Item 1A. Risk Factors
Item 1A. Risk Factors
An investment in our stock involves a high degree of risk. You should carefully consider the risks set forth in the Risk Factors section of our Annual Report and the other information set forth in this Quarterly Report on Form 10-Q, our Annual Report, and the additional information in the other reports we file with the SEC. If any of the risks contained in those reports actually occur, our business, results of operation, financial condition, and liquidity could be harmed, the value of our securities could decline, and you could lose all or part of your investment. With the exception of the following, there have been no material changes in the risk factors set forth in the Risk Factors section of our Annual Report.
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Recent ED negotiated rulemakings could result in regulations that materially and adversely affect our business.
In March 2022, ED completed negotiated rulemaking processes intended to develop regulations related to Title IV participation. Topics addressed included modifications to the 90/10 Rule, gainful employment requirements, public service student loan forgiveness programs, BDTR, mandatory pre-dispute arbitration, prohibition of class-action lawsuits, closed school discharges, ability to benefit provisions, certification procedures for participation in Title IV programs, change in ownership and change in control rules and procedures, financial responsibility standards, and standards of administrative capability, among others. In October, 2022, ED announced final regulations relating to the 90/10 Rule, BDTR, arbitration proceedings, closed school discharges, and change in ownership and change in control rules, as well as the public service loan forgiveness program, interest capitalization, total and permanent disability discharges, and false certification of a student’s eligibility for Title IV loans. However, the negotiated rulemaking committees did not reach consensus on most of the draft regulations that they addressed, which means ED is not bound to use language developed during the negotiated rulemaking process for those regulations, and we cannot predict the nature or final form of any regulations not yet adopted by ED. We cannot ascertain whether final regulations yet to be adopted by ED regulations could harm our business or materially and adversely affect our financial conditions and results of operations.
The HEA requires all for-profit education institutions to comply with the 90/10 Rule. In March 2021, the American Rescue Plan Act of 2021, or ARPA, was enacted and modified the 90/10 Rule to require that a for-profit institution derive not less than 10% of its revenue from sources other than “federal education assistance funds”. The final regulations announced in October 2022 relating to the 90/10 Rule provide that for fiscal years beginning on or after January 1, 2023, federal funds used to calculate the revenue percentage will include Title IV funds and any other educational assistance funds provided by a federal agency directly to an institution or a student, including the federal portion of any grant funds provided by or administered by a non-federal agency, except for non-Title IV federal funds provided directly to a student to cover expenses other than tuition, fees, and other institutional charges. Under the final regulations, ED will identify in a future Federal Register notice the federal agencies to which the provision applies, as well as the “other educational assistance funds” provided by that agency, with updates published as needed. In connection with its announcement of the final regulations, ED confirmed that the 90/10 Rule would no longer permit institutions to count federal aid for veterans and service members as part of the “10%” side of the ratio. As a result, we expect that TA and VA benefits will be included in the “90%” side of the ratio, and our institutions’ 90/10 Rule percentages will increase, particularly at APUS. Inclusion of TA in the 90/10 calculation could also cause other educational institutions to decrease their focus on serving military-affiliated students using TA benefits, and while that could have a positive impact on our enrollments from those students, it could also have an adverse impact on our ability to meet the requirements of the 90/10 Rule. The final regulations also include other requirements, including: institutions must request and disburse Title IV funds before the end of the fiscal year (or, for institutions operating under the reimbursement method or the heightened cash monitoring method, make disbursements by the end of the fiscal year and report the funds in the “90%” side of the ratio for that fiscal year); institutions are restricted in when and how they can count institutional loans and alternative financing arrangements as non-federal revenue; institutions may, under certain circumstances, include non-federal revenue from non-Title IV programs in their 90/10 calculation; and institutions must notify ED and students in a timely manner if they fail the 90/10 Rule. These changes, and any resulting actions we take to adjust the operations of our institutions to comply with the 90/10 Rule, could have a material adverse impact on the financial condition and operations of our institutions.
