or at all.

If the Facilities are not available, and alternative financing cannot be secured, we may not be able to pay the cash consideration for the Rasmussen Acquisition, in which case the Rasmussen Acquisition would not be completed.

We have incurred, and will continue to incur, significant transaction costs and integration costs in connection with the Rasmussen Acquisition.

We have incurred, and will continue to incur, significant costs, expenses and fees, including fees for professional services and other transaction costs, in connection with the Rasmussen Acquisition, including costs that we may not currently expect.

We must pay many of these costs and expenses whether or not the transaction is completed.

In addition, we expect to

incur significant integration costs after the Rasmussen closing.

There are a number of factors beyond our control that could affect the total amount or the timing of these costs and expenses.

Integrating our business with Rasmussen’s business may be more difficult, costly or time-consuming than expected, and we may not realize the expected benefits of the Rasmussen Acquisition, which may adversely affect our business results.

If we experience greater than anticipated costs to integrate or are not able to successfully integrate Rasmussen into our existing operations, we may not be able to achieve the anticipated benefits of the Rasmussen Acquisition, including cost savings and other synergies and growth opportunities.

Even if the integration of Rasmussen’s business is successful, we may not realize all of the anticipated benefits of the Rasmussen Acquisition during the anticipated time frame, or at all.

For example, events outside our control, such as changes in regulation and laws, as well as economic trends, including as a result of the COVID-19 pandemic, could adversely affect our ability to realize the expected benefits from this acquisition.

In addition, Rasmussen is a privately held company and has not been required to maintain an internal control infrastructure that would meet the standards of a public company, including the requirements of the Sarbanes-Oxley Act of 2002.

The costs that we may incur to implement such controls and procedures may be substantial and we could encounter unexpected delays and challenges in this implementation.

In addition, we may discover significant deficiencies or material weaknesses in the quality of Rasmussen’s financial and disclosure controls and procedures

An inability to realize the full extent of the anticipated benefits of the Rasmussen Acquisition, as well as any delays encountered in the integration process, could have an adverse effect upon our revenue, level of expenses and operating results, which may adversely affect the value of our common stock after the completion of the Rasmussen Acquisition.

In addition, it is possible that the integration process could result in the loss of key employees, errors or delays in the implementation of shared services, the disruption of our ongoing business or inconsistencies in standards, controls, procedures, and policies that adversely affect our ability to maintain relationships with students, faculty and other employees or to achieve the anticipated benefits of the Rasmussen Acquisition.

Integration efforts also may divert management attention and resources.

Rasmussen may have liabilities that are not known to us.

Rasmussen may have liabilities that we failed, or were unable, to discover in the course of performing our due diligence investigations.

Following the completion of the Rasmussen Acquisition, we may learn additional information about Rasmussen that materially adversely affects us, such as unknown or contingent liabilities and liabilities related to compliance with applicable laws.

Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition, and results of operations.

We expect to incur substantial indebtedness under the Facilities, the cost of servicing that debt could adversely affect our business and financial results, and we may not be able in the future to service that debt.

Our ability to make scheduled payments on or to refinance our obligations under the Facilities or any alternative debt financing arrangements will depend on our financial and operating performance, which will be affected by economic, financial, competitive, business, and other factors, some of which are beyond our control.

The indebtedness we expect to incur in connection with the Rasmussen Acquisition will require us to dedicate a substantial portion of our cash flow to servicing this debt, thereby reducing the availability of cash to fund other business initiatives.

There can be no assurance that our business will generate sufficient cash flow from operations to service our indebtedness or to fund our other liquidity needs.

If we are unable to meet our debt obligations or fund our other liquidity needs, we may need to restructure or refinance all or a portion of our indebtedness on or before maturity or sell certain of our assets.

There can be no assurance that we will be able to restructure or refinance any of our indebtedness on commercially reasonable terms, if at all, which could cause us to default on our debt obligations and impair our liquidity.

In addition, upon the occurrence of certain events, such as a change of control, we could be required to repay or refinance our indebtedness.

Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.

There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

If we are unable to generate or borrow sufficient cash to make payments on our indebtedness, our business and financial condition would be materially harmed.

DoD’s MOU includes terms and conditions that impose extensive regulatory requirements on our institutions with respect to participation in DoD tuition assistance programs.

Each institution participating in TA is required to sign an MOU outlining certain commitments and agreements between the institution and DoD prior to accepting funds from TA.

