AMERICAN PUBLIC EDUCATION INC 10-K

ITEM 1. BUSINESS COMPANY OVERVIEW American Public Education, Inc., or APEI, provides online and on-campus postsecondary education to approximately 108,400 students through three subsidiary institutions, American Public University System, or APUS, Rasmussen University, or RU, and National Education Seminars, which we refer to as Hondros College of Nursing, or HCN. In this Annual Report, “we,” “our,” “us,” “the Company” and similar terms refer to APEI and its educational institutions of higher learning collectively unless the context indicates otherwise. We seek to maximize a student’s return on their educational investment, which we call Higher Education Return on Investment for our Customer or “HEROIC TM ”. Our institutions of higher learning are purpose built to educate the service-minded student by offering programs designed to prepare individuals for productive contributions to their profession and society and to offer opportunities that may advance students in their current professions or help them prepare for their next career. Acquisition of Rasmussen University On September 1, 2021, or the Closing Date, we completed the acquisition of Rasmussen University, or the Rasmussen Acquisition, pursuant to a Membership Interest Purchase Agreement dated October 28, 2020, for an adjusted aggregate purchase price, subject to post-closing working capital adjustments, and net of cash acquired, of $325.5 million in cash. We believe that RU adds an attractive portfolio of curriculum with a strong alignment around mission and culture. The addition of RU has resulted in a more diversified Company with three now roughly equal parts by revenue: one-third nursing education, one-third military and veterans education, and one-third other online education. Acquisition of Graduate School USA On January 1, 2022, we completed the previously announced acquisition of substantially all of the assets of Graduate School USA, or GSUSA, one of the largest providers of training to the federal government workforce. The acquisition further advances APEI’s focus on providing training that provides students with pathways to employment and career advancement. Reporting Segments In the third quarter of 2021, in connection with the Rasmussen Acquisition, we revised our reportable segments to reflect the manner in which our Chief Executive Officer, who is our chief operating decision-maker, evaluates performance and allocates resources, to include RU as a separately reportable segment. Prior to the third quarter of 2021 and the Rasmussen Acquisition, we had two reportable segments: the American Public Education, Inc. Segment, or APEI Segment; and the Hondros College of Nursing, or HCN Segment. We now have three reportable segments: the APUS Segment, which was previously included within the former APEI Segment; the Rasmussen University Segment, or RU Segment; and the HCN Segment. Unallocated corporate activity and eliminations, which generally were previously reported within the APEI Segment, are now included in “Corporate and Other” in the Consolidated Financial Statements. American Public University System Segment, or APUS Segment • American Public University System, Inc., referred to in this Annual Report, as APUS, provides online postsecondary education to approximately 88,800 adult learners, directed primarily at the needs of the military, military-affiliated, public service and service-minded communities through American Military University, or AMU, and American Public University, or APU. APUS is institutionally accredited by the Higher Learning Commission, or HLC. APUS offers 130 degree programs and 111 certificate programs in diverse fields of study, with a particular focus on those relevant to today’s job market and emerging fields. Fields of study include traditional academics, such as business administration, health science, technology, criminal justice, education, and liberal arts, as well as public service-focused fields of study such as national security, military studies, intelligence, and homeland security. APUS has institutional accreditation from the Higher Learning Commission, or HLC, with an Open Pathway designation, newly granted in 2021, which affords institutions greater opportunity to pursue institutional improvement projects than the alternative Standard Pathway designation, and several of its academic programs have programmatic accreditations granted by accrediting agencies that review specialized and professional programs in specific fields and disciplines. 1 APUS is committed to providing high quality, relevant, accessible, affordable, and student-focused higher education to a diverse student population in order to prepare students for service and leadership in a diverse, global society. In addition, the institution seeks to provide professional and workforce development solutions through partnerships with corporations and industry associations. Although APUS’s reach and appeal is broad, the institution continues to emphasize serving the military, veteran, and public service communities. As of December 31, 2021, approximately 63% of APUS’s students self-reported that they served in the military on active duty at the time of initial enrollment, and approximately 12% of APUS’s students self-reported that they are a military veteran. Rasmussen University Segment, or RU Segment • Rasmussen College, LLC, which is referred to in this Annual Report as Rasmussen University, or RU, provides nursing- and health sciences-focused postsecondary education to over 17,100 students at its 23 campuses in six states and online. RU offers a comprehensive “ladder” of nursing degrees including a pre-licensure Diploma in Practical Nursing, or PN, an Associate Degree in Nursing, or ADN, and a Bachelor of Science in Nursing, or BSN, as well as the post-licensure RN to BSN, Master of Science in Nursing and Doctorate of Nurse Practice. As of December 31, 2021, approximately 8,800 students were pursuing nursing degrees at RU, approximately 90% of whom are enrolled in RU’s pre-licensure degree programs. RU is institutionally accredited by HLC with an Open Pathway designation, and several of its academic programs have programmatic accreditations granted by accrediting agencies that review specialized and professional programs in specific fields and disciplines. The RU Segment reflects operations from the Closing Date through December 31, 2021. We did not consolidate the financial results of the RU Segment prior to the Closing Date. Hondros College of Nursing Segment, or HCN Segment National Education Seminars, Inc., which is referred to in this Annual Report as Hondros College of Nursing, or HCN, provides nursing education to approximately 2,500 students at six campuses in Ohio, including a campus in Akron that opened in April 2021, a campus in Indianapolis, Indiana, and a campus in Detroit, Michigan expected to open in the Fall of 2022. HCN serves the needs of local nursing and healthcare communities and addresses the persistent supply-demand gap for nurses that is evident nation-wide. HCN offers a Diploma in Practical Nursing, or PN, an Associate Degree in Nursing, or ADN, and a Direct Entry ADN option that offers an accelerated graduation pathway for students who meet certain transfer , academic and entrance exam requirements. HCN is institutionally accredited by the Accrediting Bureau for Health Education Schools, or ABHES, a national accrediting agency recognized by ED. Our consolidated revenue for the year ended December 31, 2021 increased 30.1% to $418.8 million from $321.8 million for the year ended December 31, 2020. Net income for the year ended December 31, 2021 decreased to $17.8 million from $18.8 million for the year ended December 31, 2020. Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report. Financial information regarding each of our reporting segments, including information regarding segment revenue, net income, and total assets for each of the last three fiscal years, can be found in our Consolidated Financial Statements. Additional financial information is reported in this Annual Report in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Financial Statements and Supplementary Data.” COVID-19 Pandemic Throughout 2021, we continued to monitor the impact of the COVID-19 pandemic and adjust our operations as appropriate in light of state and federal guidance. The COVID-19 pandemic did not materially impact our results of operations during the fiscal year ended December 31, 2021. Any future impact on our operations remains uncertain. We believe that the pandemic at times contributed to increased registrations and enrollments across our institutions during certain periods of 2020 and at other times contributed to decreased registrations and enrollments and increased deferrals at RU and HCN in 2021. Based on trends that were developing as the pandemic began to abate prior to the omicron variant, we believe near-term demand for our programs could moderate further. For more information on the impacts of COVID-19 on our business and related risks, please refer to the sections entitled “Risk Factors – Risks Related to the COVID-19 Pandemic” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report. 2 Postsecondary Education Market Characteristics Postsecondary institutions, and the credentials they grant, continue to play an important role in enabling social and economic mobility. Occupations that require a postsecondary credential were projected by the U.S. Bureau of Labor Statistics in 2021 to grow at a rate of 10% between 2020 and 2030, a much faster rate than the 6% projected for those that do not require a postsecondary education, and most of the fastest-growing occupations were projected to need postsecondary education. The postsecondary education market in the United States is large (with close to 4,000 institutions), diverse in its business models, and fragmented such that no one institution has a significant market share. Most postsecondary institutions, including for-profit postsecondary institutions, regardless of where they are located, how they are organized, or who they serve, face challenges, including: • Enrollment Declines: In the United States, student enrollment declined in the fall of 2021 by 2.7% at postsecondary institutions participating in the student financial aid programs authorized under Title IV of the HEA, or Title IV programs, as compared to the same period the previous year. Student enrollment at four-year for-profit institutions decreased 9.3% in the fall of 2021 following a 5.3% increase in the fall of 2020. • Affordability: There is a continued focus on the cost of a college education and a resulting impact on access as well as on the high level of college student indebtedness. • Quality: Postsecondary institutions face questions from lawmakers, the media, potential students, and others about the quality of academic programs. Additionally, postsecondary institutions may face additional questions in light of the impacts of the COVID-19 pandemic on postsecondary education and are often subject to accreditor requirements with respect to academic outcomes. • Competition: Competition exists from lower cost alternatives and from non-traditional competitors, such as those offering competency-based education, or CBE, programs, coding bootcamps, credentialing programs, micro-credentials, massive open online courses, corporate training, and other alternative educational paths that offer flexible and individualized programs. • Relevance: Challenges exist regarding the ability to translate the value of a postsecondary education into economic mobility. Postsecondary institutions must prepare students with relevant skills to work in new and rapidly changing industries, respond to technological change, and support employers in efforts to optimize and advance their workforce. • Flexibility: Postsecondary institutions must address the needs of students who are balancing education with other demands on their time. • Technological Demands: Rapidly evolving technology is transforming the education industry in ways that were unpredictable even at the beginning of 2020. This transformation has been accelerated by the impacts of the COVID-19 pandemic, which has forced institutions, their employees and their students to adapt to widespread remote or hybrid learning and has challenged institutions in particular to do so effectively, efficiently and securely. Opportunities Opportunities for Active Duty Military and Veterans - APUS With nearly 2.2 million active duty military and reservists, the U.S. military community will continue to be an important market segment for online education. Because of their particularly irregular schedules, frequent deployments, and access to tuition assistance funding, we believe service members will continue to seek respected universities that provide military-focused support services coupled with an online curriculum and flexible scheduling. We believe service members are particularly interested in postsecondary credentials that offer both career advancement and preparation for employment outside of the military. As part of their longstanding tradition, military leaders often encourage service members to use their earned education benefits, and to enhance their qualifications, for purposes of the military’s compensation, promotion, assignment, and performance systems. The Department of Defense, or DoD, tuition assistance program, or TA, offers active duty, National Guard and Reserve Component service members a variety of education and financial aid options. Additionally, veterans (and certain service members) are eligible for educational benefits from the Department of Veterans Affairs, or VA. For more information, refer to “Our Institutions - Sources of Student Financing” and “Regulatory Environment - Student Financing Sources and Related Regulations/Requirements.” The U.S. military is demonstrating increased levels of support for credentials other than degrees. Credentialing Opportunities On-Line, or COOL, is a program for each of the military branches and DoD civilians that links military occupations and experiences to civilian credentials (e.g., occupational certifications, licenses, and apprenticeships). While 3 benefits vary by service, service members may be eligible for assistance in paying for certifications, including by prior payment (e.g., vouchers) or service member reimbursement. Students must meet certain eligibility requirements in order to receive credentialing assistance, including in some cases service time, experience, and eligibility requirements for TA benefit programs. The Army additionally offers an expanded credentialing program called the Army Credentialing Assistance Program, or CA. CA is a program designed to support soldiers who wish to pursue civilian credentials, licenses, and certifications that may lead directly to a specific job, including in areas outside of a soldier’s Military Occupational Specialty, or MOS. Through CA, soldiers can request funding for fees associated with qualifying programs listed on Army COOL. APUS became an approved training provider for CA programs in October 2019, while CA was in an expanded user test, and Army-wide implementation of CA began in January 2020. Students in the Army utilizing both TA and CA are subject to an annual combined cap on benefits of $4,000. We believe other service branches may follow the Army’s example or pursue other approaches to enhancing support for credentialing, including, for example, the Coast Guard’s Credentialing Assistance Program. We believe that military veterans represent another important addressable market for online education. The U.S. Census Bureau estimated that there were 1.5 million veterans aged 18 to 34 and another 4.0 million veterans aged 35 to 54 in 2019. Of the 9.0 million veterans aged 18 to 64, approximately 77% were part of the labor force, but only approximately 29% had a bachelor’s degree or higher. We believe that our military heritage, affordability, and online offerings are attractive to veterans in the pursuit of career advancement and employment outside of the military. Elected and private-industry leaders are heavily promoting new policies and campaigns to facilitate the hiring of veterans, supporting a transition from military service to the workforce. As these policies lower barriers to non-military jobs and facilitate veteran-owned businesses, online universities offer valuable educational opportunities for veterans regardless of where they live, work, or learn. Opportunities for RU and HCN On a national level, the expanding need for healthcare coupled with a nursing shortage is driving demand for nursing education. Projected employment for registered nurses and licensed practical nurses is expected to grow by approximately 9% annually from 2020 to 2030, according to the U.S. Bureau of Labor Statistics’ Occupational Outlook Handbook , 2020-21 Edition. When factoring in the need to replace workers who transfer to different occupations or exit the labor force, such as to retire, the U.S. Bureau of Labor Statistics projects over 194,000 openings for registered nurses each year through 2030. Additionally, Registered Nurse was the fourth highest LinkedIn job post in the third quarter of 2021. However, despite the anticipated growth in job opportunities, over 80,000 qualified applications nationwide were not accepted by entry-level baccalaureate and graduate nursing programs in 2019, primarily due to a shortage of clinical sites, faculty, and resource constraints, according to a 2020 report from the American Association of Colleges of Nursing. These statistics suggest there is significant unmet demand from qualified students for nursing educational programs. Opportunities for On-line and Training – APUS, RU, and GSUSA More broadly, U.S. employers are increasingly reporting significant gaps between required job skills and the current capabilities of their workforce. Jobvite, a talent analytics platform, conducted a survey of recruiters and human resources professionals in 2021 in which 47% of respondents indicated that lack of skilled and qualified candidates was a continued hiring challenge. Working adults also recognize the need to be lifelong learners. In a joint Gallup and Amazon study from 2021, 57% of U.S. workers polled indicated that they want to update their skills, and results also reflected an increasing desire by workers that employers fund their skills training. As such, we believe a growing number of employers and professional associations will seek partnerships with academic institutions to advance the skills and productivity of their workforce through higher education and training programs. Competition 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. We believe our primary competitors include Arizona State University, University of Arizona Global Campus (formerly Ashford University), Capella University, Grand Canyon University, Liberty University, Penn State World Campus, Purdue Global, Southern New Hampshire University, Strayer University, University of Maryland Global Campus (formerly University of Maryland University College), University of Phoenix, and flagship and mid-size state universities offering degree programs online. Additionally, we operate 30 on-ground nursing campuses in approximately 20 markets where we compete with a mix of local career colleges and two- and four-year colleges. 4 We believe the competitive factors in the U.S. postsecondary education market include: • quality of the academic program, including alignment to high growth sectors of the job market; • affordability; • breadth of degree offerings; • flexibility in delivery models; • frequency of course or program starts; • experience of faculty members engaged in the practice of their fields; • level of support for student success; • career counseling and placement services; • reputation among prospective students, employers, and other stakeholders; • effectiveness of marketing efforts in attracting college-ready students; and • track record of strong compliance. Due to the increase in online postsecondary offerings, which has accelerated as a result of the COVID-19 pandemic, coupled with continued postsecondary enrollment declines in the United States, we could face increased competition as fewer students pursue degree-based postsecondary education from a wider selection of online offerings. Furthermore, we anticipate increased competition from campus-based postsecondary institutions as they continue to increase the number of online degree programs and develop more non-traditional programs for working adult students. Increased competition for college-ready students has led to an increase in the cost of advertising in certain marketing channels. Continued increases in the cost of advertising may adversely impact our ability to attract college-ready students and/or increase our student acquisition costs. Moreover, institutions who charge higher tuition are generally in a position to make larger investments in marketing, specifically in student acquisition. In recent years, other providers have started providing non-traditional, credit-bearing, and non-credit-bearing education programs without charge or at a low cost, including: • institutions offering competency-based education, or CBE, programs, which permit students to control their own pace and progress in a program by demonstrating that they have achieved certain skills or knowledge rather than by earning credit hours; • non-traditional competitors, such as entities providing coding bootcamps and micro-credentials; and • non-traditional competitors that are partnering with universities to offer new alternative educational paths. Most public institutions are aided by substantial government subsidies. Public and private not-for-profit institutions benefit from government and foundation grants, tax-exempt status, tax-deductible contributions, and other financial resources not widely available to for-profit institutions. Many public competitors also benefit from longstanding name recognition and are able to directly recruit students in a more cost-effective manner, especially in their local markets. For more information on competition within the postsecondary education market, refer to “Risk Factors - Risks Related to Attracting and Retaining Students.” Competition for APUS APUS has focused on serving the military community since its founding as American Military University, or AMU, and the military market continues to be the primary market for APUS. Within the military market, there are more than 2,500 institutions that serve military students and receive funds through the DoD TA program. The primary competitors for military students are other institutions offering online instruction, and colleges and universities offering on-campus instruction located near military installations. Over the last several years, a number of APUS’s competitors have expanded their outreach and marketing efforts directed at active duty and reserve service members, as well as veterans. We believe that APUS will continue to see increased competition in the military community from both not-for-profit and for-profit schools as well as from the Armed Forces themselves. For example, in March 2020, the Navy announced a new “Education Strategy for Seapower 2020” that is intended to be a new comprehensive education strategy. 