The final BDTR regulations generally create a single standard and streamlined process for relief that would apply to all future and pending BDTR claims as of July 1, 2023 instead of standards varying based on the date of the borrower’s first loan disbursement; provide that substantial misrepresentation, substantial omission of fact, breach of contract, aggressive and deceptive recruitment, or judgments or final secretarial actions could lead to borrower defense discharges; establish a rebuttable presumption of detriment warranting relief for borrowers who attended a closed school alleged to have engaged in such misconduct; establish a reconsideration process for borrowers whose claims are not approved for a full discharge; and create a process for forming groups of borrowers and adjudicating claims based on the common facts of those group claims, as well as provide a clear timeline for adjudication of group and individual claims. The proposed regulations permit ED to hold colleges accountable for the cost of discharges, including establishing a recoupment process separate from the approval of BDTR claims and under regulatory standards in place at the time the loans were issued. In addition, the proposed regulations would prohibit institutions from requiring borrowers to sign mandatory pre-dispute arbitration agreements or class action waivers for claims related to the making of a Federal Direct Loan or the provision of educational services for which the loan was obtained. With respect to closed school discharges, ED described that the proposed regulations would provide automatic discharges to any borrower who was enrolled within 180 days prior to a school’s closure and who did not complete their education at the school or through an approved teach-out agreement at another school within one year after the closure of their original school (or for borrowers who started but did not complete a program at another school, one year after their last date of attendance at that school). For closed school discharges, the final regulations define “school” to include a school’s main campus or any location or branch of the main campus, regardless of whether the school or its location or branch is considered Title IV eligible. When an additional location closes, ED will treat that additional location as a closed school for the purposes of a closed school
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discharge, regardless of whether the main campus stays open, and eligibility for the discharge applies only to that location. The final regulations shorten the period for automatic discharge so that borrowers are less likely to default on their loans after a closure of their school.
The final regulations announced in October 2022 relating to change in ownership and change in control rules and procedures increase the ownership interest threshold from 25 percent to 50 percent for a change in ownership that results in a change in control automatically triggering ED’s approval process, and also provide that ED’s approval process may apply when a change in control occurs despite not meeting the 50 percent threshold. The final regulations also require institutions to notify ED and students of a planned change in ownership that results in a change in control at least 90 days in advance. In addition, the final regulations impose reporting obligations on institutions for changes in ownership that do not result in a change in control, lowering the threshold for reporting such changes from 25 percent to 5 percent ownership interest. The final regulations also: require additional financial protection ( i.e. , letters of credit) when a new owner is lacking financial statements or as ED determines necessary; and eliminate the existing requirement that ED continue an institution’s participation with the same terms and conditions in their Title IV agreement as prior to the transaction. In addition, the final regulations define “main campus” and modify the definitions of “additional location” and “branch campus” to clarify that a location must be within the same “ownership structure” of the institution. These changes may affect our acquisition and growth strategies. Any resulting actions we take to adjust our operations could have an adverse impact on the financial condition and operations of our institutions.
The negotiated rulemaking committee focused on draft gainful employment regulations did not reach consensus. However, in connection with the negotiated rulemaking process, ED released information rates data that it calculated for the two metrics that ED is contemplating using for purposes of determining Title IV eligibility of gainful employment programs. Those two metrics are referred to as the debt-to-earnings rates (which involve two rates, namely the discretionary earnings rate and the annual earnings rate) and the earnings threshold measure. In a memorandum accompanying the informational rates and ED’s assessments of whether programs would fail on either of the proposed measures based on those rates, ED explained that the methodology it used to produce this data differed from ED’s proposed methodology from the negotiated rulemaking sessions, that any final regulation’s methodology may change, and that the outcomes depicted in the informational rates for particular programs may differ from those generated by a future gainful employment rule. ED also made certain assumptions that may not prove to be accurate. Out of the 30 RU programs, 47 APUS programs, and three HCN programs that ED assessed in the informational rates for which gainful employment data was available and subject to the qualifications set forth in ED’s related memorandum, eight RU programs and three APUS programs failed one or both measures. At this time, the outcome of any future gainful employment rulemaking is uncertain and it is difficult to predict whether our institutions’ programs will satisfy any future gainful employment metrics, including whether any programs identified as failing in the informational rates will in fact fail or whether other programs will fail or pass. The failure of any of our institutions’ programs to meet the required metrics could adversely impact those institutions and programs. ED’s Spring 2022 Agency Rule List indicates a target date of April 2023 for publication of the gainful employment proposed regulations, which would mean any changes would be effective no earlier than July 1, 2024.
ED’s Spring 2022 Agency Rule List also indicated a target date of April 2023 for publication of proposed regulations relating to ability to benefit, financial responsibility, administrative capability, and certification procedures.
Failure to improve certain of our programs’ NCLEX pass rates and to more generally satisfy NCLEX requirements could reduce our enrollments and revenue, lead to adverse actions taken by state boards of nursing, and limit our ability to offer educational programs.