In 2014, DoD promulgated new regulations and institutions were required to sign a new MOU, which we refer to as the DoD MOU, in order to continue to participate in TA.

We believe that DoD may also impose sanctions other than denying an institution the ability to participate in TA, including restricting student enrollment in tuition assistance programs, suspending an institution from enrolling new students, limiting access to military installations, subjecting the institution to heightened compliance oversight, or otherwise limiting an institution’s ability to participate in TA.

If we fail to comply with the requirements of the DoD MOU or any successor MOU, we will not be able to participate in TA, which could have a significant adverse effect on our results of operations and financial condition.

Our business could be harmed if our institutions experience a disruption in their ability to process Title IV financial aid.

We collected a substantial portion of our fiscal year 2020 consolidated revenue from receipt of Title IV financial aid program funds.

Any processing disruptions by ED, by our institutions, or by third-party service providers may impact the ability of our institutions’ students to obtain Title IV financial aid on a timely basis.

We have implemented a shared services model for services between APEI and APUS, and APEI and HCN, and challenges encountered due to the ongoing operation and potential expansion of this model may cause strategic or operational challenges and adversely impact us.

Beginning in 2016, we began to invest capital and human resources in the transition and planned implementation of the shared services model pursuant to which APEI would provide services to APUS that were previously handled directly within APUS and HCN, as well as in changes to our systems and training of employees, among other things.

In December 2016, APUS submitted a change of structure application to HLC in connection with the proposed implementation of the shared services model.

As required by HLC policy and ED regulation, HLC conducted a focused site visit in May 2019.

In August 2019, HLC notified APUS that HLC’s Institutional Actions Council, which conducts reviews and acts on accreditation recommendations, concurred with the site visit team’s findings.

During 2020, we expanded the use of our shared services model and APUS now provides additional services to HCN.

The operation and potential continued expansion of the shared services model could lead to strategic and operational challenges, inefficiencies, or increased costs, any of which could adversely affect our business, financial condition, results of operations, and cash flows.

Efforts to diversify our business outside of the traditional areas served by our institutions may provide strategic and operational challenges that we are not prepared or able to address.

We may need additional capital in the future, but there is no assurance that funds will be available on acceptable terms.

We may need additional capital in the future for various reasons, including to finance business acquisitions such as the Rasmussen Acquisition and investments in technology or to achieve growth or fund other business initiatives, but there is no assurance that capital will be available in sufficient amounts or on terms acceptable to us and may be dilutive to existing stockholders.

Additionally, any securities issued to raise capital may have rights, preferences, or privileges senior to those of existing stockholders.

If adequate capital is not available or is not available on acceptable terms, our and our institutions’ ability to expand, develop or enhance services or products, or respond to competitive pressures, will be limited.

Our access to capital markets and sourcing for additional funding to expand or operate our business is subject to market conditions.

Credit concerns regarding the for-profit postsecondary education industry as a whole also may impede our access to capital markets.

If we are unable to obtain needed capital on terms acceptable to us, we may have to limit strategic initiatives or take other actions that materially adversely affect our business, financial condition, results of operations, and cash flows.

Economic and market conditions in the U.S.

and abroad, including as a result of COVID-19, and changes in interest rates, could affect our enrollments, success with placement and persistence and cohort default rates.

Our business has been and may in the future be adversely affected by a general economic slowdown or recession in the U.S.

or abroad, including the impact of COVID-19.

Our institutions derive a significant portion of their revenue from Title IV programs, which include student loans with interest rates subsidized by the federal government.

Additionally, some students finance their education through private loans that are not government subsidized.

Historically low interest rates have created a favorable borrowing environment for students.

However, our students may have to pay higher interest rates on their Title IV program loans and private loans as a result of recent interest rate increases.

Increases in applicable interest rates could result in a corresponding increase in educational costs to our existing and prospective students, which could result in a reduction in our enrollment.

Higher interest rates could also contribute to higher default rates with respect to our students’ repayment of their education loans.

Higher default rates may in turn adversely impact our eligibility to participate in some Title IV programs, which could adversely impact our operations and financial condition.

Adverse economic developments such as the COVID-19 pandemic that affect the United States could also result in a reduction in the number of jobs available to our graduates and lower salaries being offered in connection with available employment, which, in turn, could result in declines in our success with placements and persistence.

In addition, adverse economic developments could adversely affect the ability or willingness of our former students to repay student loans, which could increase our institutions’ student loan cohort default rates and require increased time, attention, and resources to manage these defaults.