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, and plans to enroll as many as 5,500 students into targeted associate’s degree programs with partner colleges and universities in an expanded pilot phase that began in January 2022. While a number of schools with which APUS competes 5 participate in this program, APUS is not an eligible partner. The Armed Forces may also begin offering distance learning through their own institutions. As traditional not-for-profit public and private schools advance their online capabilities, they will present increasing levels of competition for APUS. At the same time, we believe for-profit schools will continue to market to students eligible for TA and VA education benefits in an attempt to comply with an ED regulatory requirement known as the 90/10 Rule (a rule that imposes sanctions on participating institutions that derive more than 90% of their total revenue on a cash accounting basis from Title IV programs as calculated under ED’s regulations). This regulatory requirement and recent and certain proposed changes are described more fully below in “Regulatory Environment - Student Financing Sources and Related Regulations/Requirements - Department of Education - Regulation of Title IV Financial Aid Programs - The ‘90/10 Rule’.” Competition for Our Nursing Programs - RU and HCN RU and HCN’s nursing programs are offered as campus-based programs to residents in the geographic areas surrounding its campuses. In these geographic areas, we compete with other schools offering similar programs, including for-profit and not-for-profit public and private colleges. Because of the relatively local focus of these programs, our competitive environment is impacted by various factors that are specific not only to states where campuses are located but also to the particular areas where the campuses are located, including local supply and demand for nurses and nursing schools. Competition for RU RU is a post-secondary institution with 23 campuses in Florida, Illinois, Kansas, Minnesota, North Dakota, and Wisconsin and nationwide through its online programs and corporate training programs. Beginning in 2017, RU began offering several competency-based programs that are well-suited to RU’s adult student base and in January 2021 launched its first doctoral degree, Doctor of Nursing Practice. As of December 31, 2021, nursing programs comprised approximately 50% of RU’s total enrollment, with the majority of those students in first licensure programs, which are campus-based and serve residents in the geographic areas surrounding the campuses. In these geographic areas, RU competes with other schools offering similar programs, including for-profit and not-for-profit public and private colleges. Due to this local focus, RU’s competitive environment is impacted by various factors that are unique to each campus market, including local supply and demand dynamics for nurses and nursing schools. In terms of the online programs that are offered in fields of study beyond nursing and select health sciences programs, RU competes 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. Competition for HCN Although HCN has shifted at times to online delivery of its courses and on-campus delivery of certain labs during the COVID-19 pandemic, programs for HCN are typically offered as campus-based programs to residents in the geographic areas surrounding its campuses. In these geographic areas, HCN competes with other schools offering similar programs, including for-profit and not-for-profit public and private colleges. Because of its relatively local focus, HCN’s competitive environment is impacted by various factors that are specific not only to Ohio and Indiana but also to the particular areas of Ohio and Indiana where HCN’s campuses are located, including local supply and demand dynamics for nurses and nursing schools. Competitive Strengths While many institutions are struggling to determine how to meet the needs of today’s students, our institutions have focused on consistently delivering high returns on student educational investment, serving the needs of the healthcare communities in which RU and HCN have campuses as well as busy military and non-military students who are often balancing work and other obligations with school and living expenses with the cost of education at APUS, and broadly serving the needs of working adults. The sources of our institutions’ competitive strengths include: • Affordable Tuition . Affordable tuition has been a priority of APUS since its founding. APUS’s low tuition rates mean that its students are not required to take on as much debt as they might at another institution. The combined tuition and fees at APUS are generally less expensive for undergraduate and graduate students than the average in-state cost at a public university. Comparably, APUS costs are about 30% less than the average in-state full-time undergraduate 6 tuition, fees, and books at public universities, according to the final 2018-2019 institutional data reported to the U.S. Department of Education through The Integrated Postsecondary Education Data System. Today, tuition at APUS also remains among the lowest in the four-year for-profit sector. To support APUS’s active duty military students using TA, APUS provides an APUS-funded tuition grant so that undergraduate and master’s students who are eligible for TA benefits and their spouses and dependents have a net tuition of $250 per credit hour, which is the same amount as covered by TA and when combined with the APUS funded book grant means that active duty military utilizing TA may attain a degree at APUS for no out-of-pocket cost. APUS’s low tuition and fees, in combination with APUS-funded tuition grants and book grant provided to all undergraduate students, and beginning in January 2020, active-duty military students and their spouses and dependents at the master’s level, result in significant savings for students. Since 2001, APUS has provided approximately $148 million in books and materials savings to students from its APUS-funded book grant. Tuition and fees at RU and HCN are also designed to be affordable and competitive with those of similar institutions offering the same level of flexibility, accessibility, and student experience. At RU, students can lower their total cost of attendance through self-directed assessments, which provide savings by permitting students who demonstrate proficiency in a subject to test out of courses. Self-directed assessments, when available, may be attempted for a prepaid fee, which was increased in January 2022 from $99 per assessment to roughly $149 per assessment. In 2020, RU students earned more than 20,000 credits through self-directed assessments and saved more than $5.2 million in tuition. We believe that, given broad concerns about rising tuition and student loan debt in higher education, there are opportunities to create awareness and attract college-ready students with the primary message of affordability, value, and higher education return on investment for our customers, or HEROIC TM . • Relevant and Quality Offerings Aligned with Student and Employer Demands: Our institutions offer programs aligned to jobs that Bureau of Labor Statistics data and non-governmental organizations have indicated are areas of high growth in the job market. Our institutions are also committed to continually assessing and enhancing our academic programs and our student services to offer a high-quality education and facilitate successful outcomes for our students and graduates that align with employer needs. The depth and breadth of APUS’s program offerings are designed to effectively address the diverse needs of students who enter into education programs with vastly different educational and career backgrounds and goals. APUS offers healthcare, technology, business, cybersecurity, and health information management programs, as well as a liberal arts curriculum that supports the development of critical thinking and soft skills in demand by employers. APUS also utilizes Industry Advisory Councils to evaluate its current curriculum and inform the career relevance of programs and degrees, which facilitates efforts to connect APUS’s curriculum to the industries and the students it serves and to deliver a high-quality academic product. Approximately 63% of APUS’s full-time faculty have a terminal degree in their field of study. RU and HCN focus on educational relevance and excellence by hiring experienced nurses and other industry professionals as faculty members while enhancing student services to assist students with courses, labs, and clinical offerings. RU seeks faculty members who have demonstrated experience in their respective field of study. All faculty members who teach in RU’s programs have experience in their applicable program, which we believe helps RU students graduate with the skills needed to be effective in their designated field. Similarly, HCN’s faculty includes individuals with research experience and specialized nursing credentials. HCN has invested in an innovative concept-based curriculum and simulation labs to enhance the student learning experience and improve student success. As pre-licensure educators, RU and HCN create new nurses to meet the significant imbalance of supply and demand that exists for nurses. • Military Market Leader: APUS traces its roots to AMU, which was founded in 1991 as a distance-learning, graduate-level institution for military officers seeking an advanced degree in military studies. Since its founding, APUS has broadened its focus to include other military communities, veterans, and public service and service-minded communities, with a focus on a broad purpose of “educating those who serve”. Today, APUS is a market leader among active duty military professionals and veterans. APUS is the top provider of education for the U.S. military and veterans, based on the fiscal 2019 TA and VA recipient student enrollment data, as reported by Military Times. As of December 31, 2021, approximately 63% of APUS’s students self-reported that they served in the military on active duty at the time of initial enrollment, and approximately 12% of APUS’s students self-reported that they are a military veteran. 7 • Pre-licensure Nursing Footprint provides Competitive Moat: Both RU and HCN are primarily focused on “creating new nurses” by preparing and training nursing students to enter the nursing profession as licensed nurses as opposed to furthering the credentials of already-licensed nurses. Given the state and regulatory approvals necessary, the investment in physical campus facilities, the specialized programmatic knowledge and related accreditations, clinical placement requirements, the time to receive approval to grow nursing enrollments and various standards that nursing schools must meet, we believe nursing education – and in particular first or pre-licensure nursing education – provides us with opportunities to distinguish ourselves from our competitors. • Flexible Delivery / Frequent Entry Points / Focused on Adult Learners. APUS offers online delivery with monthly starts, giving students the opportunity to begin their studies at a time that works for them. Our academic support offerings, from advising and mentoring to library services and career planning, are individualized to students’ needs, designed to support them at each step of their education journey in a format that works best for them. Because students are located worldwide, APUS provides asynchronous, interactive education to students that fits their busy lives. RU offers flexible start dates and online courses for their programs and a blend of online and in person courses for their nursing and other health care related programs. RU also offers CBE programs, which permit students to control their own pace and progress in a program by demonstrating that they have achieved certain skills or knowledge rather than by earning credit hours. HCN offers programs that accommodate working adults by offering blended online and in-person courses for the PN and ADN Programs, as well as daytime and evening/weekend options at convenient campus locations. Strategy APEI, through its subsidiary institutions, is focused on providing a Higher Education Return on Investment for our Customers. We call this HEROIC TM to reflect not only the value proposition that we make to our prospective and enrolled students but also to recognize the importance of the real “heroes” in the primary student segments that we serve – individuals who serve the country and society at large. Our heritage is one of “educating those who serve” including military and veterans, public service communities like police, firefighters, first responders, nurses, teachers, public health workers, and those who serve the country in fields like homeland security, intelligence, cybersecurity, information technology, and related fields. Since September 2019, we have been in the process of resetting and re-positioning the Company for growth. This first phase of the reset and re-positioning focused on stabilizing and returning the core businesses to growth, as well as identifying APEI’s path forward. We believe results in 2021 reflected strong progress towards these goals, as student enrollments grew 28% at HCN, which we believe reflects not just the secular demand for nursing, but improvements in processes, outcomes, and offerings that HCN has implemented, and we closed the Rasmussen Acquisition. At APUS, in 2021, we continued to make investments in technology to improve the student experience and to allocate additional marketing resources to focus on students for whom we believe our value proposition is highly attractive. As we transform the enterprise to focus on sustainable growth, we are also transforming how we think about and define high quality outcomes. As an enterprise that predominantly serves working and/or adult learners, our students are intensely focused on initial job attainment or progression and advancement in a current career path, and we are focused on providing skills and training that can help facilitate that path to employment or advancement for our students. • As part of this phase of our transformation for growth, our strategy is organized around areas where we believe we have “the right to win.” This means that we will continue to focus on being the top educator to active-duty military and veterans and to pre-licensure nurses. • APUS, through AMU, enjoys strong brand recognition with the veterans’ community, and we plan to make our unique value proposition more widely known and accessible to the veterans and military-affiliated communities. • At RU and HCN, we believe we are well positioned to serve society’s enduring and growing need for nurses. We are focused on expanding the nursing opportunities at RU and HCN through both geographic campus expansion of our national nursing platform as well as the expansion of our programs and course offerings. Consistent with the themes of HEROIC TM , “educating those who serve”, and being deliberate about where we can win in the marketplace, during 2021 we focused on nursing education, with an emphasis on pre-licensure programs. Pre-licensure 8 nursing education today is estimated to be approximately 50% of the total nursing education market and is expected to grow at a compounded annual growth rate of approximately 25% over the next four years as reported in Technavio Nursing Education Report 2020. This focus led to our acquisition of RU. With the acquisition of RU, we believe APEI is the largest pre-licensure national nursing platform in the United States. RU has over 8,800 nursing students at its 23 campuses across six states and online with over 90% of those students pursuing a pre-licensure nursing degree at the PN, ADN, or BSN (Bachelor of Science, Nursing) level. RU enrolls the largest number of ADN students in the United States and, together with HCN’s nearly 2,500 nursing students, we have what we believe is the largest population of PN and ADN students in the country. Collectively, following the closing of the Rasmussen Acquisition and assuming the opening of a new RU campus in Dallas, Texas and a new HCN campus in Detroit, Michigan, our nursing footprint will cover 32 campuses across ten states. We believe that our collective scale, our programmatic and educational expertise, and our regulatory understanding positions us well to serve society and the medical system needs for nurses. We expect to continue to focus on education that provide real skills and provide pathways to employment and career advancement in identifiable jobs. To support growth in our existing businesses and to diversify our business model, we plan to continue to assess and pursue strategic investments and acquisitions. Our investment and acquisition strategy includes a focus on investing in nursing and healthcare education, such as with the Rasmussen Acquisition, as well as investing in companies that bridge postsecondary education to employment, such as with the GSUSA acquisition, to improve economic mobility for adult learners, in particular those in the military, national security and public service communities, through a combination of educational offerings and workforce-related solutions Seasonality and Quarterly Fluctuations Our quarterly results fluctuate and, therefore, the results in any quarter may not represent the results we may achieve in any subsequent quarter or full year. Our revenue and operating results normally fluctuate as a result of seasonal or other variations in our enrollments. Historically, across our institutions, our enrollments are higher in the fall term when students traditionally start their education. Our student population also varies as a result of new enrollments, graduations, student attrition, the success of our marketing programs, and other reasons that we cannot always anticipate. We expect quarterly fluctuations in operating results to continue as a result of these factors. Available Information About Us APEI was incorporated in Delaware in 2002 as the successor to a Virginia corporation incorporated in 1991. Our website is www.apei.com. We make available, free of charge through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information on or available through our website is not incorporated by reference in this Annual Report, and any reference to our website is intended to be an inactive textual reference only. OUR INSTITUTIONS We provide postsecondary education through three educational institutions of higher learning, APUS, RU, and HCN. Our institutions are licensed or otherwise authorized by state authorities to offer postsecondary education programs to the extent the institutions believe such licenses or authorizations are required, and are certified by the U.S. Department of Education, or ED, to participate in student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or Title IV. We also provide training to the federal government workforce through GSUSA APEI performs certain business functions, including human resources, marketing, product management, legal services, finance, facilities services, information technology, financial aid processing, digitization of course materials, career services, and strategic analytics and research on a shared basis for the benefit of APUS, RU, and in some cases HCN, with the capability to expand these shared services to other entities in the future. We believe that the shared services model promotes the efficient use of resources, allowing our institutions to continue to focus on meeting applicable accreditation standards and maintaining control over the academic and core operational functions necessary to the functioning of an institution of higher learning. We implemented this model for RU following the completion of the Rasmussen Acquisition. American Public University System APUS is based in Charles Town, West Virginia and has institutional accreditation from HLC, a regional accrediting agency, with a newly awarded Open Pathway designation. As mentioned in “Competitive Strengths” above, APUS traces its 9 roots to AMU, which was founded in 1991 as a distance-learning, graduate-level institution for military officers seeking an advanced degree in military studies. APUS has broadened its focus to include other military communities, veterans, and public service and public service-minded communities with a focus on educating those who serve. In 2002, APUS was organized into a university system with two components: AMU and APU. AMU is focused on educating students from the military, national security, military-affiliated and service communities. APU is focused on educating career-focused working adults with an emphasis on educating professionals working in service-related communities. APUS is an online institution of higher learning, which we believe is well-suited to its students, especially its military, public service and working adult students, many of whom serve in positions requiring extended and irregular work schedules, are on call for rapid response missions, participate in extended deployments and exercises, travel or relocate frequently, must balance family and work demands or are single parents with limited financial resources. Many APUS students have significant prior education and career experiences; 89% are working adults and the average age of APUS students is 32. APUS is designed to serve those students with tailored offerings to support them in successfully reaching their individual goals. Although APUS’s focus has broadened, it continues to have an emphasis on its relationship with the military community. As of December 31, 2021, approximately 63% of APUS’s students self-reported that they served in the military on active duty at the time of initial enrollment, and approximately 12% of APUS’s students self-reported that they are a military veteran. The remainder of APUS’s students are military-affiliated professionals (such as veterans, reservists, or National Guard members), public service professionals (such as law enforcement personnel or other first responders), and other civilians (such as military spouses and working adult students). Curriculum and Scheduling APUS offers 130 degree programs and 111 certificate programs. Over 1,700 distinct courses are available in either eight- or sixteen-week formats. Most academic terms begin on the first Monday of each month. APUS’s programs are as follows: Programs Number Doctoral Degrees 2 Master’s Degrees 45 Bachelor’s Degrees 54 Associate Degrees 29 Total Degree Programs: 130 Certificates Number Graduate 54 Undergraduate 57 Total Certificates: 111 TOTAL PROGRAMS AND CERTIFICATES 241 APUS’s certificate programs generally require a minimum of 18 credit hours and focus on a particular component of a broader degree program. Students may earn either discrete certificates or certificates in combination with work toward a degree program. In addition, APUS has several offerings that we refer to as “NanoCerts” that are comprised of three academic courses in a related area of interest. Like a microcredential, a NanoCert allows students to pursue a course of study without having to commit to a degree or certificate program. For a full list of our degree and certificate programs, please see catalog.apus.edu. Information on or available through our website is not incorporated by reference in this Annual Report, and any references to our website are intended to be inactive textual references only. For the fiscal year ended December 31, 2021, 25% of APUS students were enrolled in business programs, 22% in security and global studies programs, and 23% in arts and humanities programs, with the remainder of students in science, technology, education and math, and health sciences programs. During that period, 57% of students were enrolled in a bachelor’s degree program, 18% in an associate degree program, 16% in a master’s degree program, and 8% in certificate or other programs. 