As discussed more fully in “Regulatory Environment – State Authorization/Licensure of Our Institutions” in Part I, Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2021, failure to satisfy NCLEX pass rate requirements imposed by state boards of nursing can result in the state boards of nursing taking certain adverse actions, including placement of a program on provisional approval status or withdrawal of approval pursuant to an adjudication proceeding, and NCLEX exam pass rate requirements could limit our institutions’ ability to expand into new states.
HCN’s Associate Degree in Nursing, or ADN, Program has been on provisional approval status in Ohio since March 2017 due to not meeting OBN’s first-time pass rate standard for four consecutive years. HCN has been implementing changes, including curriculum, admissions, and academic achievement and course retake policy changes that are designed to improve NCLEX scores over time, but there is no assurance that these changes will be successful or will not have negative effects on HCN’s enrollment.
In addition, RU’s ADN Programs in Bloomington, Minnesota, in Illinois, and in Kansas each experienced 2021 first-time NCLEX pass rates below the applicable state threshold. This was the third consecutive year of below threshold pass rates for the Bloomington program and the second consecutive year for the Illinois and Kansas programs. As a result of the
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Bloomington program’s pass rates, the Minnesota Board of Nursing, or MBN, conducted a survey of the program and found that RU had not complied with certain MBN rules. In August 2022, RU entered into a stipulation and consent stemming from the survey findings that requires the program to comply with the established first-time NCLEX pass rate by the end of 2023, maintain a specified student to faculty ratio in 2023, comply with MBN rules and provide the MBN with quarterly status reports in 2023, with a potential penalty for non-compliance up to and including withdrawal of approval of the program. By limiting the student to faculty ratio, the order constrains our ability to enroll students based on our ability to attract and retain qualified faculty. RU has implemented a variety of measures in an effort to improve student performance and raise NCLEX scores, including taking action prior to entrance of the order to voluntarily reduce enrollment in the Bloomington, Minnesota ADN Program. In addition, based on the first-time NCLEX pass rate in the Bloomington ADN Program in the third quarter of 2022, RU has informed the MBN that RU will voluntarily further reduce enrollments in the program starting with the quarterly cohort in January. There can be no assurance that these efforts will improve NCLEX scores above the applicable threshold if at all or that the program will be found to be in full compliance with the terms of the order. In addition, as a result of the order, the Minnesota Office of Higher Education, or MOHE, has informed RU of certain expectations it has with respect to the ADN Program, including that RU must identify a clinical site for each student that is no more than 50 miles from the student’s home and must establish pathways for students to continue their education at a non-RU campus if the ADN Program loses MBN approval. Furthermore, RU must provide certain information to MOHE, including information regarding clinical sites, faculty, students, NCLEX scores, marketing material, and disclosures to students about their ability to receive a refund if the ADN program loses MBN approval and the student elects not to complete the program through a teach-out. The order and MOHE’s related scrutiny could have an adverse impact on our reputation and ability to enroll students and MOHE could choose to withdraw RU’s licensure to continue the Bloomington ADN Program, and any failure to comply with the order or MOHE’s requests or any further adverse action by MOHE could have an adverse impact on our ability to continue the Bloomington ADN Program, any of which would have an adverse effect on our results of operations, cash flows, and financial condition.
In February 2022, the Illinois ADN Program was placed on probationary status by the Illinois Department of Financial and Professional Regulation, or IDFPR, as a result of which RU is required to temporarily reduce enrollment in the program by 25% and 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 IDFPR for a determination as to whether the program will be allowed to continue on probation or whether it should be disapproved. An Illinois statute also requires nursing programs to achieve accreditation by the end of 2022 in order to meet state approval requirements. Although IDFPR has indicated that candidacy status satisfies this requirement, IDFPR could change its position. The Illinois ADN program has been in candidacy status for initial accreditation with the Accreditation Commission for Education in Nursing, or ACEN, since July 2020. ACEN will not grant accreditation to a program on probationary status with IDFPR. The current candidacy is set to expire in July 2024, and RU cannot be assured of being off of probation with IDFPR at that time. If the program is not granted ACEN accreditation by July 2024, RU intends to request from IDFPR an extension to achieve accreditation through July 2025. However, there is no guarantee that IDFPR will grant an extension. If RU is not able to obtain accreditation by or remain in candidacy status after July 2024, and IDFPR does not grant an extension of the timeline to obtain accreditation, RU may have to close its Illinois ADN Program.