Our institutions’ students are able to borrow Title IV loans in excess of their tuition and fees.

The excess is received by such students as a credit balance refund.

However, if a student withdraws, our institutions must return any unearned Title IV funds (which may include a portion of the credit balance refund) and must seek to collect from the student any resulting amounts owed to the institution.

A protracted economic slowdown could negatively impact such students’ abilities to satisfy debts to the institution, including debts that result from returns of unearned Title IV amounts.

As a result, the amount of Title IV funds we would have to return without repayment from our institutions’ students could increase, and our financial results could suffer.

We may not be able to successfully manage and limit our exposure to bad debt.

We experienced an increase in bad debt in our HCN segment for the year ended December 31, 2019 and have experienced increases in other recent interim periods in both our HCN and APUS segments.

We believe these increases in bad debt in our HCN segment have been primarily driven by HCN’s implementation of extended payment plan options in 2018.

For more information on the extended payment plan options, see “Our Institutions - Hondros College of Nursing - Sources of Student Financing” and “Regulatory Environment - Student Financing Sources and Related Regulations / Requirements - Additional Sources of Student Payments” in Part I, Item 1 of this Annual Report.

We also experienced increases in our bad debt expense over several years prior to 2015, particularly at APUS.

We believe those increases were primarily driven by an increase in the number of students using Title IV program funds, operational policies, processing challenges, and challenges collecting funds primarily related to students who did not complete courses.

In September 2015, APUS changed the method by which it disburses Title IV program funds in an effort to lower bad debt expense and to reduce the attractiveness of our programs to students who are seeking to abuse the Title IV programs.

While we have experienced decreases in bad debt expense at APUS during each of the last several years, there is no assurance that these changes caused the reductions.

We experienced an increase in bad debt in our HCN segment for the years ended December 31, 2019 and 2020.

We believe these increases in bad debt in our HCN segment have been primarily driven, in 2019, by HCN’s implementation of an

extended payment plan option and, in 2020, by increases in revenue as a result of increases in enrollment.

For more information on the extended payment plan option, see “Our Institutions - Hondros College of Nursing - Sources of Student Financing” and “Regulatory Environment - Student Financing Sources and Related Regulations / Requirements - Additional Sources of Student Payments” in Part I, Item 1 of this Annual Report.

We have also had periods at APUS where we have experienced increases in our bad debt expense, and there is no assurance that bad debt expense will not increase at APUS again in the future.

There is no assurance that we will be able to limit our exposure to bad debt or that steps we take to limit bad debt will be effective.

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We rely on third-party vendors whose service may be of lower quality than ours, whose responsiveness may be less timely than ours, and whose compliance practices may increase our operational and compliance risk.

We rely on third-party vendors to provide certain services to our institutions and their students primarily related to information technology services and financial aid processing, and expect to rely more heavily on such vendors, particularly through cloud computing services, for certain information technology services in the future.

We rely on third-party vendors to provide certain services to our institutions and their students primarily related to information technology services, our learning management system, and financial aid processing, and expect to rely more heavily on such vendors, particularly through cloud computing services, for certain information technology services in the future.

While we monitor and assess the service of these vendors, it is possible that the quality of their service and the timeliness of their responses may be less than the service and responsiveness that we or our institutions would provide.

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Using third-party vendors increases compliance risk that the vendors may not adequately protect personal information regarding our institutions’ students and their families, or that they may not comply with applicable federal or state regulations applicable to our institutions’ business.

Further, transitioning from existing vendors or from in-house processes to new providers or from third-party providers to in-house processes involves inherent risks, including the risk of significant disruptions of integral processes.

Further, transitioning from existing vendors or from in-house processes to new providers or from third-party providers to in-house processes or vice versa, such as the replacement of the open-source Sakai CLE learning management system with a commercial cloud-based system in 2020, involves inherent risks, including the risk of significant disruptions of integral processes.

In the event third-party vendors fail to provide services, lack adequate continuity planning, or fail to provide necessary implementation or transition services, our financial condition and results of operations could be adversely affected.

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If our institutions fail to satisfy the administrative capability requirements, ED may require the repayment of Title IV program funds, transfer our institutions from the “advance” system of payment of Title IV program funds to heightened cash monitoring status, or to the “reimbursement” system of payment, place our institutions on provisional certification status, or commence a proceeding to impose a fine or to limit, suspend, or terminate our institutions’ participation in Title IV programs, which would adversely affect our institutions’ enrollment, revenue, and results of operations.