10 Student Recruitment and Marketing APUS’s relationship-based marketing strategy focuses on building long-term, mutually beneficial relationships with organizations and individuals in the military, military-affiliated, and public service communities. We rely on outreach teams, which serve these communities and foster long-standing relationships, as the core of this strategy. We believe APUS’s reputation as a trusted educator positions APUS as a respected institution among certain federal and public service sector employers. These relationships, as well as APUS’s student and alumni networks, also cultivate personal referrals. We believe that this relationship-based marketing approach enables APUS to achieve lower student acquisition costs than otherwise would be achieved if it focused more heavily on traditional media advertising. APUS supplements relationship-based marketing with multichannel, data-driven marketing campaigns to create greater brand awareness, particularly focused on academically prepared potential students outside the military, military-affiliated, and service communities. In these campaigns, APUS utilizes, among other marketing channels, digital marketing channels such as organic and paid search, APUS owned and external content and social marketing communities, linear and digital TV advertising, radio advertising, and print advertising. Increased competition in paid marketing channels has resulted in higher advertising costs in certain marketing channels and could lead to increased student acquisition costs. To better manage costs and focus marketing efforts on prospective student audiences most likely to matriculate and succeed, APUS utilizes tools to provide new insights connecting individual student performance data with third-party audience insights and the marketing touch points that attracted them. APUS is using these insights and other highly personalized approaches to improve future decisions with respect to marketing mix allocation, audience targeting, new initiatives, relevant messaging, and creative decisions, as well as to more effectively and deeply leverage platform tools that support scalable advertising development, delivery, and testing. APUS also provides more than 200 partner organizations with a range of services to maximize strategic workforce development goals, including dedicated client services, admissions support, custom program webpages, direct payment options for eligible institutions, and tuition grants. APUS has a long-standing commitment to affordability. Comparably, APUS costs are about 30% less than the average in-state full-time undergraduate tuition, fees, and books at public universities, according to the final 2018-2019 institutional data reported to the U.S. Department of Education through The Integrated Postsecondary Education Data System. Undergraduate full-time tuition, fees, and average book costs are based on a course load of 24 credit hours per year. APUS’s tuition changed effective January 1, 2020, as discussed below. Based on data obtained from digital research and direct audience insights, we believe that APUS’s affordability and value proposition is highly attractive to purpose-driven adult learners who seek affordable, accessible education offerings that are aligned with in-demand fields where they can make a difference. In 2020, we launched a new marketing campaign focusing on affordability and higher education return on investment for our customers, or HEROIC TM . We believe our commitment to affordability, particularly compared to that of other four-year public and private institutions, strongly resonates given this audience’s deep concern for saving money and their reluctance to take on debt. Learners are looking for a practical solution that provides a return for their educational investment and fits their lifestyle and values. APUS has been recognized among education providers in this respect and ranked in the top 10% for return on investment for colleges and universities nationwide, according to the Georgetown University Center on Education and the Workforce 2022 report, “ Ranking 4,500 Colleges by ROI” based on the 40-year net present value for completers who received federal financial aid. APUS continues to work to enhance the student learning experience to attract students who are more likely to persist and succeed in its programs and will continue to work to identify and implement changes and initiatives in an effort to more effectively attract and enroll more college-ready students on average. These initiatives may include updates to admissions standards, which may have an adverse effect on APUS’s enrollment and our financial condition. For additional information on the risk factors associated with these initiatives and the APUS admissions process please refer to “Risk Factors - Risks Related to Our Business.” Student Body and Enrollment The student body of APUS consists of approximately 88,800 enrolled students, most of whom hold full-time employment. Student enrollment is defined as the number of unique active students, including those who take an approved leave of absence, who are currently attending a course or have completed at least one course within the last 12 months. APUS is focused on executing initiatives that will more effectively support its students and help improve those students’ educational outcomes, including through faculty engagement initiatives and co-curricular initiatives to increase the 11 level of engagement and collaboration in the classroom and strengthen the bond between APUS and its students. Improved engagement is an important element in APUS’s goal of retaining qualified students. Accreditation APUS has institutional accreditation from HLC, a regional institutional accrediting agency recognized by ED. The status and meaning of this accreditation is described more fully below in “Regulatory Environment - Accreditation.” In August 2021, HLC granted APUS re-accreditation, with the next reaffirmation of accreditation scheduled for 2030-2031. As part of the process, APUS was awarded the Open Pathway designation, which affords institutions greater opportunity to pursue institutional improvement projects than the previous Standard Pathway designation. In addition to institutional accreditation by HLC, certain programs offered by APUS have received specialized accreditation. For example, the Accreditation Council for Business Schools and Programs, or ACBSP, generally accredits 21 different business-focused academic programs offered by APUS and accredits two APUS accounting programs under a specialized accounting accreditation. The Commission on Collegiate Nursing Education, or CCNE, accredits the Bachelor and Master of Science in Nursing programs. In addition, APUS has obtained professional recognition for certain of its programs. For example, the Society for Human Resource Management has recognized APUS’ program concentrations in Human Resources, the American Sport Education Program for Bronze Level Certification and the National Academy of Sports Medicine Performance Enhancement Specialist has recognized certain courses in the Sports and Health Sciences program , the National Security Agency - Information Assurance Courseware Evaluation has recognized the Information Systems Security program , and the National Council on Family Relations for the Certified Family Life Educator has recognized certain courses in the Human Development and Family Studies program. APUS’s Master of Public Health program holds accreditation from the Council on Education for Public Health. In addition, the International Fire Service Accreditation Congress has accredited five APUS programs. Student Admissions APUS welcomes prospective students to apply for admission at any time through an online application process. The current qualification for most undergraduate programs is a high school diploma or General Education Development certificate. Applicants for graduate programs must hold a bachelor’s degree from an accredited U.S. institution or an equivalent foreign institution. Certain programs may have additional admissions standards and restrictions. Cost of Attendance and Financial Aid We believe that APUS’s commitment to maximizing a student’s return on their educational investment is one of its competitive strengths. We are focused on offering our students affordable programs, and many APUS students also transfer a significant number of previously earned academic credit hours, which reduces the remaining credit hours required to earn their degree, and therefore reduces the cost of the degree. At APUS, tuition for undergraduate courses is $285 per credit hour, tuition for master’s level classes is $370 per credit hour, and there is a technology fee of $65 per course. In general, a bachelor’s degree may be earned for $34,485 in tuition costs at current tuition rates, and APUS master’s degrees may be earned for $13,320 in tuition at current tuition rates. The combined tuition, fees, and books at APUS are designed to be less expensive for undergraduate and graduate students than the average in-state cost at a public university. APUS has historically rarely raised its tuition. APUS’s January 2020 tuition increase – its most recent – was APUS’s first increase since July 2015 and was intended to help support increased investments in academic learning and student operations. Undergraduate students and, effective January 1, 2020, all active duty military students and their spouses and dependents, enrolled in courses for academic credit receive their textbooks and certain course materials at no additional cost to them through an APUS-funded institutional book-grant program. This book grant represents an approximate savings over the course of a student’s undergraduate degree program of $1,240 annually as compared to public four-year colleges and universities, according to comparative information from The College Board’s Trends in College Pricing 2021 report. APUS also utilizes open access and online library materials where appropriate and works with various publishers to reduce the cost of textbooks and course materials for both graduate students who pay for textbooks and course materials and for APUS who funds the book grant. 12 To support APUS's active duty military students using TA, APUS provides a $35 per credit hour APUS-funded tuition grant for active duty military undergraduate students and their spouses and dependents and a $120 per credit hour APUS-funded tuition grant for active duty military master’s students and their spouses to keep the cost at $250 per credit hour, which is the amount that TA covers. As a result of APUS’s pricing and APUS-funded grants, for active duty military students using TA, an undergraduate or master’s degree at APUS may be attained for no out-of-pocket cost. APUS’s tuition grant applied to approximately 68% of its total net course registrations in 2020 and 2021, respectively. Veterans who qualify for 100% of their Post-9/11 GI Bill benefits are expected to generally have no out-of-pocket expenses either, notwithstanding the expiration of APUS’s tuition grant for veterans at the end of 2019. Those veterans who do not qualify for 100% may have experienced a small increase in out-of-pocket costs in 2020 and after as compared to 2019, but because APUS is a “Yellow Ribbon” university, many are expected to have access to additional funding resources. APUS does not charge an admission fee or fees for services such as registration, course drops, or similar events that trigger fees at many other institutions. Because APUS is an exclusively online institution, there are no required resident fees, such as for parking, food service, student union, and recreation. APUS charges students a technology fee but provides a grant to cover the technology fee for students using TA. When applicable, APUS students are charged certain additional fees, such as graduation, late registration, transcript request, and comprehensive examination fees. TA covers $250 per credit hour for military students, and these students may also be able to use VA education benefits or aid from ED’s Title IV programs to cover any remaining cost, as described more fully below in “Sources of Student Financing” and “Regulatory Environment - Student Financing Sources and Related Regulations/Requirements.” APUS has set its tuition grant so that the TA covers the full tuition cost of undergraduate and graduate courses for members of the military up to the annual maximum allowable benefit. Sources of Student Financing APUS’s students finance their education through a combination of individual resources, TA, VA education benefits, ED’s Title IV programs, private loans, state and federal grants, and corporate reimbursement programs. Most students rely on some form of financial aid in addition to their individual resources. Students utilizing DoD’s tuition assistance programs accounted for 45%, those using VA education benefits 21%, and those utilizing ED’s Title IV programs 20% of APUS’s net course registrations in 2021. We believe that the ability of our students to participate in these programs is essential to APUS’s success. Participation in TA, VA education benefits and ED’s Title IV programs add to APUS’s regulatory burden, as described more fully below in “Regulatory Environment – Student Financing Sources and Related Regulations/Requirements.” Federal legislative activity and actions by ED and DoD may adversely impact the ability of APUS’s students to obtain tuition financing, which as with any other limitations on tuition financing could have a material adverse effect on APUS’s enrollments and our financial condition, as described more fully below in “Risk Factors – Risks Related to Our Business.” Rasmussen University Rasmussen University is based in Minneapolis, Minnesota and has institutional accreditation from the HLC, with an Open Pathway designation. Walter Rasmussen founded Rasmussen Practical School of Business in 1900 in St. Paul, Minnesota. What was once a single campus offering short‐term certificates and diplomas to working adults in the St. Paul community is now a 23-campus network across six states, offering degrees at the associate, baccalaureate, master’s, and doctoral level. The original focus on educating young men and women with a view to preparing them for a career laid the foundation for an inclusive institution built to serve those not typically served by traditional higher education. RU has developed a curriculum process wherein programs “ladder” from one to another, enabling students to in many cases build from certificates to master’s degrees and, in January 2021, launched its first doctoral program, Doctor of Nursing Practice. RU remains committed to innovation in program delivery. Virtually every program at RU incorporates online content alongside lab and clinical or classroom components. Given the institution’s deep commitment to innovation and to the development of career‐based skills, RU quickly recognized the alignment of CBE with the institution’s educational philosophy and course development strategy as CBE emerged in recent years. Several competency‐based programs were launched beginning in 2016, shepherding in an innovation that we believe is well‐suited to RU’s adult student base. 13 While RU continues to offer programs across a broad range of fields of study, recent years have seen an increased focus on healthcare, specifically nursing education. As of December 31, 2021, approximately 8,800 students are pursuing nursing degrees at RU, approximately 90% of whom are enrolled in RU’s pre-licensure degree programs. In connection with the Rasmussen Acquisition, RU is currently subject to ED-imposed restrictions on new programs and locations in terms of Title IV eligibility, and those restrictions will remain in effect until ED reviews and accepts audited financial statements and compliance audits for RU under APEI’s ownership. This could limit or adversely affect RU’s growth opportunities, including restricting its ability to serve additional students. For more on these growth restrictions, please see “Regulatory Environment - Student Financing Sources and Related Regulations/ Requirements - Regulation of Title IV Financial Aid Programs.” Curriculum and Scheduling RU offers programs across seven Schools of study: Nursing, Health Sciences, Business, Education, Technology, Design and Justice Studies. RU offers over 900 distinct courses are available in either 5.5 or 11-week formats. Academic terms begin in January, April, July, and October of each year. RU’s programs are as follows: Programs Number Doctoral Degrees 1 Master’s Degrees 6 Bachelor’s Degrees 18 Associate Degrees 21 Certificate/Diploma programs 14 Total Programs 60 For the fiscal year ended December 31, 2021, 50% of RU students were enrolled in nursing programs, 19% in health sciences programs, and 15% in business programs, with the remainder of students in education, technology, design and justice studies programs. At the credential level, 65% of students were enrolled in an associate degree program, 21% in a bachelor’s degree program, 11% in certificate or diploma programs, with the remainder at the master’s or doctoral level. Student Recruitment and Marketing RU is committed to supporting students from inquiry to enrollment and beyond. The local campus presence in the communities served by the institution and the relationships that arise from that local presence are a key contributor to RU’s student recruitment efforts. RU complements its relationship-based marketing with multichannel, data-driven marketing campaigns to create greater brand awareness, particularly among academically prepared potential students in the markets in which RU has a campus presence. In these campaigns, RU utilizes, among other marketing channels, digital marketing channels such as organic and paid search, RU- owned and external content and social marketing communities, linear and digital TV advertising, radio advertising, and print advertising. Increased competition in paid marketing channels has resulted in higher advertising costs in certain marketing channels and could lead to increased student acquisition costs. RU also has alliances with over 200 corporations and other organizations whereby employees of those organizations can pursue their education at RU with a view to supporting and maximizing the strategic workforce development goals of those organizations. Dedicated client services, admissions support, direct payment options for eligible institutions, and tuition grants are provided in support of these alliances. RU continues to work to enhance the student learning experience to attract students who are more likely to persist and succeed in its programs and will continue to work to identify and implement changes and initiatives to attract and enroll more college-ready students on average more effectively. These initiatives may include updates to admissions standards, which may have an adverse effect on RU’s enrollment and our financial condition. For additional information on the risk factors associated with these initiatives and the RU admissions process please refer to “Risk Factors - Risks Related to Our Business.” 14 Student Body and Enrollment RU provides education to approximately 17,100 enrolled students. Student enrollment is defined as the number of unique active students, including those who take an approved leave of absence. RU is focused on executing initiatives that will more effectively support its students and help improve those students’ educational outcomes, including through faculty engagement initiatives and other initiatives to increase the level of engagement and collaboration in the classroom and strengthen the bond between the institution and its students. Accreditation RU has institutional accreditation from HLC. The status and meaning of this accreditation is described more fully below in “Regulatory Environment - Accreditation.” RU received a reaffirmation of its accreditation from HLC in 2020, with the next reaffirmation scheduled for 2025-2026. In addition to institutional accreditation by HLC, certain programs offered by RU have received specialized accreditation. For example, RU’s Associate Degree in Nursing, or RN, and Licensed Practical Nursing, or LPN, programs are accredited by the Accrediting Commission for Education in Nursing. The Bachelor of Science in Nursing and Master of Science in Nursing degree programs at RU are accredited by CCNE. The Medical Assisting Diploma program at the Aurora/Naperville, Rockford, and Romeoville/Joliet campuses in Illinois, the Fort Myers, Ocala, Central Pasco, and Tampa/Brandon campuses in Florida, the Green Bay and Wausau campuses in Wisconsin, and the Blaine, Bloomington, Eagan, Mankato, and St. Cloud campuses in Minnesota are accredited by ABHES. The Surgical Technologist Associate in Applied Science Degree programs at the Brooklyn Park/Maple Grove, Moorhead, and St. Cloud, Minnesota, campuses and the Rockford and Romeoville/Joliet, Illinois, campuses are accredited by the Commission on Accreditation of Allied Health Education Programs, or CAAHEP, on the recommendation of the Accreditation Review Council on Education in Surgical Technology and Surgical Assisting, or ARC/STSA. The Health Information Technician associate and Health Information Management bachelor’s degrees at RU are accredited by the Commission on Accreditation for Health Informatics and Information Management Education. The Radiologic Technology Associate degree programs at RU are accredited by the Joint Review Committee on Education in Radiologic Technology. The Medical Laboratory Technician associate degree program at the Lake Elmo/Woodbury campus in Minnesota is accredited by the National Accrediting Agency for Clinical Laboratory Sciences. Student Admissions RU welcomes prospective students to apply for admission at any time through an online application process facilitated by an RU admissions advisor. The current qualification for most undergraduate programs is a high school diploma or General Education Development certificate. Applicants for graduate programs must hold a bachelor’s degree from an accredited U.S. institution or an equivalent foreign institution. Certain programs may have additional admissions standards and restrictions. Cost of Attendance and Financial Aid RU’s tuition costs vary among its programs and between part-time and full-time attendance. RU’s ADN Programs typically costs $409 per credit hour in addition to course fees. Outside of the ADN Program, credit hour costs range from $229 per credit hour to $360 per credit hour for undergraduate programs. At the graduate level, RU offers five different master’s programs for $155 per credit hour or less. Students can lower their total cost of attendance through self-directed assessments. Self-directed assessments, when available, may be attempted for a prepaid fee, which is generally $149 per attempt as of January 2022. RU charges a $175 course technology and resource fee for each course. Students may purchase required textbooks or e-books through RU for a flat fee of $15 for each textbook (traditional or e-book) for each course. 15 Sources of Student Financing RU’s students finance their education through various individual resources, ED’s Title IV programs, private loans, state grants, VA education benefits, and corporate reimbursement programs. Most RU students rely on some form of financial assistance in addition to their individual resources. Students utilizing ED’s Title IV programs accounted for approximately 83%, those utilizing state grants 10%, and those utilizing private/alternate loans 7% of RU’s enrollments in 2021. Most of RU’s revenue is derived from students utilizing ED’s Title IV programs, which results in increased regulatory scrutiny, as discussed more fully below in “Regulatory Environment - Student Financing Sources and Related Regulations/Requirements - Department of Education - Regulation of Title IV Financial Aid Programs - The ‘90/10 Rule.’” Federal legislative activity and actions by ED may adversely impact the ability of RU’s students to obtain tuition financing, which as with any other limitations on tuition financing could have a material adverse effect on RU’s enrollments and our financial condition, as described more fully below in “Risk Factors – Risks Related to Our Business.” Hondros College of Nursing HCN’s programs are designed to prepare individuals for productive careers in the field of nursing. HCN provides nursing education to students enrolled at six campuses in Ohio, including a campus in Akron that opened in April 2021, and one campus in Indianapolis, Indiana. Curriculum and Scheduling HCN offers on-campus instruction leading to a Diploma in PN and an ADN. Portions of the PN and ADN Programs are taught online. Graduates of the PN Program are eligible to seek licensure as a Licensed Practical Nurse, or LPN, after passing the NCLEX-PN exam. Graduates of the ADN Program are eligible to seek licensure as a Registered Nurse, or RN, after passing the NCLEX-RN exam. Academic terms for the PN and ADN Programs begin four times each year, with courses starting in January, April, July, and October. Approximately 63% of enrollments for the fiscal year ended December 31, 2021 were in the PN Program, while 37% were in the ADN Program. HCN’s students principally receive on-campus instruction at one of HCN’s campuses; however, in March 2020, in response to the novel coronavirus COVID-19 global pandemic, HCN shifted to a blended model with online delivery of its courses and on campus delivery of certain labs. 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. Student Body and Enrollment HCN provides nursing education to approximately 2,500 students at six campuses in Ohio and one campus in Indiana. The average HCN student is approximately 33 years old and 93% of HCN students are female. Accreditation HCN is institutionally accredited by the ABHES, and HCN’s Ohio locations and programs are approved by the Ohio State Board. In February 2021, ABHES granted HCN continued accreditation through February 2027 for all programs at all campuses. 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 the 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, 2021, several HCN programs at certain campuses did not satisfy ABHES’s threshold requirements for retention rates. The retention rates were instead between 55% and 69% for the reporting year. ABHES has asked HCN to provide updated rates for the period July 1, 2021 through March 31, 2022 and an updated action plan to address any rate that remains below 70% in that period. HCN’s Ohio Diploma in Practical Nursing, or PN, and Associate Degree in Nursing, or ADN, Programs are approved by OBN, and the PN Program is accredited by NLN CNEA. HCN is authorized to offer instruction in Indiana by the Indiana 16 Board for Proprietary Education/Indiana Commission for Higher Education. NLN CNEA granted HCN accreditation at its Indianapolis campus effective January 13, 2021. IBN granted initial accreditation and authorized the admission of the first cohort of students, which was limited to 30 students per year. In July 2021, IBN authorized the admission of an additional 30 students per year, increasing the maximum enrollment to 60 students for the 2022 calendar year, and in February 2022, IBN further increased the maximum enrollment to 200 students for the 2022 calendar year. Student Recruitment and Marketing HCN’s marketing strategy is focused on building long-term relationships with businesses, organizations, and individuals in the healthcare community, primarily in and around the communities it serves. We believe this strategy will continue to generate a significant number of referrals. In addition, HCN utilizes traditional media as well as digital marketing channels, including organic and paid search marketing. Student Admissions HCN welcomes prospective students to apply for admission at any time by submitting an application along with an application fee. To be accepted into any HCN program, an applicant must be a U.S. citizen or permanent resident, be at least 18 years old at the time of starting the program and hold a high school diploma or General Education Development certificate. HCN’s programs also have program-specific admissions requirements. Applicants for the PN Program and the ADN Program are required to complete an interview with an admissions representative and pass a criminal background check. PN Program applicants are also generally required to pass the Health Education Systems Admissions Assessment. Under enhanced ADN Program admissions requirements implemented in 2019, HCN requires external ADN applicants to have an active unencumbered PN license and to have graduated from an approved PN program. ADN Program applicants who apply to start in the quarter immediately following their graduation from HCN’s PN Program may be admitted prior to possessing an active unencumbered PN license but must obtain an active unencumbered PN license prior to the start of their second term. HCN offers a Direct Entry ADN option that offers an accelerated graduation pathway for students who transfer at least 32 college credits to HCN and meet certain academic and entrance exam requirements. Direct Entry ADN applicants are not required to hold an active PN license. HCN has also made multiple changes to its admissions assessment process in recent years and may further modify the process in the future in order to better identify college-ready students. These initiatives require significant time, energy, and resources, and if our efforts are not successful, they may adversely impact our results of operations, cash flows, and financial condition. While we believe changes in admissions and academic achievement requirements are beneficial for our students and will result in a better and more positive educational experience and improved testing pass rates in the long term, we believe some of the changes contributed to a decline in enrollment in previous years and have had a negative impact on our results of operations. We continue to work on identifying an appropriate balance of admissions requirements, academic achievement requirements and attracting appropriate students. However, even if these initiatives lead to the identification and enrollment of students who are likely to succeed and improve the student experience, they could result in adverse impacts on HCN enrollments. Cost of Attendance and Financial Aid HCN’s tuition costs vary among its programs. HCN’s PN Programs may be completed for approximately $18,600 in tuition and fees and the ADN Program may be completed for approximately $26,500 in tuition and fees, depending on the campus location. Fees include the cost of examination review materials, lab fees, test review fees, and fees for applications with OBN, among others. Some of these costs are payable to HCN and others are payable to third parties. HCN’s students also incur costs for textbooks, supplies, uniforms, and its technology package. These costs vary by program and are paid for by HCN’s students as the textbooks or supplies are needed. HCN estimates that over the life of its programs a student’s costs related to textbooks and supplies will be approximately $4,000 for the PN Program and $6,000 for the ADN Program. Sources of Student Financing HCN’s students finance their education through a combination of individual resources, VA education benefits, ED’s Title IV programs, private loans, state and federal grants, corporate reimbursement programs, and HCN’s extended payment 17 plan option. Most HCN students rely on some form of financial aid in addition to their individual resources. The substantial majority of HCN’s revenue is derived from students utilizing ED’s Title IV programs, which results in increased regulatory scrutiny, as discussed more fully below in “Regulatory Environment - Student Financing Sources and Related Regulations/Requirements - Department of Education - Regulation of Title IV Financial Aid Programs - The ‘90/10 Rule.’” HCN offers an extended payment plan option to its students. The extended payment plan option is designed to assist students with educational costs consisting of tuition, textbooks, and fees, and are only available after all other student financial assistance has been applied to those costs. 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. To the extent interest is applied, it is generally fixed and does not accrue until the student departs the program or graduates. The extended payment plan option does not impose any origination fees. Participants are advised about the terms of the extended payment plan option and counseled to use all federal funding options first. HCN offers an institutional affordability grant to students demonstrating financial need to cover the difference between the total cost of tuition and fees less the amount of all eligible financial aid resources. The grant is designed to limit a student’s monthly payment to $200 through an award of up to $200 per month, or $600 per term after consideration of financial aid, employer tuition reimbursement, and other financial resources. Federal legislative activity and actions by ED may adversely impact the ability of HCN students to obtain tuition financing, which as with any other limitations on tuition financing could have a material adverse effect on HCN’s enrollments and our financial condition, as described more fully below in “Risk Factors – Risks Related to Our Business.” Information Technology Information technology systems are an essential part of our student experience and our business operations. APEI provides information technology services to APUS, RU, and HCN through a shared services model. In addition, RU is party to a service agreement with a third-party, Collegis LLC, or Collegis, to provide information technology services through September 30, 2024. RU’s infrastructure is hosted and fully supported and managed by Collegis. We continue to make investments in information technology. We recently embarked on a multi-year technology transformation program to enable APUS to better accommodate new flexible learning modalities, improve the operational effectiveness of our enterprise, and enhance the learning experience for students and faculty. Importantly: • We completed migration to a new learning management system, or LMS, for APUS and HCN in 2021. • We are in the process of consolidating APUS’s customer relationship management systems onto a single platform and the first phases of our customer relationship management system upgrade were completed in January 2022. • We are currently migrating key applications, systems, and data to the cloud rather than in our own co-located data centers. Our legacy systems include a customized student information and services system at APUS that we refer to as Partnership At a Distance™, or PAD, and proprietary information systems and processes to support PAD, into which we have invested significant time and money. PAD is APUS’s platform for interacting with our students. PAD is an information system designed to enable APUS to provide each student with individualized support at appropriate times from pre-enrollment through and beyond graduation, including student advising, administrative support, and community networking. PAD is used by APUS to manage admissions, online orientation, course registrations, tuition payments, grade reporting, progress toward degrees, and various other functions. We continually evaluate PAD for possible changes and upgrades and anticipate that we will eventually make significant changes to this system, as well. APUS and HCN historically used Sakai Collaboration and Learning Environment, or Sakai CLE, an open-source LMS, for their online classroom to support teaching, learning, research, and collaboration. We began replacing Sakai with a cloud-based commercial system Brightspace by D2L as our LMS in 2020 and completed the migration for both APUS and HCN in 2021. PAD and our LMS are our two core enterprise systems. We also have several other systems that are used in the online campus, and to support the student experience, financial aid processing, financial management, human resources processes, marketing, and decision support. RU uses Anthology Campus Nexus as its student information system, or SIS. The RU SIS environment is hosted with Collegis, which maintains all systems, support, and hosting. This platform is used to manage course registrations, tuition 18 payments, grade reporting, progress toward degrees, and various other functions. The admission function is now managed inside of Salesforce. This Salesforce application is connected to Anthology via an application programming interface to ensure all pertinent information is synchronized appropriately. RU uses Blackboard Ultra as its LMS platform. This environment is hosted with Blackboard, which is now owned by Anthology. All RU support for Blackboard is provided by Collegis. Anthology Campus Nexus, Blackboard, and Salesforce are RU’s core enterprise systems. The backbone of our information technology infrastructure currently consists of four co-location data centers. Our technology environment is managed internally and through a third-party managed service provider. Student access to our systems is provided through redundant data carriers. RU’s network is fully redundant through a software-defined wide area network infrastructure. We intend to continue to migrate much of our infrastructure and core applications to a cloud computing model with the goal of improving the reliability, scalability, agility, and security of our core infrastructure and applications. Our continued investments of time and money on our institutions’ information technology may place a strain on our organization that could adversely affect our systems, controls, and operating efficiency, and those of our institutions, and as a result of unsuccessful development efforts, or a result of replacing outdated technology, software, or other technology related assets, we may have assets that become impaired. In addition, as a result of our reliance on information technology, system disruptions and security breaches could adversely affect our reputation and our operations. For additional information regarding risks related to our information technology, refer to “Risk Factors - Risks Related to Our Technology Infrastructure.” For more information on these investments and their effects on our results of operations, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview.” Human Capital Our ability to deliver on our corporate mission and to continue to transform our enterprise to focus on sustainable growth is tightly aligned with our human capital strategy. Our performance largely depends on the talents, experience, and efforts of our employees, and on our ability to foster a culture and practice of high performance, innovation, cooperation, integrity, and respect. During 2021, our key human capital efforts were focused on building our leadership strength organically by hiring key executives and inorganically through the acquisition of RU. We also benchmarked and harmonized our benefits programs, including at RU, to develop what we believe are a market-competitive set of programs with an increased scope of coverage for our employees. We continue to develop processes to evaluate our reward and recognition systems and further establish market competitive compensation and benefit practices to attract new employees and reward and retain our existing team. Diversity and inclusion are at the core of our values, and we believe they reflect the expectations of the students we serve. To support our diversity and inclusion efforts, we have task forces at APUS and RU that focus on diversity and inclusion matters. We believe a diverse and inclusive workplace results in business growth and encourages increased innovation, retention of talent, and a more engaged workforce. Consistent with our focus on diversity and inclusion, we strive to create ethical, safe, and supportive workplaces where our employees thrive. We measure employee engagement on an ongoing basis by soliciting feedback in order to understand the views of our employees, faculty, and culture. The results from engagement surveys are used to implement programs and processes designed to enhance employee and faculty engagement and improve the employee experience. For example, based on the results of employee surveys in 2021, we added insurance coverage for in vitro fertilization and extended benefits coverage to domestic partners. Workforce Demographics As of December 31, 2021, we had approximately 5,800 employees, including approximately 3,840 full- and part-time faculty members, approximately 790 of which are full-time, and approximately 1,910 other professional staff to administer academic, technology, service, and business operations. Approximately 420 of our professional staff worked at the corporate-level, with the remainder of our professional staff working for our institutions. APUS had approximately 1,780 full- and part-time faculty members and 590 other professional staff. RU had approximately 1,900 full- and part-time faculty members and approximately 740 professional staff. HCN had approximately 160 full- and part-time faculty members and approximately 160 other professional staff. At APUS, approximately 63% of our full-time faculty have a terminal degree in their field of study. At HCN and RU, all nursing faculty have earned a Bachelor of Science in Nursing or higher. None of our employees are parties to a collective bargaining agreement, and management considers employee relations to be good. 19 Our employees have diverse backgrounds, influenced in part by the geography in which our headquarters, administrative facilities, and campuses are located, and by the communities we serve, in particular nursing, military, military-affiliated, and veteran communities. As of December 2021, approximately 53% of our professional staff at the corporate level, 54% of our faculty and staff at APUS, 76% of our faculty and staff at RU, and 78% or our faculty and staff at HCN identified as women. As of December 2021, approximately 22% of the positions held at the corporate level, and 21%, 26%, and 24% of the positions held at APUS, RU, and HCN, respectively, were held by persons self-identifying as Black or African American, Hispanic, Asian, Native American or more than one race. Talent Development Our strategic initiatives require our management, faculty, staff, and skilled personnel to perform at a high level and to adapt and learn new skills and capabilities. Faculty members are required to participate in annual faculty development opportunities and requirements. We believe faculty retention is higher at APUS than other colleges and universities, which we believe is primarily due to the online, asynchronous nature of APUS instruction. For example, survey data from the College and University Professional Association for Human Resources demonstrates that APUS has a lower full-time faculty turnover rate than the median of other higher education institutions. RU trains and develops new faculty through a formal, structured on-boarding and orientation course. All new faculty members receive a formal course assignment to be completed within their first 30 days of employment. All faculty members participate in annual faculty development opportunities and requirements. HCN trains and develops new faculty through a formal, structured on-boarding, training, and mentoring program. All new HCN faculty members receive a 90-day on-boarding experience, which includes a formal orientation to the organization, policies and procedures, teaching strategies, performance expectations, and role responsibilities. RU and HCN compete with both nursing schools and traditional employers of healthcare professionals to fill open faculty positions. Due to the COVID-19 pandemic, there has been an increase in demand for nursing professionals, which we believe has impacted our ability to recruit and retain faculty at RU and HCN. For example, at RU and HCN, voluntary turnover within full-time nursing faculty increased from 12.6% for 2020 to 18.3% for 2021 and 33.1% for 2020 to 41.5% for 2021, respectively. We also believe that current job market dynamics, where the monthly percentage of non-farm workers in the United States who quit their jobs broke multiple all-time U.S. records in 2021 in what is being referred to as the “Great Resignation”, and current low unemployment, has further increased the challenge of employee retention more broadly. Overall, turnover of our employees during 2021 was approximately 6% to 10% higher than turnover in 2020, depending on segment. We believe that the quality of faculty is critical to the student experience and student outcomes and is therefore vital to the success of our institutions. APUS, RU, and HCN regularly review the performance of faculty by, among other things, monitoring the contact that faculty have with students, reviewing student feedback, and evaluating the learning outcomes achieved by students. Each of APUS, RU and HCN have all established processes to address and work with faculty when faculty performance is not at an acceptable level, which can lead to termination of employment. None of our institutions offer tenure to faculty members. Impact of COVID-19 We are committed to the health and well-being of our employees. In March 2020, in response to the COVID-19 pandemic, we implemented our business continuity plan and substantially all of our employees transitioned to a remote workforce, using digital platforms and virtual collaboration tools to communicate with one another and our institutions’ students. Since then, we have cautiously allowed certain employees to return to an office work setting, monitoring Centers for Disease Control and Prevention and local guidelines and regulations and updating our policies accordingly. Employees are continuing to follow a blended model of working onsite and remotely, and we have committed to determining the optimal mix 20 of site-based, flexible, and fully remote models on a department and role basis as the COVID-19 pandemic continues to evolve, and ultimately, for a post-pandemic environment. Corporate Staff for APEI As of December 31, 2021, our corporate APEI staff consists of approximately 420 professional employees that administer academic, technology, service, and business operations to our institutions. Most of these employees live in the vicinity of our Charles Town, West Virginia, headquarters. Faculty and Staff for APUS As of December 31, 2021, APUS’s faculty consists of approximately 1,780 full and part-time faculty members with relevant teaching and practitioner experience. APUS also employ approximately 590 professional non-faculty staff to administer APUS’s admissions, advising, and other academic functions. Most of APUS’s non-faculty employees live in the vicinity of its headquarters in Charles Town, West Virginia. APUS has approximately 340 full-time faculty members with the remainder designated as part-time. APUS establishes full-time and part-time positions based on program and course enrollment. Many of APUS’s full-time faculty began their careers with APUS as part-time faculty. We expect that APUS’s faculty headcount and the composition of full-time and part-time faculty will vary with fluctuations in enrollment. We believe that APUS’s well-regarded faculty, which includes many former and current practitioners in their fields, attracts new students to APUS. A significant majority of APUS’s graduate faculty members hold terminal degrees or doctorates in their relevant fields, and virtually all undergraduate faculty members hold graduate degrees. Exceptions have been granted for a limited number of APUS’s faculty members who do not meet degree standards, but who provide evidence of significant experience and achievement in the field of study that they teach, in accordance with APUS’s faculty quality guidelines. Many APUS faculty members have relevant experience at other universities and within military, corporate, and government institutions. We believe that the composition of APUS’s student body and curriculum are particularly attractive to potential faculty members because of the opportunity to teach relevant material to students who can implement higher education learning at their workplaces. APUS recruits faculty members through referrals by current faculty members, advertisements in higher education and trade association journals and its internet presence. Upon selection for a position, APUS requires each new faculty member to complete an orientation and training program that leads to their certification to teach at APUS and assignment to courses. Faculty and Staff for RU As of December 31, 2021, RU’s faculty consists of approximately 340 full-time faculty members and 1,560 part-time faculty. RU also employs approximately 740 professional staff members who administer RU’s admissions, advising, and other academic functions. Of RU’s faculty members, approximately 210 full-time faculty and 660 part-time faculty support RU’s nursing programs. All faculty whose instruction is focused within RU’s nursing programs must have earned a minimum of a bachelor’s degree from an accredited institution in a nursing field of study. All RU nursing faculty assigned to any program or course must have an active and unencumbered license to practice as a Registered Nurse. In addition to the formal education requirements, RU’s faculty may have also obtained specialized certifications in their field of study. For all full- and part-time faculty supporting other programs of study, RU ensures that educational requirements meet or exceed all applicable accreditation requirements. We believe that hiring and retaining well-educated and qualified faculty members is important to RU’s success. In addition to having the necessary educational requirements, RU seeks faculty members who have demonstrated experience in their respective field of study. All faculty who teach in RU’s programs have experience in the applicable program, which we believe improves the likelihood that RU students graduate with the skills needed to be effective in their designated field. 21 Faculty and Staff for HCN As of December 31, 2021, HCN’s faculty consists of approximately 160 faculty members with relevant teaching and nursing or healthcare practitioner experience. HCN also employs approximately 160 professional staff members who administer HCN’s academic, technology, service, and business operations. HCN has approximately 110 full-time faculty members with the remainder designated as part-time. All faculty whose instruction is focused within the PN Program must have earned the minimum of a bachelor’s degree in nursing. All faculty whose instruction is focused within the ADN Program must have earned the minimum of a master’s degree. All HCN faculty whose instruction is nursing theory-based must have an active and unencumbered license to practice as a Registered Nurse. In addition to the formal education of HCN’s faculty members, many have also obtained specialized certifications in the field of nursing to practice as a Registered Nurse. We believe that selecting well-educated and qualified faculty members is important to HCN’s opportunity for success. In addition to having the necessary educational requirements, HCN seeks faculty members who have demonstrated experience in the field of nursing. Almost all faculty who teach HCN’s nursing courses have nursing experience in a clinical setting, which we believe helps teach HCN’s students the skills needed to be effective and safe caregivers. Intellectual Property We and our subsidiary institutions own and exercise rights associated with copyrights, trademarks, service marks, domain names, agreements, and registrations to protect our intellectual property. Our institutions own all course syllabi and course and instructional materials developed by their faculty and employees and, as such, these course materials may be used by our institutions in current and future courses as needed to facilitate instruction and may be modified by our institutions to meet evolving course or curriculum requirements. In general, our institutions do not assert ownership claims to scholarly works of their faculty, such as articles and books, which were not developed as course materials. Such intellectual property of our institutions’ individual faculty members remains the property of each such faculty member and is reserved specifically for use only by the faculty member who owns it unless the faculty member grants permission for use by others. Our institutions rely on agreements under which they obtain rights to use course content developed by faculty members and other third-party content providers. Our institutions own the copyright for a work by a faculty member if the institutions compensated the faculty member for the particular product or if the institution funded the research in whole or in part. We or our institutions have secured or claim rights to trademarks for various names and terms used in our and their business, including rights in “American Public University System,” “American Military University,” “American Public University,” and “Rasmussen University” and others. In connection with our acquisition of HCN, we received a royalty-free, irrevocable, exclusive, transferable, sublicensable license to use the name “Hondros College of Nursing” and, instead of “Nursing,” any other qualifier directly related to nursing, medicine, or healthcare in connection with the business and operations of HCN. The trademarks and service marks we use are central to a number of our institutions’ marketing efforts, and we believe they are important to how prospective students identify them. Our institutions also own rights to internet domain names pertaining to their brand names and other unique descriptors. We and our institutions vigorously defend against infringement of intellectual property rights, including trademarks, service marks and copyrights. 