In addition, our institutions’ ability to participate in Title IV programs and DoD tuition assistance programs is conditioned on maintaining accreditation by an accrediting agency that is recognized by ED.

In addition, our institutions’ ability to participate in Title IV programs and TA is conditioned on maintaining accreditation by an accrediting agency that is recognized by ED.

Any significant failure to adequately detect fraudulent activity related to student enrollment and financial aid could cause our institutions to fail to meet their accreditors’ standards.

Furthermore, accrediting agencies that evaluate institutions offering online programs, like APUS’s programs, must require such institutions to have processes through which the institution establishes that a student who registers for such a program is the same student who participates in and receives credit for the program.

Failure to meet the requirements of our institutions’ accrediting agencies could result in the loss of accreditation of one or more of our institutions, which could result in their loss of eligibility to participate in Title IV programs, DoD tuition assistance programs, or both.

We may have unanticipated tax liabilities that could adversely impact our results of operations and financial condition.

We and our institutions are subject to multiple types of taxes in the U.S.

and may be subject to taxation in the future in various foreign jurisdictions.

The determination of our provision for income taxes and other tax accruals involves various estimates and judgments, and therefore the ultimate tax determination is subject to uncertainty.

In addition, changes in tax laws, regulations, or rules, or application of state sales taxes, may adversely affect our future reported financial results, may impact the way in which we conduct our business, or may increase the risk of audit by the Internal Revenue Service or other tax authorities.

Although we believe our tax accruals are reasonable, the final determination of tax returns under review or returns that may be reviewed in the future and any related litigation could result in tax liabilities that materially differ from our historical income tax provisions and accruals.

In addition, an increasing number of states are adopting new laws or changing their interpretation of existing laws regarding the apportionment factors used for state corporate income tax purposes in a manner that could result in a larger proportion of our income being taxed by the states in which we are required to file state tax returns.

These legislative and administrative changes could have a material adverse effect on our business and financial condition.

We rely on dividends, distributions and other payments, advances and transfers of funds from our operating subsidiaries to meet our obligations and to fund acquisitions and certain investments.

We rely on dividends, distributions and other payments, advances and transfers of funds from our operating subsidiaries to meet our obligations and to fund acquisitions and certain investments and generate all of our operating income through our subsidiaries.

As a result, we rely on dividends and other payments or distributions from our operating subsidiaries to meet our obligations and to fund acquisitions and investments.

The ability of our operating subsidiaries to pay dividends or to make distributions or other payments to us depends on their respective operating results and may be restricted by, among other things, the laws of their respective jurisdictions of organization, regulatory requirements such as obligations to maintain certain restricted cash or post letters of credit, accreditation requirements, agreements entered into by those operating subsidiaries, and the covenants of any future obligations that we or our subsidiaries may incur.

If we are unable to attract and retain management, faculty, administrators, and skilled personnel, our business and growth prospects could be severely harmed, and changes in management could cause disruption and uncertainty.

Our success depends largely upon the continued services of our executive officers and other key management and technical personnel.

The loss of one or more of our key personnel could harm our business.

While we have employment agreements with our Chief Executive Officer, the President of APUS, our Chief Financial Officer, and our Chief Technology Officer, we do not have employment agreements with other executives or personnel, and the employment agreements that we do have do not prevent our executives from voluntarily ceasing to work for us.

We must attract and retain diverse and highly qualified management, faculty, administrators, and skilled personnel to our institutions.

If we are unable to attract, retain, and develop management, faculty, administrators, and skilled personnel, our business and growth prospects could be severely harmed, and changes in management could cause disruption and uncertainty.

We must attract, retain, and develop diverse and highly qualified management, faculty, administrators, and skilled personnel to our institutions.

As we continue to grow our business, make acquisitions, and expand our geographic scope, we need to ensure effective succession for key executive and employee roles in order to meet the growth, development, and profitability goals of our business.

Competition for hiring these individuals is intense, especially with regard to faculty in specialized areas, and executives with relevant industry expertise.

We have had a number of other executive officers retire or otherwise depart our Company over the last several years and we continually evaluate our leadership structure.

For instance, effective October 15, 2017, Dr.

Karan Powell retired from her role as President of APUS.

Boston, who was at the time our Chief Executive Officer, was appointed to serve as Interim President of APUS, and since August 2018 has served as President of APUS on a permanent basis.

In September 2019, Angela Selden was hired as our Chief Executive Officer, and Dr.