22 Information About our Executive Officers Set forth below is certain information concerning our executive officers serving as of the date of this Annual Report. Name Age Position Angela Selden 56 President and Chief Executive Officer, APEI Richard W. Sunderland, Jr., CPA 61 Executive Vice President, Chief Financial Officer, APEI Patrik U. Dyberg 58 Executive Vice President, Chief Technology Officer, APEI Jeffrey C. Tognola 51 Executive Vice President, Chief Experience Officer, APEI Thomas A. Beckett 54 Senior Vice President, General Counsel and Secretary, APEI Dr. Katherine Zatz 62 Acting President, APUS Thomas M. Slagle 60 President, RU Harry T. Wilkins 65 Chief Executive Officer HCN, and Executive Vice President, Strategy, Growth and Innovation, APUS Angela Selden joined us in September 2019 as President and Chief Executive Officer and a member of our Board of Directors. Prior to joining us, Ms. Selden served as Chief Executive Officer of DIGARC, LLC, an education technology provider to higher education institutions, since October 2016. From July 2015 until April 2016, Ms. Selden was Interim Chief Executive Officer of Skybridge Americas, a global contact center and provider of fulfillment solutions, and served as a member of its board of directors from July 2015 through December 2018. Prior to Skybridge Americas, Ms. Selden served as Chief Executive Officer of Workforce Insight, LLC, a global provider of strategic workforce management, from April 2014 to April 2015, after Workforce Insight’s acquisition by Baird Capital Partners, where Ms. Selden served as Executive in Residence from 2013 to 2014 and participated in the acquisition of Workforce Insight. Prior to her role at Baird, Ms. Selden served as Chief Executive Officer and Executive Co-Chairman of Arise Virtual Solutions, Inc., a virtual workforce solutions outsourcer from January 2005 until August 2011. Earlier in her career, Ms. Selden spent 18 years at Accenture, including serving as the Managing Partner, leading Accenture’s North American West Consumer and Industrial Products group to significant growth. Richard W. Sunderland, Jr., CPA joined us in February 2011 as a consultant and became Senior Vice President of Finance of APUS in December 2012. Effective January 1, 2014, Mr. Sunderland was appointed Executive Vice President and Chief Financial Officer of APEI. Prior to joining APUS, Mr. Sunderland served as the Chief Financial Officer of NovaSom, Inc. from 2008 to 2010. In addition, Mr. Sunderland served as Chief Financial Officer of Active Day, Inc. between 2005 and 2008, and in various roles, including as Controller, Senior Vice President and Chief Financial Officer, of NeighborCare, Inc. from 1993 to 2004. Patrik U. Dyberg joined us in May 2018 as Executive Vice President and Chief Technology Officer, having previously served as interim Chief Information Officer in a consulting capacity from mid-December 2017. Mr. Dyberg was previously a Principal with The WGroup, an information technology management consulting firm, from August 2017 to April 2018 and Managing Director for custom software development company Luxoft Holding, Inc. from December 2015 to February 2017. Mr. Dyberg also served as Executive Vice President and Chief Technology Officer of publishing company John Wiley & Sons, Inc. from February 2012 to August 2015, Senior Vice President of Global Solutions Development at LexisNexis Group Inc. from 2009 through 2011, and Chief Information Officer in the Business Information Group of The McGraw-Hill Companies from 2005 through 2009. Jeffrey C. Tognola joined us in January 2022 as Executive Vice President and Chief Experience Officer, having previously served as the Senior Vice President, Commercial Operations, Chief Marketing Officer and Chief Operating Officer for Laureate Education Inc.’s online flagship institution, Walden University from January 2017 until January 2022. Prior to that, Mr. Tognola served as the Vice President, Global Digital Marketing and Enrollment/Sales and the Divisional Vice President Global Digital Marketing and Sales for Laureate Education, Inc. from August 2011 until December 2016. Thomas A. Beckett joined us in April 2011 as Director, Legal Affairs for APUS, in January 2012 became Vice President, Legal Affairs, and since January 2016, has served as our Senior Vice President and General Counsel, and Secretary since June 2016. Prior to joining APUS, Mr. Beckett was the General Counsel and Chief Operating Officer of HealthSport, Inc. and its wholly owned subsidiary, InnoZen, Inc. (now CURE Pharmaceutical) from 2007 to 2010. In addition, from 2004 to 2010, Mr. Beckett held various leadership positions at HealthSport and InnoZen. Prior to this, Mr. Beckett was an associate at King & Spalding LLP and Holland & Knight LLP. Mr. Beckett began his career as a banking officer with First Union National Bank. Mr. Beckett is on the board of directors of Shenandoah Telecommunications Company, a wireless telephone and cable services company. 23 Dr. Katherine Zatz joined APUS in November 2021 as the Acting President. Prior to her appointment as Acting President, Dr. Zatz served as the Chair of the Board of Trustees for APUS. Dr. Zatz was a senior consultant in organizational development, assessment, change management and employee engagement with Toolpack Consulting LLC, a boutique firm, from 2004 until 2021. As a consultant, she served as the School Director and Assistant Dean of Petrocelli College at Fairleigh Dickinson University from August 2017 until February 2020, the Vice President of Student Development at Petrocelli College at State University of New York-Rockland Community College from 2005 to 2008, and the Dean of Students, Senior Student Affairs and Enrollment Officer, at Hudson County Community College from 1997 until 2005. Dr. Zatz was first appointed to the APUS Board in 2004, and during her time on the APUS Board served as Chair for a combined approximately 10 years. Thomas A. Slagle joined us in September 2021 as a result of the Rasmussen Acquisition. Mr. Slagle has served as the Chief Executive Officer of RU since 2010. Prior to joining RU, Mr. Slagle was president and Chief Operating Officer for School Specialty, a leading provider of K-12 supplies and supplementary materials. Before entering the education industry, Mr. Slagle spent 23 years in various leadership positions in the healthcare field with Johnson & Johnson, Baxter Healthcare and Cardinal Health. Upon leaving Cardinal, he was Group President of the company’s $7.5 billion medical segment. Harry T. Wilkins rejoined us in May 2019 as the Chief Executive Officer of HCN, a position he previously held from December 2013 until his retirement in December 2015. In July 2021, Mr. Wilkins became the Executive Vice President, Strategy, Growth and Innovation, of APEI and APUS. Prior to December 2013, Mr. Wilkins served as our Chief Financial Officer of APEI. Prior to serving as the Chief Financial Officer of APEI, Mr. Wilkins had various executive roles, including serving as the Chief Financial Officer of Strayer Education, Inc., now Strategic Education, Inc. REGULATORY ENVIRONMENT We and our institutions are regulated by (i) accrediting agencies, (ii) state regulatory bodies, and (iii) the federal government through ED. APUS, RU, and HCN are approved to participate in military tuition assistance programs, or TA, administered by the U.S. Department of Defense, or DoD, and veterans’ education benefits programs administered by the U.S. Department of Veterans Affairs, or VA, and are therefore also subject to oversight by those agencies. Regulations, standards, and policies of these agencies address the vast majority of our operations, including our educational programs, facilities, instructional and administrative staff, administrative procedures, marketing, recruiting, and financial operations and condition. The postsecondary education regulatory environment is complex and continues to evolve. Changes in or new interpretations of law, regulations, standards, and policies could have material consequences for our institutions’ accreditation, authorization to operate in various states, permissible activities, receipt of funds under student financial assistance programs, and costs of doing business. The postsecondary education regulatory environment has also changed and may change in the future as a result of U.S. federal elections, changes in Presidential administrations and control of Congress, and legislative activity at the state level. Additional information regarding the regulatory and legislative environment and potential risks associated with it is available below and in the section entitled “Risk Factors” in this Annual Report. COVID-19 Pandemic In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, in response to COVID-19 and its related effects. The CARES Act included provisions designed to provide relief to higher education institutions in connection with the pandemic, including by creating the Higher Education Emergency Relief Fund, or HEERF, which included $12.6 billion in funding for higher education institutions. The CARES Act authorized ED to allocate HEERF funding based on a statutory formula that accounted for the relative share of full-time students who are Pell Grant recipients and that excluded students who were enrolled exclusively in distance education courses prior to the COVID-19 emergency from the calculation. Wholly online institutions such as APUS were therefore not eligible to receive an allocation of funding under the CARES Act HEERF. The CARES Act required 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 permitted 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, with certain exceptions. By June 30, 2020, HCN distributed its entire allocation of $3.1 million in CARES Act HEERF funds to eligible students. In December 2020, Congress passed a law that includes the Coronavirus Response and Relief Supplemental Appropriations Act, or the CRRSAA, which contained several education-related provisions. The CRRSAA appropriated an 24 additional $22.7 billion for the HEERF, or HEERF II, to be distributed to higher education institutions. The HEERF II allocation formula differs from the HEERF formula in several ways, including new allocations for institutions based on the number of students enrolled exclusively in distance education and included certain restrictions regarding allowable uses of HEERF II funds. Under this formula, ED allocated approximately $600,000 for APUS and $2.0 million for HCN. Both APUS and HCN distributed the entirety of their allocated CRRSAA HEERF funds to eligible students. In March 2021, Congress passed the American Rescue Plan Act of 2021, or ARPA, which includes an additional $40 billion for HEERF, or HEERF III. ARPA incorporates CRRSAA’s restrictions regarding allowable uses of HEERF funds. ARPA’s HEERF III allocation formula decreases the amount of funds allocated to for-profit institutions. Under this formula, ED allocated approximately $330,000 for APUS and $1.2 million for HCN. APUS distributed the entirety of the allocated HEERF III funds to eligible students during the third quarter. HCN declined its HEERF III allocation. Prior to its acquisition by APEI, RU received allocations under the CARES Act HEERF and HEERF II, and declined its HEERF III allocation. 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. In addition, as a result of the CARES Act and subsequent administrative actions, ED implemented a temporary freeze on payments and interest accruals for federal student loans. This administrative forbearance period began on March 20, 2020 and will run until at least May 1, 2022. We cannot predict the extent to which the COVID-19 pandemic or related regulatory or legislative activity may impact us or our institutions in the future. Accreditation Accreditation is a voluntary, non-governmental process through which an institution submits to review its institution or programs based on the standards of the accrediting agency and the stated aims and purposes of the institution or program. Accrediting agencies establish criteria for accreditation, conduct peer-review evaluations, and publicly recognize those institutions or programs that meet the stated criteria and are considered accredited institutions or accredited programs. Accredited institutions and programs are subject to periodic review to ensure institutional and program integrity, to encourage continued high performance and improvement, and to confirm that accreditation criteria continue to be satisfied. An institution or program that does not meet the criteria may have its accreditation limited, revoked, or not renewed. Accreditation at the institutional level by an accrediting agency recognized by ED is necessary to participate in Title IV programs and TA. To be recognized by ED, accrediting agencies must adopt specific standards and procedures. If one of our institutions’ institutional accreditors was to lose its recognition as an accrediting agency and the institution was unable to obtain recognition from another recognized accrediting agency, the institution could lose its eligibility to participate in Title IV programs and TA. The loss of ability of one of our institutions to participate in either Title IV programs or TA could have a material adverse effect on our business and financial condition. Additional information about each of our institutions’ accreditation is provided above in each reporting segment’s “Our Institutions - Accreditation” section and as follows: • American Public University System, or APUS, is institutionally accredited by The Higher Learning Commission, or HLC, a regional accrediting agency recognized by ED. HLC accredits degree-granting institutions in a 19-state region, including West Virginia. In August 2021, HLC granted APUS re-accreditation, with the next reaffirmation of accreditation scheduled for 2030-2031. As part of the process, APUS was awarded the Open Pathway designation, which affords institutions greater opportunity to pursue institutional improvement projects than the previous Standard Pathway designation. • Rasmussen University, or RU, is institutionally accredited by HLC. In December 2020, HLC granted RU re-accreditation, with the next reaffirmation of accreditation scheduled for 2025-2026. RU is on the Open Pathway designation. 25 • Hondros College of Nursing, or HCN, is institutionally accredited by the Accrediting Bureau of Health Education Schools, or ABHES. In February 2021, ABHES granted HCN continued accreditation through February 2027 for all programs at all campuses. 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 the 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. In prior years, several HCN programs at certain HCN campuses have failed to satisfy ABHES’s student achievement measures, and as a result ABHES has placed certain locations and programs on outcomes reporting status and required action plans. For the reporting year ended June 30, 2021, several HCN programs at certain campuses did not satisfy ABHES’s threshold requirements for retention rates. The retention rates were instead between 55% and 69% for the reporting year. ABHES has asked HCN to provide updated rates for the period July 1, 2021 through March 31, 2022 and an updated action plan to address any rate that remains below 70% in that period. There can be no assurance that HCN will be able to demonstrate compliance in all relevant metrics. If HCN fails to meet student achievement indicators and is unable to maintain 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. Institutional accreditation is an important attribute of our institutions. Colleges and universities depend, in part, on accreditation in evaluating transfers of credit and applications to graduate schools. Many institutions will only accept transfer credit from institutions with certain institutional accreditation. Students and sponsors of tuition reimbursement programs look to accreditation for quality assurance, and employers rely on institutions’ accredited status when evaluating a candidate’s credentials. Failure to maintain our institutional accreditations would result in the loss of eligibility to participate in Title IV programs and TA. In addition to institutional accreditation, our institutions have obtained programmatic accreditation or professional recognition for certain programs, as described more fully above in each reporting segment’s section under “Our Institutions” entitled “Accreditation.” Among other standards and requirements, programmatic accreditors may utilize benchmarks for students outcomes in the programs they accredit and may require the institution to address outcomes that fail to satisfy those benchmarks or may take other action based on such matters. If one of our institutions fails to satisfy the standards of these programmatic accrediting agencies or professional organizations for the relevant programs, the institutions could be subject to restrictions or could lose the programmatic accreditation or professional recognition for those programs, which could result in materially reduced student enrollments, prevent the institution from offering the programs in certain states where programmatic accreditation is required, or prevent our students from seeking and obtaining licensure or employment. 26 State Authorization/Licensure Our institutions are subject to regulation by the states in which they operate. The level of oversight varies from state to state, and such regulations change frequently. State laws typically establish standards for instruction, faculty qualifications, administrative procedures, marketing, recruiting, financial operations, and other operational matters. Some states prescribe regulations related to an institution’s financial condition, and some states require the posting of surety bonds. State laws and regulations may affect our institutions’ ability to offer educational programs, open locations, and award degrees. If one of our institutions fails to comply with a state’s requirements, it may lose its state licensure or authorization, which would result in the institution’s inability to enroll students in that state and could result in the institution’s inability to receive Title IV program funds and TA funds, at least for students in that state. Some states assert authority to regulate an institution if its educational programs are offered to residents of those states, regardless of whether the institution maintains a physical presence in the state. The growth of online education has led and may further lead to new laws and regulations and new interpretations of existing laws and regulations. New laws, regulations, or interpretations, including with respect to whether our institutions’ activities constitute a physical presence or otherwise may require authorization or licensure, could increase our cost of doing business and affect our ability to recruit students in particular states, which could negatively affect enrollments and revenue and have a material adverse effect on our business. Changes in our business activities could lead states that do not currently require our institutions to be authorized to require such authorization. The extent of this increase in regulatory obligations, and the associated costs and significance, are not known at this time. Furthermore, in some states it may take a significant amount of time to meet the applicable regulatory requirements with respect to a new program initiative, or we may not be able to do so at all. The State Authorization Reciprocity Agreement, or SARA, is a voluntary agreement among member states, districts, and territories that establishes national standards for interstate offering of postsecondary distance education and is intended to make it easier for students to take online courses offered by institutions based in another jurisdiction. SARA requires member jurisdictions to approve institutions in their jurisdiction to participate in SARA, based upon institutional accreditation and financial stability, and to resolve student complaints. Applications must be renewed annually. SARA does not cover, or limits its coverage related to, certain activities. As a result, an institution may still be required to obtain state authorization from, for example, agencies, or boards responsible for professional licensure. For information on our institutions’ status under SARA, please refer to “State Authorization/Licensure of Our Institutions” below. Many states also have specific requirements that an individual must satisfy in order to be licensed as a professional in a specified field. Students’ success in obtaining licensure typically depends on numerous factors, including: individual merits of the graduate; whether the institution and the program were approved by the state in which the graduate seeks licensure or by a professional association; whether the program meets all state requirements for professional licensure; and the accreditation of the institution and the specific program. Federal Requirements for State Authorization/Licensure “Home” State Authorization ED regulations specify how an institution may demonstrate, as required by ED, that it is authorized to offer postsecondary education programs by the state(s) where it is located, which we refer to as its “home” state, and that the home state otherwise satisfies ED requirements. If ED determines that an institution does not have the required state approval, the institution will be ineligible to participate in Title IV programs. If one of our institutions were to lose its ability to participate in Title IV programs in connection with “home” state authorization requirements, it would also lose its ability to participate in TA. State Authorization of Online Education ED regulations require that an institution that offers postsecondary education through distance education to students located in a state in which the institution is not physically located or in which the institution is otherwise subject to the state’s jurisdiction must meet the state’s requirements to be legally offering postsecondary distance education in that state or must be covered by a state authorization reciprocity agreement, like SARA. ED regulations also now specify the required methodology for determining the state in which a student is located for purposes of satisfying state authorization requirements for distance education courses and require an institution to disclose certain information related to whether programs leading to professional licensure meet applicable state requirements, regardless of program modality. 27 State Authorization/Licensure of Our Institutions APUS is authorized to enroll students from each of the 50 states and the District of Columbia. APUS is headquartered in Charles Town, West Virginia. APUS is authorized to offer its programs by the West Virginia Higher Education Policy Commission, or WVHEPC. Under current law, if APUS were to lose its accreditation by HLC, WVHEPC may suspend, withdraw, or revoke APUS’s authorization. Failure to comply with WVHEPC requirements could result in APUS losing its authorization from WVHEPC, its accreditation by HLC, its eligibility to participate in Title IV programs and TA, or its ability to offer certain programs, any of which could force APUS to cease operations. APUS participates in SARA. APUS also has obtained authorization to operate in California, which is the only state that is a non-SARA jurisdiction. Until June 30, 2021, APUS was also required to be certified by the State Council of Higher Education for Virginia, or SCHEV, because it had administrative offices in Manassas, Virginia. However, effective May 31, 2021, APUS terminated its lease for administrative offices in Virginia, and APUS therefore did not renew its certification before it expired on June 30, 2021. RU is headquartered in Bloomington, Minnesota, and has 23 campuses across Florida, Illinois, Kansas, Minnesota, North Dakota, and Wisconsin. HCN is headquartered in Westerville, Ohio, and has six campuses in Ohio and one in Indiana. RU and HCN have obtained from the relevant state postsecondary education agencies the requisite authorizations, approvals, or registrations for the states in which they have has campuses. In addition, the nursing education programs offered by RU and HCN are approved by the relevant state boards of nursing. For HCN, the Indiana State Board of Nursing, or IBN, granted initial accreditation and authorized the admission of the first cohort of students in the PN Program at HCN’s Indianapolis campus in 2020. In July 2021, the IBN authorized the admission of an additional 30 students per year, increasing the maximum enrollment to 60 students for the 2022 calendar year, and in February 2022, IBN further increased the maximum enrollment to 200 students for the 2022 calendar year. RU and HCN participate in SARA. To apply for licensure to practice nursing in the states that we operate, an applicant generally must have successfully completed a nursing education program that has a first-time candidate pass rate on the relevant NCLEX exam that satisfies certain requirements. If a program does not attain this pass rate, the program may face various consequences, including development and implementation of a plan of corrective action, issuance of a corrective order, or revocation of approval pursuant to an adjudication proceeding. In Indiana, a program that is under initial accreditation may not be granted full accreditation if the program’s pass rate is lower than one standard deviation below the average national pass rate. In addition, if the program’s pass rate is lower than one standard deviation below the average national pass rate for three consecutive years, the program may be subject to additional oversight or a change in accreditation status. RU and HCN have both had programs that have not met state-established first-time NCLEX benchmarks in recent years. In 2019 and 2020, RU’s ADN program at the Bloomington campus did not meet the established first-time NCLEX benchmarks. The Minnesota Board of Nursing conducted a survey visit to the program in April 2021. Pass rates for this 2021 program came in below the state threshold, which will result in another survey visit in March 2022. RU’s ADN programs at its campuses in Illinois and in Kansas each experienced 2021 first-time NCLEX pass rates below the applicable state threshold. This was the second consecutive year for the Illinois and Kansas