Boston remained in the role of President of APUS pending his expected retirement in June 2020.

In addition, in May 2018, we hired a new Chief Technology Officer, and in May 2019, we appointed a new interim Chief Executive Officer of HCN, replacing the former Chief Executive Officer of HCN.

In addition to these hires and changes, we are also seeking a successor to Dr.

Boston as President of APUS, and may otherwise continue to work to strengthen our management team.

As with any leadership changes, our past or future changes could lead to strategic and operational challenges and uncertainties, distractions of management from other key initiatives, inefficiencies, or increased costs, any of which could adversely affect our business, financial condition, results of operations, and cash flows.

Our employee hiring and retention may also depend on our ability to build and maintain a diverse and inclusive workplace culture that enables our employees to thrive.

While we continue to work to strengthen our management team and to attract and retain high caliber talent, including through various human resources programs and what we believe are competitive market compensation and benefit practices, our efforts may not be successful.

For example, while we believe that selecting well-educated and qualified faculty members is important for HCN to be able to succeed, due to COVID-19 there has been an increase in demand for nursing professionals, which has impacted our ability to recruit and retain faculty at HCN.

If we fail to attract new management, faculty, administrators, or skilled personnel or fail to retain, develop, and motivate our existing management, faculty, administrators, and skilled personnel, our institutions and our ability to serve our students and expand our programs, open new locations, make investments or acquisitions, and update or enhance our technology could be severely harmed, and changes in management could disrupt our business and cause uncertainty.

We have had a number of other executive officers retire or otherwise depart our Company over the last several years and we continually evaluate our leadership structure.

For instance, in September 2019, Angela Selden was hired as our Chief Executive Officer, and Dr.

Boston remained in the role of President of APUS pending his expected retirement.

Boston retired in August 2020 and was succeeded as President of APUS by Dr.

In addition, the loss of one or more of our key personnel could harm our business.

Our past or any future changes could lead to strategic and operational challenges and uncertainties, distractions of management from other key initiatives, inefficiencies, or increased costs, any of which could adversely affect our business, financial condition, results of operations, and cash flows.

Our success depends on the contributions of our approximately 2,940 employees.

Our performance largely depends on the talents, experience, and efforts of our employees, and we believe that we can be distinguished by our ability to foster a culture and practice of innovation, quality, communication, cooperation, honesty, and respect.

Our performance largely depends on the talents, experience, and efforts of our employees, and we believe that fostering a culture and practice of innovation, quality, communication, cooperation, honesty, and respect is important to attracting and retaining high caliber talent.

In addition, our strategic initiatives require our management, faculty, staff, and skilled personnel to adapt and learn new skills and capabilities.

Our failure to maintain a positive culture or to continue fostering the growth and development of our personnel, including through the use of staff performance evaluation systems and processes, could have a material adverse effect on our business and results of operations.

Our failure to develop and maintain a positive culture or to continue fostering the growth and development of our personnel, including through the use of staff performance evaluation systems and processes, could have a material adverse effect on our business and results of operations.

We rely on key personnel to lead with integrity.

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While we have processes in place for management transition and the transfer of knowledge, the loss of key personnel, coupled with an inability to adequately train other personnel, hire new personnel, or transfer knowledge, could significantly impact our business and results of operations.

We have limited experience in making investments in other entities, and any such investments may not result in strategic benefits for our business or could expose us to other risks.

From time to time we will consider and may pursue strategic investments.

These transactions could include, among other things, investments in, partnerships or joint ventures with other schools, service providers or education technology related companies, among other types of entities.

These events could harm our operating results or financial condition.

Any investments in other entities may also subject us to the operating and financial risks of such entities, and we rely on the internal controls and financial reporting controls of such entities.

We have made minority investments in entities in which we do not have sole control, which present risks in addition to those that apply to other investments or acquisitions.

We do not have the ability to control the policies, management or affairs of these entities, and generally we would not have that ability in any minority investment in an entity.

Our inability to control entities in which we make minority investments could negatively affect our ability to realize the strategic benefits of those investments.

We cannot ensure that we will realize any strategic benefits from these investments in the near-term or at all.

To the extent that the strategic benefits of any investment are not timely realized, or the investment otherwise underperforms, we may wish to dispose of the investment.

Because our interests in entities in which we have made minority investments, such as New Horizons, Fidelis Education, Second Avenue, and RallyPoint are highly illiquid and not traded in any public market, we may not be able to timely dispose of these interests or may have to sell at less than our carrying value.

Further, should the value of these investments become impaired, we may be required to reduce the carrying value of these investments.

Our inability to dispose of our interest in such an entity, or a reduction in the carrying value of such an entity on our books, would negatively affect our operating results.

Our limited ability to obtain exclusive proprietary rights and protect our intellectual property, as well as disputes we may encounter from time to time with third parties regarding our use of their intellectual property, could harm our operations and prospects.

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The laws governing the fair use of these third-party materials are imprecise and adjudicated on a case-by-case basis, which makes it challenging to adopt and implement appropriately balanced institutional policies governing these practices.

We and our institutions may incur liability for the unauthorized duplication or distribution of this material posted online.

We and our institutions may incur liability for the unauthorized duplication or distribution of

this material posted online.

Third parties may raise claims against us and our institutions for the unauthorized duplication of this material.

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Our insurance may not cover potential claims of this type adequately or at all, and we may be required to pay monetary damages and our institutions may be required to alter the content of their courses.

We may have unanticipated tax liabilities that could adversely impact our results of operations and financial condition.

We and our institutions are subject to multiple types of taxes in the U.S.

and may be subject to taxation in the future in various foreign jurisdictions.

The determination of our provision for income taxes and other tax accruals involves various estimates and judgments, and therefore the ultimate tax determination is subject to uncertainty.

In addition, changes in tax laws, regulations, or rules, or application of state sales, use, and excise taxes, may adversely affect our future reported financial results, may impact the way in which we conduct our business, or may increase the risk of audit by the Internal Revenue Service or other tax authorities.

These legislative and administrative changes could have a material adverse effect on our business and financial condition.

We rely on dividends, distributions and other payments, advances, and transfers of funds from our operating subsidiaries to meet our obligations and to fund acquisitions and certain investments.

We rely on dividends, distributions and other payments, advances, and transfers of funds from our operating subsidiaries to meet our obligations and to fund acquisitions and certain investments and generate all of our operating income through our subsidiaries.

As a result, we rely on dividends and other payments or distributions from our operating subsidiaries to meet our obligations and to fund acquisitions and investments.

For example, due to financial performance, HCN has not paid a dividend to APEI since January 2019.

Legal proceedings, particularly class action lawsuits, may require human and financial resources, distract our management, and negatively affect our reputation and operating results.

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The lawsuit asserted claims for fraud and fraudulent inducement, negligent misrepresentation, breach of implied-in-fact contract, promissory estoppel, unjust enrichment, and violation of the Ohio Consumer Sales Practices Act.

While HCN admitted to no wrongdoing in the eventual settlement agreement and the case was dismissed with prejudice after the payment of a de minimis settlement, on December 4, 2015, ED sent HCN a letter informing HCN that ED had determined to fine HCN $27,500 based on ED’s finding that HCN had substantially misrepresented its programmatic accreditation status during a time period prior to our ownership of HCN.

While HCN admitted to no wrongdoing in the eventual settlement agreement and the case was dismissed with prejudice after the payment of a de minimis settlement, in December 2015, ED sent HCN a letter informing HCN that ED had determined to fine HCN $27,500 based on ED’s finding that HCN had substantially misrepresented its programmatic accreditation status during a time period prior to our ownership of HCN.

HCN informed ED in a letter that it disagreed with ED’s findings but would pay the fine in order to resolve promptly the matter and to enable ED to finalize its review of the application for a change in ownership.

In the future, not all claims may be as easily resolved.

The significant human and financial resources required to investigate and respond to claims brought in any future

litigation may distract management’s attention from operating our business or lead to larger payments or liabilities, including adverse regulatory action, and, as a result, negatively affect our operating results.

We may need additional capital in the future, but there is no assurance that funds will be available on acceptable terms.

We may need additional capital in the future for various reasons, including to finance business acquisitions and investments in technology or to achieve growth or fund other business initiatives, but there is no assurance that capital will be available in sufficient amounts or on terms acceptable to us and may be dilutive to existing stockholders.

Additionally, any securities issued to raise capital may have rights, preferences, or privileges senior to those of existing stockholders.

Our access to capital markets and sourcing for additional funding to expand or operate our business is subject to market conditions.

Credit concerns regarding the for-profit postsecondary education industry as a whole also may impede our access to capital markets.

Economic and market conditions, including changes in interest rates, could affect our enrollments, success with placement and persistence and cohort default rates in the U.S.