programs. In February 2022, the Illinois ADN program was placed on probationary status by the Illinois Department of Professional Regulation, or IDPR, as a result of which RU has two years to demonstrate evidence of implementing strategies to correct deficiencies and satisfy the required NCLEX pass rate. If after two years the pass rate does not satisfy the required standard, the program will be reevaluated by the IDPR for a determination as to whether the program will be allowed to continue on probation or whether it should be disapproved. In addition, HCN’s ADN Program has been on provisional approval status in Ohio since March 2017 due to not meeting the first-time pass rate standard for consecutive years. The Ohio Board of Nursing, or OBN, will consider restoring a program to Full Approval status if the program meets the first-time pass rate standard for at least two consecutive years. If a program on provisional approval fails to meet OBN requirements at the end of the time period established for provisional approval, the OBN may propose to continue provisional approval for a set time period or may propose to withdraw approval. RU and HCN have been implementing changes to their delivery and instruction of the ADN program, including programmatic certification improvement plans at RU and curriculum, admissions, and academic achievement and course retake policy changes as HCN, in order to help prepare students and graduates for successful performance on the NCLEX. However, there is no assurance that these changes will be successful or will not have negative effects on RU’s or HCN’s enrollment. If RU and HCN are unable to improve NCLEX scores over time, this situation could have an adverse impact on their ability to enroll students and eventually our ability to continue offering the ADN programs associated with the applicable campuses. Failure to comply with state authorization or licensure requirements could restrict our institutions’ ability to recruit or enroll students or result in other sanctions, including fines and penalties. New laws, regulations, interpretations, or changed circumstances related to our institutions’ educational programs could increase our cost of doing business and affect our ability 28 to recruit students and offer programs in particular states, which could, in turn, adversely affect our institutions’ enrollments and revenue and have a material effect on our business. Student Financing Sources and Related Regulations/Requirements Our students finance their education through a combination of Title IV programs, TA, education benefits administered by the VA, private loans, corporate reimbursement programs, individual resources and institutional grants, and in the case of HCN an extended payment plan option. Participation in federal student aid programs, including those administered by DoD and VA, and the extended payment plan option at HCN, adds to the regulation of our operations. In particular, the HEA and related ED regulations subject us to significant scrutiny in the form of numerous standards we must satisfy in order to participate in and administer Title IV programs. Department of Education The federal government provides support for postsecondary education through the Title IV programs in the form of grants and loans to eligible students who can use those funds to enroll in an eligible educational program at any institution that has been certified by ED. An institution will be certified to participate in the Title IV programs only if, among other things, it enters into a written program participation agreement, or PPA, with ED, which conditions participation in Title IV programs upon compliance with ED regulations and any additional conditions specified in the PPA. Types of Title IV Financial Aid Programs . Title IV program aid is primarily awarded to students on the basis of financial need, generally defined as the difference between the cost of attending an institution and the amount a student can reasonably contribute. Our students receive grants and loans to fund their education under several Title IV programs, of which the two largest are Direct Loans and Pell Grants. Some of our students may also be eligible for other Title IV grant programs, such as the Federal Supplemental Education Opportunity Grant . The Title IV programs are subject to Congressional action in terms of appropriations and other legislation that may affect funding levels, student eligibility, and other requirements. For example, the Pell Grant program could be subject to cuts or changes in the future, and cuts in ED’s administrative budget could lead to delays in student eligibility determinations and delays in origination and processing of federal student loans. Regulation of Title IV Financial Aid Programs To be eligible and certified to participate in Title IV programs, an institution must be accredited by an accrediting body recognized by ED, must be authorized to operate by the appropriate regulatory authority in each state where the institution maintains a physical presence, and must comply with specific standards and procedures set forth in the HEA and the regulations issued thereunder by ED. ED periodically revises its regulations and changes its interpretations of existing laws and regulations. Accrediting agencies and state education agencies also have responsibilities for overseeing institutional compliance with certain Title IV program requirements. For these reasons, we cannot predict with certainty how Title IV program requirements will be applied in all circumstances. Key provisions relating to institutional participation in Title IV and the processing of Title IV aid that could adversely affect us include the following: Eligibility and Certification Procedures. An institution must apply periodically to ED for continued certification to participate in Title IV programs. Recertification generally is required every six years, but may be required earlier, including when an institution undergoes a change of control. An institution may come under review when it expands its activities in certain ways, such as opening an additional location, adding a new program, or, in certain cases, when it modifies academic credentials that it offers. ED may place an institution on provisional certification status if ED finds that the institution does not fully satisfy all Title IV requirements and in certain other circumstances, such as when an institution undergoes a change in ownership resulting in a change of control. During a period of provisional certification, the institution must comply with any additional conditions imposed by ED. In addition, ED may more closely review a provisionally certified institution if it applies for approval to open a new location, add an educational program, acquire another school, or make any other significant change. 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 than if it were fully certified. 29 In June 2020, APUS timely applied for recertification to participate in Title IV programs. ED subsequently 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 renewal. The program review had been pending since September 2016 when ED had initiated a program review of APUS’s administration of the Title IV programs during the 2014-2015 and 2015-2016 award years. The program review was closed on January 27, 2021 with no findings, penalties, or further action required. ED closed the program review based on the length of time that had passed since the related site visit, the continued monitoring of the institution through annual compliance audits, and APUS’s assertions that it had taken corrective actions with respect to findings in the 2016 Title IV compliance audit Final Audit Determination letter issued in January 2018. In July 2021, ED notified RU that in connection with RU’s March 2019 change in ownership, ED was imposing certain temporary growth restrictions on the institution, including imposing limitations on new programs and locations and imposing a cap on the number of students that participate in Title IV programs that can be enrolled. ED also continued to require RU to submit periodic financial and Title IV enrollment reports, a requirement first imposed in connection with the financial responsibility letter of credit described below. On September 9, 2021, RU timely submitted a change in ownership and control application to ED seeking approval to participate in the Title IV programs under our ownership. ED and RU entered into a Temporary Provisional Program Participation Agreement, or TPPPA, effective as of October 14, 2021, that allows RU to continue disbursing Title IV funds while ED reviews the change in ownership application. The TPPPA continues the growth restrictions that ED imposed as a result of the March 2019 change in ownership, including the enrollment cap. The TPPPA specifies that after ED reviews and accepts financial statements and compliance audits for one complete fiscal year of RU’s Title IV participation under APEI’s ownership, RU may seek removal of the enrollment cap and approval for new programs that replace current programs. The TPPPA also specifies that at least until after ED reviews and accepts financial statements and compliance audits that cover the second complete fiscal year of RU’s Title IV participation under APEI’s ownership, RU must seek pre-approval for new locations, new programs that are not replacing current programs, and other changes. The growth restrictions under the TPPPA could limit or adversely affect RU’s growth opportunities, including restricting its ability to serve additional students, particularly additional nursing students, and limiting its ability to continue to evolve to address current needs by providing new or changed programs. In June 2021, HCN timely applied for recertification to participate in Title IV programs. ED subsequently notified HCN that it had been granted provisional certification until September 30, 2023. As described in the provisional program participation agreement, or PPPA, the reason ED granted approval on a provisional basis is because HCN was subject to an open program review at the time of recertification. The program review has been pending since July 2021 when ED requested information for an off-site program review to begin in August 2021. As described in Compliance with Regulatory Standards and Effect of Regulatory Violations – Compliance Reviews, in January 2022, HCN received a program review report from ED and must respond to ED by April 2022. Administrative Capability. ED regulations specify extensive criteria that an institution must satisfy to establish that it has the requisite administrative capability to participate in Title IV programs. These criteria relate to, among other things, institutional staffing, operational standards such as procedures for disbursing and safeguarding Title IV program funds, timely submission of accurate reports to ED, and various other procedural matters. Financial Responsibility. The HEA and ED regulations establish extensive standards of financial responsibility that institutions must satisfy in order to participate in Title IV programs. These standards generally require that an institution provide the services described in its official publications and statements, properly administer Title IV programs in which it participates, and meet all of its financial obligations, including making required refunds and any repayments to ED. ED evaluates institutions on an annual basis for compliance with specified financial responsibility standards, including a complex formula based on line items from the institution’s audited financial statements. The formula focuses on three financial ratios: (1) equity ratio (which measures the institution’s capital resources, financial viability, and ability to borrow); (2) primary reserve ratio (which measures the institution’s viability and liquidity); and (3) net income ratio (which measures the institution’s profitability or ability to operate within its means). Generally, an institution’s financial ratios must yield a composite score of at least 1.5 for the institution to be deemed financially responsible. Under certain circumstances, an institution may be able to establish financial responsibility on an alternative basis by complying with various conditions. ED may also apply the financial responsibility standards to other entities under common ownership with an eligible institution. At the request of ED, for purposes of evaluating the financial responsibility of our institutions, including the composite score calculation, we supply consolidated financial statements to ED. Because ED does not review each of our institution’s financial statements separately, ED’s determination that our consolidated financial statements do not satisfy the 30 “financial responsibility” requirements could cause all of our institutions to lose access to Title IV program funding or result in other penalties or conditions on continued participation. In September 2019, ED published amendments to its financial responsibility standards that took effect July 1, 2020. We refer to these regulations as the 2019 Borrower Defense Regulations. The 2019 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, such as a letter of credit, to ED. Triggering events are characterized as either mandatory or discretionary. ED will consider an institution unable to meet its financial or administrative obligations if an institution experiences a mandatory triggering event. ED may consider an institution not to be financially responsible if an institution experiences a discretionary triggering event. If the institution is subject to two or more of these discretionary triggering events, ED will consider the institution to be subject to a mandatory triggering event and therefore unable to meet its financial or administrative obligations. For each triggering event, to demonstrate that the institution remains financially responsible, the institution may submit evidence that the triggering event has been resolved, that the institution has insurance that will cover part or all of the debt or liabilities, or that the triggering event has not or will not have a material adverse effect on the institution. If 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 “90/10 Rule.” Under the so-called “90/10 Rule”, a for-profit institution is prohibited from deriving more than 90% of its revenue (as computed by ED) on a cash accounting basis (except for certain institutional loans) from Title IV programs for any fiscal year. If an institution fails to satisfy the 90/10 Rule for any fiscal year, the institution is placed on provisional status for two fiscal years. An institution that fails to satisfy the rule for two consecutive fiscal years becomes ineligible to participate in Title IV programs for at least two fiscal years and is required to demonstrate compliance with Title IV eligibility and certification requirements for at least two additional fiscal years prior to resuming Title IV program participation. Using the applicable 90/10 formula, the following table contains the percentage of cash-basis revenue earned from Title IV program funds: 2019 2020 2021 APUS 38% 35% 34% RU 77% 76% 75% HCN 80% 82% 81% In recent years, Congress has considered various proposals that would modify the 90/10 Rule. ARPA, which was enacted in March 2021, modifies the HEA’s 90/10 Rule to require that a for-profit institution derive not less than 10 percent of its revenue from sources other than “federal education assistance funds”. ARPA provides that the amendment applies to institutional fiscal years beginning on or after January 1, 2023. In addition, ARPA provides that the amendment is subject to the HEA’s master calendar requirements and negotiated rulemaking. On October 4, 2021, ED published its intent to establish a negotiated rulemaking committee related to the 90/10 Rule. In October 2021, two public hearings were held, and written comments were invited. ED held negotiated rulemaking sessions in January and February 2022 and has a final session scheduled for March 2022, during which the federal and non-federal negotiators discussed and will discuss draft regulations to address a range of Title IV Program matters, including ARPA’s amendments to the 90/10 Rule. An ED final rule to implement the ARPA provision is not expected to go into effect until July 1, 2023 at the earliest. ARPA does not define “federal education assistance funds.” We expect such definition to be developed as part of the required negotiated rulemaking and anticipate that ED would seek to include TA and VA education benefits in the scope of the definition. Incentive Payment Rule. An institution participating in Title IV programs may not provide any commission, bonus or other incentive payment to any person or entity engaged in any student recruitment, admissions, or financial aid awarding activity based directly or indirectly on success in securing enrollments or federal student financial aid. ED has previously 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. ED may also fine an institution, or take administrative action to limit, suspend, revoke, deny, or terminate an institution’s eligibility to participate in the Title IV programs, if the institution violates the prohibition. 31 We have designed our employee compensation and third-party contractual arrangements to comply with the incentive payment rule currently in effect. However, because there are ambiguities as to how the rule is interpreted and enforced by ED and because we could make errors in implementation, we can make no assurances that ED would not find deficiencies in our past, current, or future employee compensation plans and relevant third-party contractual arrangements. In addition, in recent years, other postsecondary education institutions have been named as defendants in whistleblower lawsuits, known as “qui tam” cases, brought pursuant to the Federal False Claims Act, alleging that an institution’s compensation practices did not comply with the incentive payment rule. Any such litigation could be costly and could divert management’s time and attention away from the business, regardless of whether a claim has merit. The incentive payment rule also influences how our institutions are able to compensate and motivate their employees. Student Loan Defaults. Under the HEA, an educational institution may lose its eligibility to participate in Title IV programs if defaults on the repayment of federal loans by its students exceed 40% in any one year or 30% for each of three consecutive years. An institution’s cohort default rate is calculated as the percentage of borrowers who entered repayment in the relevant fiscal year who default before the end of the second fiscal year following the fiscal year in which the borrowers entered repayment. If an institution’s cohort default rate is equal to or greater than 30%, it must establish a default prevention task force. In September 2021, ED released official three-year cohort default rates for federal fiscal year 2018. The final official ED cohort default rates for APUS, RU, and HCN for the federal fiscal years 2016, 2017, and 2018 are as follows: 2016 2017 2018 APUS 18.5% 15.2% 9.4% RU 7.3% 9.4% 7.8% HCN 11.3% 12.1% 8.1% If one or more of our institutions has a default rate in excess of allowable levels, it could result in that institution’s or those institutions’ loss of eligibility to participate in Title IV programs or incurring additional costs related to default prevention. As a result of the CARES Act and subsequent administrative actions, ED implemented a temporary freeze on payments and interest accruals for federal student loans. This administrative forbearance period began on March 20, 2020 and will run until at least May 1, 2022. During this period of temporary relief, we would expect borrowers to be substantially less likely to default on federal student loans, which may artificially lower our institutions’ cohort default rates for federal fiscal years 2019 and 2020 to be reported in 2022 and 2023. Upon expiration of the temporary freeze, borrowers will again need to make repayments on loans and loans will again accrue interest, which may lead to higher cohort default rates for federal fiscal year 2021 to be reported in 2024 compared to federal fiscal years that reflect the effects of the temporary freeze on payments and interest accruals. Please refer to “Company Overview - COVID-19 Pandemic.” Privacy of Student Personal Information and Records. The Family Educational Rights and Privacy Act of 1974, or FERPA, and ED’s regulations implementing FERPA require education institutions to protect the privacy of students’ education records by, among other things, limiting disclosure of a student’s personally identifiable information without prior written consent. If an institution fails to comply with FERPA, ED may require corrective actions or terminate eligibility to participate in Title IV programs. In addition, education institutions engaged in financial activities such as the granting of student loans are obligated to safeguard student information pursuant to the Gramm-Leach-Bliley Act, or GLBA, and implementing regulations, which among other things, requires reasonable security practices to protect personally identifiable financial information of students, parents, or other individuals in a customer relationship with the institution. Failure to comply with the applicable GLBA requirements may result in Federal Trade Commission, or FTC, enforcement, which could include the imposition of conditions, penalties, monitoring, and oversight. Institutions are also subject to the FTC’s general deceptive and unfair practices jurisdiction of Section 5 of the FTC Act for processing student information. FTC enforcement focuses primarily on: (1) collecting, using, sharing, or retaining personal information inconsistent with representations, commitments, and promises in privacy policies and other public statements; (2) privacy policies that do not adequately inform consumers about actual practices; and (3) failing to reasonably protect the security, privacy, and confidentiality of personal information. Institutions must also comply with the FTC Red Flags Rule, a requirement designed to identify and mitigate identity theft for certain student accounts. States can also bring similar enforcement actions under so called “mini-FTC Acts” as well as other applicable privacy and security laws. For example, the California Consumer Privacy Act, or the CCPA, and implementing regulations impose new disclosure and notice obligations on institutions and provides a broad array of consumer rights relating to California residents and their personal information, including among others, the right to access personal information, the right to opt out of sales of personal information, and the right to delete personal information. The CCPA has the potential for significant civil penalties for failing to comply as well as a private right of action and statutory damages for data breaches that are the result of unreasonable security. The California Privacy Rights Act, or CPRA, will expand the CCPA’s requirements 32 when it becomes effective in 2023 and other comprehensive state privacy laws with varying requirements also come into effect in 2023. Our collection of personal information relating to individuals in the European Union, or EU, may implicate the EU’s comprehensive General Data Protection Regulation, or GDPR. Non-compliance with the GDPR could result in a fine for certain activities of up to 20 million Euros or 4% of an organization’s global annual revenue, whichever is higher, per violation. Accessibility for Students with Disabilities . Section 504 of the Rehabilitation Act of 1973, or Section 504, prohibits discrimination against a person with a disability by any organization that receives federal financial assistance, which includes us. In 2010, ED’s Office for Civil Rights, which enforces Section 504, together with the Department of Justice, asserted that requiring the use of technology in a classroom environment when such technology is inaccessible to individuals with disabilities violates Section 504, unless those individuals are provided accommodations or modifications that permit them to receive all the educational benefits provided by the technology in an equally effective and integrated manner. In recent years, ED’s Office for Civil Rights has taken enforcement action against several institutions of higher education, including primarily online institutions, after determining that their websites and online learning management platforms were not accessible to persons with a disability. If one of our institutions is found to have violated Section 504, it may be required to modify existing content and functionality of its online classroom or other uses of technology, including through adoption of specific technical standards. An institution that does not come into compliance with Section 504 could lose access to federal funding, including the ability to participate in the Title IV programs and TA. Third-Party Servicers. ED regulations permit an institution to enter into a written contract with a third-party servicer for the administration of any aspect of the institution’s participation in Title IV programs. Our institutions utilize third-party servicers for some services and in the future may consider using third-party servicers for other functions that are currently managed directly by our institutions. Third-party servicers must, among other obligations, comply with Title IV requirements and be jointly and severally liable with the institution to ED for any violation by the servicer of any Title IV provision. An institution must report to ED new contracts with or any significant modifications to contracts with third-party servicers and other matters related to third-party servicers. If any third-party servicer engaged by one of our institutions does not comply with applicable statutes and regulations, our institution may be liable for its actions, and our institution could lose its eligibility to participate in Title IV programs. Title IV Return of Funds. When a student withdraws, an institution must return unearned Title IV program funds to ED in a timely manner. An institution must first determine the amount of funds that a student “earned” before withdrawal. If the student withdraws during the first 60% of any period of enrollment or payment period, the amount of Title IV program funds that the student earned is equal to a pro rata portion of the funds for which the student would otherwise be eligible. If the student withdraws after the 60% threshold, then the student has earned 100% of the Title IV program funds. The institution must return to the appropriate Title IV programs, in a specified order, the lesser of (i) the unearned Title IV program funds or (ii) the institutional charges incurred by the student for the period multiplied by the percentage of unearned Title IV program funds. An institution must return the funds no later than 45 days after the date of the institution’s determination that a student withdrew. If 5% or more of such returns were not timely made, the institution may be required to submit a letter of credit in favor of ED equal to 25% of the amount of unearned Title IV funds the institution was required to return for its most recently completed fiscal year. If ED determines that one of our institutions has repeatedly failed to comply with ED regulations, it may take adverse action against the institution on the basis of the repeated finding or may find that the institution has failed to demonstrate administrative capability, as described above. As described in Compliance with Regulatory Standards and Effect of Regulatory Violations – Compliance Reviews, in January 2022, HCN received a program review report from ED that included a finding related to return of Title IV funds calculations that were not properly calculated. In connection with that finding, HCN is required to do a full file review and must have the review tested by an independent auditor. HCN’s response to ED is due by April 2022. ED will review the response and then issue a final program review determination letter specifying any liabilities. Misrepresentation. Under the HEA and its implementing regulations, ED may fine, suspend or terminate the participation in Title IV programs by an institution that engages in substantial misrepresentation regarding the nature of its education program, its financial charges, or the employability of its graduates. The Clery Act . Our institutions must comply with certain campus safety and security reporting requirements as well as other requirements in the Jeanne Clery Disclosure of Campus Security Policy and Campus Crime Statistics Act, or the Clery Act. The Clery Act requires an institution, among other things, to report to ED and disclose in an annual security report, for the three most recent calendar years, statistics concerning the number of certain crimes that occurred on or within the institution’s so-called “Clery geography” and to publish certain policies and procedures related to campus safety. A failure to comply with the Clery Act could result in our institutions being fined or having their eligibility to participate in Title IV programs limited, 33 suspended, or terminated, could lead to litigation, or could harm our institutions’ reputation, each of which could, in turn, adversely affect our institutions’ enrollments and revenue and have a material effect on our business. Borrower Defenses. 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’s previous 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. In November 2016, ED published the 2016 Borrower Defense Regulations, which address, among other matters, which acts or omissions of an institution of higher education a student borrower or group of borrowers may assert as a defense to repayment of a Direct Loan. For Direct Loans first disbursed on or after July 1, 2017, the 2016 Borrower Defense Regulations created a new federal standard for borrower defenses to repayment of Direct Loans, new limitation periods for such claims, and new processes for resolution of such claims. The 2016 Borrower Defense Regulations were in effect until the 2019 Borrower Defense Regulations went into effect July 1, 2020. In September 2019, ED published the 2019 Borrower Defense Regulations, which, among other things, modify the borrower defenses to repayment for Direct Loans made on or after July 1, 2020, the limitation periods for such claims, and the processes for resolution of such claims. The 2016 Borrower Defense Regulations continue to apply to all Direct Loans made on or after July 1, 2017 and before July 1, 2020, with certain exceptions pursuant to the 2019 Borrower Defense Regulations. The 2019 Borrower Defense Regulations apply to all Direct Loans made on or after July 1, 2020. In March 2021, ED announced a revised approach for determining relief for borrowers who successfully assert borrower relief claims. Under this new approach, a borrower will receive full loan relief when evidence shows that the institution engaged in certain misconduct. This policy rescinds the prior administration’s formula that generally granted only partial loan relief for borrower defense claims. Under the 2016 and the 2019 Borrower Defense Regulations, ED may initiate a separate proceeding to collect from an institution the amount of relief granted based on a borrower defense to repayment claim. If ED determines that borrowers of Direct Loans who attended our institutions have a defense to repayment of their Direct Loans, our repayment liability to ED could have a material adverse effect on our financial condition, results of operations, and cash flows. The 2019 Borrower Defense Regulations also made other regulatory changes, including modifying ED’s requirements with respect to the circumstances under which a borrower is eligible for a loan discharge if an institution or location closes. For example, the Borrower Defense Regulations previously provided for an automatic loan discharge under certain circumstances, but the 2019 Borrower Defense Regulations eliminated the automatic loan discharge for schools closing on or after July 1, 2020. Based on the automatic loan discharge rules, ED found RU responsible for $168,630 in closed school loan discharges as a result of campus consolidations in North Dakota in 2015 and in Wisconsin in 2016; the liability was reduced on appeal to $77,569. RU may also face closed school discharge liabilities as a result of the 2021 consolidation of two Florida campuses. The 2019 Borrower Defense Regulations also generally remove the prohibitions on pre-dispute arbitration agreements or class action waivers contained in the 2016 Borrower Defense Regulations and requires institutions whose students must enter into pre-dispute arbitration agreements or class action waivers as a condition of enrollment to disclose publicly those requirements in an easily accessible format and prohibits such institutions from requiring a student to participate in arbitration or any internal dispute resolution process prior to filing a borrower defense to repayment application with ED. ED recently completed negotiated rulemaking to address borrower defenses to repayment, loan discharge, pre-dispute arbitration and class-action waivers, among other issues. ED has yet to issue proposed regulations, but is expected to finalize at least one rulemaking on these matters prior to November 1, 2022. If it does so, any new rules are expected to be effective July 1, 2023. Department of Defense Service members of the U.S. Armed Forces are eligible to receive tuition assistance from their branch of service through the tuition assistance program of the DoD, or TA. Service members may use TA to pursue postsecondary degrees at institutions that are accredited by accrediting agencies recognized by ED. APUS participates in TA, and for students in APUS undergraduate, and beginning January 2020, for students in APUS master’s programs, APUS provided grants so that APUS tuition rates per credit hour can be 100% covered by DoD tuition assistance funds provided that the student does not exceed the annual limits per student. RU and HCN also participate in TA. In March 2013, DoD restricted the ability of service members who have not previously taken a postsecondary education course and who are in certain duty locations outside the continental United States, or overseas locations, to receive TA for courses offered by institutions of higher education that are not parties to contracts with the DoD to provide DoD voluntary education programs at those locations. Because we do not have contracts with the DoD to provide instruction at 34 overseas locations, service members who begin their first postsecondary education program after arrival at an applicable overseas location may not use TA to pay for their education in our programs until after they have already successfully completed a course with an institution that has entered into a contract to provide voluntary education programs at that overseas location. Service members who were already enrolled in one of our programs before arriving at an overseas location may continue to receive TA for the in-progress program, but they will be encouraged to enroll in courses provided by institutions that provide programs at the applicable overseas duty location. DoD has issued briefings that prohibit base commanders from authorizing education institutions to hold regular or recurring office hours on installations 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 APUS’s efforts to support existing students and serve new students. If APUS is not able to improve its access to military installations and its existing students on those installations, or find alternative methods to serve those students, its military enrollments may decline. Each institution participating in TA is required to sign a Memorandum of Understanding, or MOU, outlining certain commitments and agreements between the institution and DoD prior to being permitted to participate in TA. Pursuant to the DoD MOU, among other requirements, institutions must: explain certain tools to service members, such as ED’s “College Navigator” website and the Consumer Financial Protection Bureau’s “Paying for College” website; comply with requirements related to readmission policies for service members; abide by limitations on the use of funds derived from TA; provide certain academic and student support services; disclose information about transfer of credit; in certain circumstances, return TA funds to DoD (such as when a student ceases to attend or an institution cancels a course); offer to service members loan counseling before private student loans are offered or recommended; and comply with ED’s Title IV “program integrity” rules, including rules related to incentive payments and misrepresentation. The DoD MOU also provides that an institution may only participate in TA if it is accredited by an accrediting agency recognized by ED, approved for VA funding, and a participant in Title IV programs. Additional information regarding the potential risks associated with the DoD MOU is provided in the “Risk Factors” section of this Annual Report. Several federal government agencies have also established an online student complaint system for service members, veterans, and their families to report negative experiences at education institutions and training programs administering the Post-9/11 Veterans Educational Assistance Act of 2008, or Post-9/11 GI Bill, TA, and other military-related education benefit programs. An institution having recurring substantive complaints, or demonstrating an unwillingness to resolve complaints, may face a range of penalties, including revocation of its MOU and removal from participation in TA. In addition to TA, 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 licenses or certifications, and associated books, supplies and materials. Credentialing Opportunities On-Line, or COOL, is a program for each of the military branches and DoD civilians that links military occupations and experiences to civilian credentials ( e.g. , occupational certifications, licenses, and apprenticeships). While benefits vary by service, service members may be eligible for assistance in paying for certifications, including by prior payment ( e.g. , vouchers) or service member reimbursement. Students must meet certain eligibility requirements in order to receive credentialing assistance, including in some cases service time, experience and TA eligibility requirements. The Army additionally offers an expanded credentialing program called the Army Credentialing Assistance Program, or CA. CA is a program designed to support soldiers who wish to pursue civilian credentials, licenses, and certifications that lead directly to a specific job, including in areas outside of a soldier’s Military Occupational Specialty (MOS). Through CA, soldiers can request funding for fees associated with qualifying programs listed on Army COOL. APUS became an approved training provider for CA programs in October 2019 while CA was in an expanded user test, and Army-wide implementation of CA began in January 2020. Students in the Army utilizing both CA and TA are subject to an annual combined cap on benefits of $4,000. Utilization of our CA programs to date has been limited. We believe other service branches may follow the Army’s example or pursue other approaches to enhancing support for credentialing, including, for example, the Coast Guard’s Credentialing Assistance Program. Students in the Army may use both TA and credentialing assistance for CA, subject to a combined cap on benefit amounts. Department of Veterans Affairs The VA administers education benefits provided by federal law, including the Montgomery GI Bill, or GI Bill, and the Post-9/11 GI Bill. APUS, HCN and RU are approved to provide education to veterans and members of the selective reserve and 35 their dependents by the state approving agencies where the campus is located. In order for an institution to participate in VA education benefits, it must be a participant in the Title IV programs. For the 2021-2022 academic year, an eligible veteran who attends a non-public U.S. institution may receive veterans’ education benefits to pay for tuition and fees based on the net cost to the veteran up to $26,042.81. Veterans pursuing a program of education on a more than half-time basis at an on-campus location are eligible for a monthly housing allowance equal to the basic allowance for housing available to service members in that location who are at a military pay grade E-5 and have dependents. Veterans pursuing a program of education solely through distance education on a more than half-time basis are eligible to receive a monthly housing allowance equal to 50% of the national average, or $871.00 per month. To the extent that TA does not cover the full cost of tuition for service members, eligible service members may also use their benefits under the GI Bill or the Post-9/11 GI Bill through the “Top-Up” program. The “Top-Up” program allows U.S. Military active duty service members to use their GI Bill or Post-9/11 GI Bill benefits to pay the difference between the total cost of a college course and the amount of TA that is paid by the military for the course but is limited to 36 months of payments. On January 5, 2021, the President signed into law the Johnny Isakson and David P. Roe, M.D. Veterans Health Care and Benefits Improvement Act of 2020, or the Isakson Roe Act, which modified policies related to GI Bill and other VA-administered education funds, in part to align VA requirements with DOD and ED requirements related to student financial aid. Section 1018 of the Isakson Roe Act mandates that schools that receive veterans education benefits: (i) provide VA students with information on total cost of an education program, an estimate of debt the student will have upon graduation, graduation rates, requirements to obtain any license, certification, or approval for which the course of education is designed to provide preparation, and certain other information; (ii) inform VA students of the availability and potential eligibility of federal financial aid before packaging or arranging private student loans or alternative financing programs; (iii) avoid fraudulent and unduly aggressive recruiting or automatic renewal techniques; (iv) avoid misrepresentations or payment of incentive compensation; (v) provide VA students with information regarding graduation requirements; (vii) obtain required approvals from the institutions’ accrediting agency for new courses or programs; (viii) maintain a policy to accommodate service members and reservists to be readmitted if they are temporarily unable to attend due to service requirements; and (ix) appoint a point of contact to provide academic and financial aid advising. On December 21, 2021, the President signed into law the Responsible Education Mitigating Options and Technical Extensions Act, or the REMOTE Act, which amended certain Isakson Roe Act provisions and COVID-19 related laws affecting veterans education. Among other things, the REMOTE Act provides COVID-19 related extensions to certain veterans education benefits and flexibilities and clarifies that the Isakson Roe Act Section 1018 prohibition of incentive payment on the basis of securing enrollments does not apply to foreign students residing outside the U.S. who are not eligible for federal student financial aid. Institutions were generally required to be in compliance with the Isakson Roe Act, including Section 1018, by August 1, 2021. However, the Isakson Roe Act allowed institutions to seek from the VA a one-academic-year waiver of Section 1018. Subsequently, the REMOTE Act delayed the effective date of the Isakson Roe Act’s Section 1018 requirements to August 1, 2022, and institutions are permitted to seek a one-academic-year waiver of that deadline beginning June 15, 2022. RU did not seek a waiver of August 1, 2021 compliance deadline and believes it satisfied Section 1018 requirements by that deadline. In September 2021, APUS and HCN received waivers for the requirements of Section 1018 for the period August 1, 2021 through July 31, 2022. APUS and HCN expect to satisfy Section 1018 requirements by July 31, 2022, and currently do not plan to seek an additional extension. On April 7, 2021, the Department of Veterans Affairs, or VA, announced that, effective April 1, 2021, it would no longer count the use of Veteran Readiness & Employment, or VR&E, benefits against the 48-month cap on veterans education benefits programs imposed when veterans use more than one benefit program. As a result, veterans who use VR&E benefits prior to using another veterans education benefits program, such as the GI Bill and the Post-9/11 GI Bill, can still use up to 48 total months of the other veterans education benefits programs. On June 8, 2021, the President signed into law the Training in High-Demand Roles to Improve Veteran Employment Act, or the THRIVE Act, which amended provisions related to veterans education programs found in the American Rescue Plan Act and the Isakson Roe Act. The legislation requires the VA to work with the Department of Labor to determine the list of high-demand occupations for the rapid retraining assistance program, excludes programs pursued solely through distance learning on a half-time basis or less from the housing stipend available to those in the retraining program, and requires the Government Accountability Office to report on the outcomes and effectiveness of retraining programs. The legislation also 36 requires the VA to take disciplinary action if a person with whom an institution has an agreement to provide educational or recruiting services violates the VA’s incentive compensation prohibitions. Additional Sources of Student Payments In addition to the Title IV, DoD, and VA programs described above, eligible students may participate in other financial aid programs or receive support from other governmental and private sources. Some of our students finance their own education or receive full or partial employer tuition reimbursement. Our institutions enter into agreements with various employers through which our institutions agree to a variety of terms, including terms related to the provision of tuition grants to eligible employees. Our institutions may offer interest free payment plans of less than 12 months to students to assist them with the financing of educational expenses. In certain circumstances, our students may access alternative loan programs from a number of private lenders, which are intended to cover the difference between what the student receives from all financial aid sources and the student’s total cost of attendance. As part of an institution’s Title IV PPA, the institution must adopt a code of conduct pertaining to student loans, including alternative loans. Beginning in July 2018, HCN began offering its students an extended payment plan option. The extended payment plan is designed to assist students with educational costs consisting of tuition, textbooks, and fees, and are only available after all other student financial assistance has been applied. Payment plans require monthly payments while the student is enrolled in a program and extend for up to six months after the last day of attendance or graduation. To the extent interest is applied, it is generally fixed and does not accrue until the student departs the program or graduates. The extended payment plan does not impose any origination fees. Borrowers are advised about the terms of the extended payment plan and counseled to use all federal funding options. 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. Beginning January 1, 2020, HCN began offering an institutional affordability grant to students demonstrating financial need to cover the difference between the total cost of tuition and fees less the amount of all eligible financial aid resources. The grant is designed to limit a student’s monthly payment to $200 through an award of up to $200 per month, or $600 per term after consideration of financial aid, employer tuition reimbursement, and other financial resources. Consumer Protection Consumer Financial Protection Bureau The Consumer Financial Protection Bureau, or CFPB, has pursued enforcement actions against certain for-profit institutions of higher education and has released several reports that directly address issues related to institutions of higher education. In October 2020, the CFPB Education Loan Ombudsman released its annual report analyzing approximately 1,900 private student loan complaints and approximately 5,000 federal student loan servicing complaints the CFPB received between September 1, 2019 and August 31, 2020. In October 2021, the annual report analyzed approximately 1,900 private student loan complaints (a decrease of approximately 0.8% compared to prior-year data) and approximately 3,400 federal student loan complaints (a decrease of approximately 32% compared to prior-year data). We do not know what enforcement actions the CFPB may pursue, or what steps Congress or federal agencies may take, in response to these reports and whether such actions, if any, will have an adverse effect on our business or results of operations. Federal Trade Commission In October 2021, in what it termed a broad-based initiative to deter for-profit college fraud, the Federal Trade Commission, or FTC, issued informational notices to 70 for-profit higher education institutions, including APUS and RU, informing them of certain marketing practices the FTC had previously determined to be deceptive or unfair and therefore unlawful under the FTC Act. The FTC indicated that an institution’s receipt of the notice was not an indication that the institution has engaged in deceptive or unfair conduct. The informational notices were sent in furtherance of an FTC Act provision permitting penalties against those engaging in unfair or deceptive acts or practices with actual knowledge of their unfair or deceptive nature. The informational notices informed the institutions that engaging in such practices could subject a company to civil penalties under that provision. By providing the informational notices, the FTC is able to document that the institutions have knowledge that the FTC has found these marketing practices to be unfair or deceptive. The FTC also announced that it would be enhancing its enforcement cooperation with other agencies with oversight of educational institutions, including ED’s Office of Federal Student Aid and the Department of Veterans Affairs. We do not know what enforcement actions the FTC may pursue in light of its recent informational notices and whether such actions, if any, will have an adverse effect on our business or results of operations. 37 Other Issues Related to Consumer Protection and Complaints Many states have become more active in regulating for-profit education from a consumer protection perspective, specifically related to enforcement of consumer protection laws and implementation of new regulations by state attorneys general. 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. Our institutions are recipients of complaints filed with state regulatory authorities, the Better Business Bureau, and posted in online forums. Our institutions attempt to resolve such complaints in a cooperative manner. However, even if such complaints are resolved or are otherwise unfounded, they may still harm the reputation of our institutions. On October 8, 2021, ED announced that it had restored an Office of Enforcement within ED’s Office of Federal Student Aid to strengthen oversight of and enforcement actions against postsecondary institutions that participate in federal student loan, grant, and work-study programs. Compliance with Regulatory Standards and the Effect of Regulatory Violations Compliance Reviews Our institutions are subject to compliance reviews and audits by various external agencies, including ED, Department of Education Office of the Inspector General, or ED OIG, state licensing agencies, agencies that guarantee FFEL Program loans, DoD, VA, and accrediting agencies. The HEA and ED regulations also require institutions to submit annually a compliance audit conducted by an independent certified public accountant in accordance with Government Auditing Standards and applicable ED OIG audit standards. In addition, to enable ED to make a determination of financial responsibility, institutions must annually submit audited financial statements prepared in accordance with ED regulations. As described in “Student Financing Sources and Related Regulations/Requirements - Department of Education - Regulation of Title IV Financial Aid Programs,” 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. ED closed the program review in January 2021, with no findings, penalties, or requirements for further action. In July 2017, ED began a program review of RU’s administration of Title IV program during the 2015-2016 and 2016-2017 award years. RU has not received a program review report from ED. In August 2021, ED began an off-site program review of HCN’s administration of Title IV program during the 2019-2020 and 2020-2021 award years. In January 2022, HCN received a program review report from ED. The program review report includes findings related to failure to prorate fees, return of Title IV funds calculations that were not properly computed, untimely and inaccurate reporting to the National Student Loan Data System, incomplete verification, and cost of attendance formulation deficiencies. HCN is required to do a full file review in connection with the return of Title IV funds finding, must have the review tested by an independent auditor, and generally must prepare policies and procedures and take other actions in connection with the findings. HCN’s response to ED is due by April 2022. ED will review the response and then issue a final program review determination letter specifying any liabilities. At this time, we cannot predict the outcome of the RU and HCN program reviews, when they will be completed, or whether ED will place any liability or other limitations on RU or HCN as a result of the reviews. In order to participate in TA, institutions must agree to participate in DoD’s Voluntary Education Institutional Compliance Program, or ICP. An institution that through the ICP is found noncompliant with DoD requirements 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 TA. In February 2020, DoD informed APUS that it was one of 250 institutions selected for ICP review in 2020. 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. As required, APUS submitted its corrective action plan and related evidentiary support and in April 2021, APUS was informed that the review had been completed and no further actions are required. Potential Effect of Regulatory Violations If our institutions fail to comply with the regulatory standards governing Title IV programs, ED could impose one or more sanctions, including transferring our institutions to the reimbursement or cash monitoring system of payment, seeking to require repayment of certain Title IV program funds, requiring the posting of an irrevocable letter of credit in favor of ED as a 38 condition for continued Title IV certification, taking emergency action against our institutions, referring the matter for criminal prosecution, or initiating proceedings to impose a fine or to limit, condition, suspend, or terminate participation in Title IV programs. If our institution’s approval to participate in Title IV programs is terminated, it will also lose its ability to participate in TA pursuant to the DoD MOU, as well as in education benefits administered by the VA. If such sanctions or proceedings were imposed against our institutions and resulted in a substantial curtailment, or termination, of participation in Title IV programs, this would materially and adversely affect our enrollments, revenue, results of operations, and financial condition. If one of our institutions were to lose its eligibility to participate in Title IV programs, or if the amount of available Title IV program funds were reduced, we could seek to arrange or provide alternative sources of revenue or financial aid for students. Although we believe that one or more private organizations would be willing to provide financial assistance to students attending our institutions, there is no assurance that this would be the case, and the interest rate and other terms of such financial aid might not be as favorable as those for Title IV program funds. We may be required to guarantee all or part of such alternative assistance or might incur other additional costs in connection with securing alternative sources of financial aid. Accordingly, the loss of our eligibility to participate in Title IV programs, or a reduction in the amount of available federal student financial aid, would be expected to have a material adverse effect on our financial condition and results of operations even if we could arrange or provide alternative sources of revenue or student financial aid. In addition to the actions that may be brought against us as a result of our institutions’ participation in Title IV programs, we also may be subject, from time to time, to complaints and lawsuits relating to regulatory compliance brought not only by our regulatory agencies, but also by other government agencies and third parties, such as present or former students or employees and other members of the public. Regulatory Actions and Restrictions on Operations Many actions that we may wish to take in connection with our operations are subject to regulation from a variety of agencies. For example, ED’s regulations, state regulatory requirements, and accrediting agency standards may, in certain instances, limit our ability to acquire or sell institutions, and to establish additional locations and programs. Many states require approval before institutions can add new programs, campuses, or teaching locations. Generally, these agencies require institutions to notify them, and sometimes require institutions to obtain their approval, in advance of opening a new location or implementing new programs. APUS is regulated by its institutional accreditor, the HLC, as well as state agencies in West Virginia. RU’s is regulated by its institutional accreditor, the HLC, as well as the six state agencies where RU physical campuses are located, which include the Florida, Illinois, Kansas, Minnesota, North Dakota, and Wisconsin. HCN is regulated by ABHES, and the state agencies in Ohio, and Indiana. Rasmussen Acquisition Regulatory Review The Rasmussen Acquisition was required to be reported to, and in some cases approved by, various education regulatory bodies. As noted above, RU timely submitted a change in ownership and control application to ED seeking approval to participate in the Title IV programs under our ownership on September 9, 2021. ED and RU entered into a TPPPA, effective as of October 14, 2021, that allows RU to continue disbursing Title IV funds during the period of ED’s review of the change in ownership application. In some instances, prior approval was required. For example, the parties submitted an application to HLC for pre-approval of the change in ownership, which was approved effective in June 2021. RU is also pursuing other post-closing notices and consents related to the change in ownership. State agencies, accreditors, boards of nursing, and other relevant regulators also require further action with respect to the Rasmussen Acquisition. For example, HLC requires an additional site visit within six months of the Closing Date which occurred in February 2022. Additionally, some regulators will require approval after the change in ownership in order to continue proper licensure, accreditation, approval, or authorization. As described in “Student Financing Sources and Related Regulations/Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – Financial Responsibility,” generally, an institution’s financial ratios must yield a composite score of at least 1.5 for the institution to be deemed financially responsible. An institution that does not meet ED’s minimum composite score of 1.5 can demonstrate financial responsibility by meeting the “zone alternative” or posting a letter of credit in favor of ED. The “zone alternative” includes a delayed method of cash funding for Title IV aid, and the providing of additional information to ED, upon request. As of September 30, 2020, RU had a composite score equal to 1.4, compared to the minimum required of 1.5. RU elected to post a letter of credit with ED totaling $23.1 million, which represents 10% of the Title IV program funds received by RU during its most recently completed fiscal year. Upon the closing of the RU Acquisition, 39 APEI was required to fund this letter of credit using a restricted deposit account that required a deposit of 105%, or $24.2 million, to secure the RU letter of credit. Under the TPPPA for RU described above, a letter of credit will continue to be required at least until ED reviews and accepts financial statements and compliance audits that cover one complete fiscal year of RU’s Title IV participation under APEI’s ownership. Additionally, RU is required to make Title IV disbursements to eligible students and parents under the heightened cash monitoring payment method, or HCM1. Under HCM1, RU must first make Title IV disbursements to eligible students and parents and pay any credit balances before the institution requests or receives funds for the amount of those disbursements from ED. Acquisition of Graduate School USA On January 1, 2022, APEI acquired substantially all of the assets of Graduate School USA, or GSUSA, one of the largest providers of training to the federal government workforce, for approximately $1.0 million, subject to working capital adjustments. GSUSA is licensed by the D.C. Higher Education Licensure Commission, or DCHELC, and accredited by the Accrediting Council for Continuing Education and Training, or ACCET. DCHELC approved the transaction, and we continue to proceed with certain post-closing approval requirements for ACCET. GSUSA does not participate in the Title IV programs, TA or benefits administered by the VA. In addition, GSUSA’s contracts are governed by the Federal Acquisition Regulation, a regulatory framework. Change in Ownership Resulting in a Change of Control ED’s regulations, state regulatory requirements, and accreditation standards may limit our ability to acquire, merge, or sell institutions, and may impose restrictions on activities following a transaction. For example, ED must approve any change in ownership resulting in a change of control of APEI, our institutions or any institution we may acquire. These restrictions may impede our ability to grow by acquisition, or to dispose of assets. Moreover, as a publicly traded company, the potential adverse regulatory effects of a change of control could influence future decisions by us and our stockholders regarding the sale, purchase, transfer, issuance, or redemption of our stock. In addition, the regulatory burdens and risks associated with a change of control could discourage bids for our shares of common stock and could have an adverse effect on the market price of our shares. U.S. Department of Education An institution that undergoes a change in ownership resulting in a change of control loses its eligibility to participate in Title IV programs and must apply to ED in order to reestablish such eligibility. ED regulations define what constitutes a change in ownership and control of various types of legal entities. For example, ED regulations provide that a change of control of a publicly traded company occurs in one of two ways: (i) there is an event that would obligate the corporation to file a Current Report on Form 8-K with the Securities and Exchange Commission disclosing a change of control; or (ii) the corporation has a stockholder that owns at least 25% of the total outstanding voting stock of the corporation and is the largest stockholder of the corporation, and that stockholder ceases to own at least 25% of such stock, or ceases to be the largest stockholder. As a result, a significant purchase or disposition of our voting stock, including an acquisition resulting in a stockholder owning at least 25% of our outstanding stock, could be determined by ED to be a change in ownership and control. The HEA provides that after an institution undergoes a change in ownership and control ED may temporarily provisionally certify the institution based on a materially complete application received within 10 business days after the change occurred. ED may continue such temporary provisional certification on a month-to-month basis until it has rendered a final decision on the institution’s application, provided the institution has timely supplied all required information and documentation. If ED determines to approve the application, it issues a provisional certification, which extends for a period expiring not later than the end of the third complete award year following the date of provisional certification. When a change in ownership and control occurs, ED applies certain financial tests to determine the financial responsibility of the institution under the new ownership. The institution generally is required to submit a same-day audited balance sheet reflecting the financial condition of the institution immediately following the change in ownership and control, and the same-day balance sheet must satisfy certain requirements. In addition, when a change in ownership and control occurs and there is a new owner, the institution must submit to ED the new owner’s audited financial statements for its two most recently completed fiscal years. If those audits do not satisfy ED requirements, ED may impose conditions on continued Title IV participation, such as a letter of credit, certain growth restrictions including with respect to adding locations and programs, and additional monitoring requirements. ED’s financial responsibility standards are described more fully above in “Student Financing Sources and Related Regulations/Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – Financial Responsibility.” 40 State Regulatory Agencies Many states require institutions of higher education to report or obtain approval of certain changes in ownership or other aspects of institutional status. The types of and triggers for such reporting or approval vary, but many states include the sale of a controlling interest of common stock in the definition of a change of control requiring approval. A change of control may require us to obtain approval of the change in ownership and control in order to maintain our state approval. Accreditors Many accrediting agencies require institutions of higher education to report or obtain approval for certain changes in legal status, ownership, form of control, or other aspects of institutional status, but the types of and triggers for such reporting or approval vary. Many accrediting agencies also require on-site evaluations to confirm the appropriateness of any approval. Some accrediting agencies’ oversight may also extend to defined changes that occur in an institution’s parent or controlling entity, and not necessarily the institution itself. Such oversight could trigger additional reviews of the institution and possible change in accreditation status. Should we attempt to enter into transactions with institutions accredited by other accreditors, we would be required to follow the requirements of such accreditors. Our management may not have experience with the accreditors of the target institution, which would increase the risks related to such a transaction and management of the institution subsequent to the transaction. Other Agencies In certain circumstances, state approving agencies responsible for oversight of veterans’ education benefits may require an institution to obtain approval for a change in ownership and control. For example, the state approving agencies in North Dakota and Wisconsin approved the September 1, 2021 change in ownership of RU. RU is awaiting the approvals from several state approving agencies. Restrictions on Adding Locations and Educational Programs ED may, as a condition of participation in Title IV programs, require prior approval of new locations, programs, or otherwise restrict the number of programs an institution may add. ED’s regulations require institutions to report and, in certain cases (such as when an institution is provisionally certified), to seek approval for a new additional campus location at which at least 50% of a program will be offered if the institution wants to disburse Title IV program funds to students enrolled at that location. Institutions are responsible for knowing whether they need approval, and institutions that add locations and programs and disburse Title IV program funds in connection with those locations and programs without having obtained any necessary approval may be subject to administrative repayments and other sanctions. The HEA requires for-profit institutions to be in full operation for two years before qualifying to participate in Title IV programs. However, ED regulations in many circumstances permit an institution that is already qualified to participate in Title IV programs to establish additional campus locations that are exempt from the two-year rule. The new campus location must satisfy all other applicable requirements for institutional eligibility, including approval by the relevant state authorizing agency and the institution’s accrediting agency. Provisionally certified institutions of higher education such as ours, and institutions on HCM1 like RU, must seek prior approval from ED to offer new academic programs eligible for Title IV program funds and to open new locations at which Title IV program funds will be disbursed. A fully certified degree-granting institution generally is not obligated to obtain ED’s prior approval for a new location, an additional program leading to a degree at the same level previously approved by ED, or a new program that both prepares students for gainful employment in the same or related recognized occupation as an education program that has previously been designated as an eligible program at that institution and meets certain minimum-length requirements. However, ED could nevertheless require a fully certified institution to obtain prior approval for new programs and locations for purposes of Title IV program participation. Other Recent Legislative and Regulatory Activity Many of our students rely on federally funded programs, including Title IV programs, TA and education benefits administered by the VA that may be affected by changes in the federal budget. Due to the substantial amount of federal funds disbursed to schools through Title IV programs, the large number of students and institutions participating in these programs, 41 and significant political interest in the cost of education, Congress continues to show interest in regulation and oversight of institutions of higher education, especially those that are for-profit. Department of Defense Funding A series of automatic federal budget cuts, known as sequestration, have impacted certain federal student aid programs since fiscal year 2013 and have been extended through fiscal year 2030. As a result of uncertainty about the availability of funding, several military branches initially suspended and later announced changes to their tuition assistance programs. For example, the Army now requires service members to complete one year of service after graduation from Advanced Individual Training in order to be eligible for tuition assistance, and the Army and the Coast Guard have both reduced the total per service member annual benefits. Congressional inaction on budgetary matters has led to lapses in funding, resulting in government shutdowns, and subsequent policy changes that have affected federal student aid programs at DoD. A future government shutdown, particularly one that includes DoD or suspension or resulting modification of DoD tuition assistance programs, could have a material adverse effect on our operations and financial condition. Funding shortfalls have also affected DoD federal student aid programs. For example, TA benefits available to sailors for the fiscal year ended September 30, 2019 were expected to be exhausted by the end of May 2019 as a result of increased demand, and effective May 28, 2019 the Navy temporarily ceased approving TA program funds for eligible sailors until the start of the new government fiscal year on October 1, 2019. Currently, Navy service members must have a minimum of three years of service before becoming eligible to use tuition assistance and cannot be in their last year of service, and for the Navy College Program for Afloat College Education, funding is capped at 18 semester hours per fiscal year, and career funding is capped at 120 semester hours. Along with the expanded annual credit limit comes new eligibility requirements, including new requirements as to who can use TA and when. Eligible sailors can only use TA to fund two courses each quarter of the fiscal year. The minimum time in service increased from two to three years and active duty enlisted sailors under 16 years of service and reservists on active duty orders must have 12 months or more remaining on their current enlistment or extension as of the course state date to be eligible. Reservists on one-year orders will no longer be eligible for TA, and sailors who have begun utilizing TA benefits after only two years of service must pause their TA benefits. These changes were effective October 1, 2021. We expect each military branch and the DoD to continually evaluate their approach to education funding, and the resulting changes could have an impact on the funds available to service members to pursue their education at our institutions. Higher Education Act The HEA must be periodically reauthorized by Congress and each Title IV program must be funded through appropriations acts on an annual basis. The most recent comprehensive reauthorization occurred in 2008 when Congress reauthorized most HEA programs through the 2014 federal fiscal year. The previous Congress considered comprehensive legislation to reauthorize the HEA, including proposals from Republicans and Democrats, referred to as the Student Aid Improvement Act and the College Affordability Act, respectively, and Congress could consider such legislation again in the future. 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. Amendments to the HEA could occur as part of reauthorization, which could require us to modify our business practices and increase administrative costs, thereby negatively impacting our results of operations. Other Regulatory Activity A new rule effective July 1, 2021 provides institutions additional flexibility in offering distance education and competency-based education programs. New definitions in the rule clarify the instructional requirements that distance education programs must abide in order to remain eligible for Title IV disbursements. Failure to comply with these standards could lead to adverse actions by ED. On November 29, 2018, ED published in the Federal Register a notice of proposed rulemaking related to implementation of Title IX of the Education Amendments of 1972, which prohibits discrimination on the basis of sex in education programs that receive funding from the federal government. The final rule, which was released on May 19, 2020, took effect on August 14, 2020. The regulations define what constitutes sexual harassment for purposes of Title IX in the 42 administrative enforcement context, describe what actions trigger an institution’s obligation to respond to incidents of alleged sexual harassment, and specify how an institution must respond to allegations of sexual harassment. ED has indicated that new proposed Title IX regulations may be forthcoming in Spring 2022. ED held negotiated rulemaking sessions in January and February 2022 and has a final session scheduled for March 2022, during which the federal and non-federal negotiators discussed and will discuss draft regulations to address topics including the 90/10 Rule, ability to benefit provisions, certification procedures for participation in Title IV programs, change of ownership and change in control rules and procedures, financial responsibility requirements, gainful employment program requirements, and standards of administrative capability. 43