In October 2022, ACEN granted certain RU nursing programs continued accreditation with conditions. Specifically, RU’s ADN program in Overland Park, Kansas, and RU’s ADN and PN programs in Moorhead, Minnesota, experienced first-time NCLEX pass rates below ACEN’s required threshold. For the two Moorhead, Minnesota programs, ACEN also identified evidence of noncompliance with respect to analysis and use of assessment data in program decision-making. The ADN programs have two years, and the PN program has 18 months, to demonstrate compliance with all criteria related to the standard for which the programs were found to be in noncompliance. If compliance is not achieved by the end of the monitoring period, ACEN may determine to deny continuing accreditation absent good cause, which would likely make it more difficult to enroll students in these programs. ACEN accreditation, or accreditation or candidacy status with another national nursing accrediting body, is required under MBN nursing program approval rules. If ACEN denies continuing accreditation and RU is unable to obtain accreditation or candidacy status with another national nursing accrediting body, RU would likely have to close the affected Minnesota programs.
Any voluntary, required, or other reduction in enrollment will have an adverse impact on our revenue. If RU and HCN are unable to improve NCLEX first-time scores over time in relevant locations, this situation could have an adverse impact on our ability to enroll students and eventually our ability to continue the ADN Programs, either of which would have an adverse effect on our results of operations, cash flows, and financial condition.
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Our institutions’ failure to meet financial responsibility standards may result in additional regulatory requirements that may negatively impact cash flow.
ED evaluates institutions on an annual basis for compliance with specified financial responsibility standards, including a composite score calculation based on line items from an institution’s audited financial statements. The composite score calculation 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 composite score must be at 1.5 or above for the institution to be deemed financially responsible. Under certain circumstances, institutions with a composite score less than 1.5 may be able to establish financial responsibility on an alternative basis by complying with various conditions.
For purposes of evaluating the financial responsibility of our institutions, including the composite score calculation, we supply consolidated financial statements to ED. As a result of the non-cash impairment charges recorded during the three months ended June 30, 2022 to reduce the carrying value of RU Segment goodwill and intangible assets and to reflect the corresponding tax impact, we currently expect that our consolidated composite score may fall between 1.0 and 1.4 at our next financial responsibility test. A composite score between 1.0 and 1.4 is considered by ED to be in the “zone”, and the “zone alternative” permits institutions to demonstrate financial responsibility by meeting specific monitoring requirements. Under the zone alternative, an institution: must request and receive funds under the heightened cash monitoring or reimbursement payment methods (resulting in a delayed method of cash funding for Title IV aid); may be required to provide additional information to ED upon request (e.g., early submission of financial statement and compliance audit, information about current operations and future plans); must require its auditor to express an opinion regarding compliance with zone alternative requirements; and must provide timely information to ED regarding certain oversight and financial events. While we believe if our composite score is in the zone that we will be able to otherwise demonstrate our financial responsibility and continue to provide educational services, being subject to zone alternative requirements may adversely affect our results of operations and our operations.
Our student registrations and revenue have been adversely impacted and we could continue to experience adverse impacts as a result of the Army’s transition to new systems for soldiers to request tuition assistance.
Army service members participating in TA programs constituted approximately 16% of APUS’s adjusted net course registrations for 2021. APUS relies on the ability of the Army, and the other branches of the Armed Forces, to process service members’ participation in TA programs, and from time to time, changes to processes have impacted the ability of service members to participate in those programs. For example, the Army in 2021 transitioned from its legacy system, GoArmyEd, to a new system, ArmyIgnitED, for soldiers to use to request TA. This transition was beset by delays and disruption of the Army’s TA programs. In connection with the transition, we experienced challenges related to system performance, process changes and software defects, and there was an adverse impact on registrations and revenue for the second and third quarters of 2021. Soldiers could continue to directly register for courses with the expectation TA could be retroactively applied for, and the Army created a process for soldiers to seek reimbursement for out-of-pocket costs incurred as a result of this disruption and related processes for institutions. However, in July 2022, the Army ended the process for institutions, meaning that students needed to retroactively seek and obtain TA directly through ArmyIgnitED, and the student process expired on August 26, 2022. Failure to submit a TA request by that date for courses that would have been covered by this process resulted in no TA funding being provided. As a result of the previous alternative process for institutions, ArmyIgnitED does not currently reflect all courses previously taken by soldiers at APUS in the relevant period, and ArmyIgnitED therefore understates the amounts due to APUS. Our efforts to work with the Army to resolve these discrepancies may be unsuccessful. As a result of the requirement to retroactively seek TA and the expiration of related processes, it is possible that we could incur bad debt expense if soldiers who expected to receive TA do not receive it and do not otherwise pay the tuition for their courses. The disruption to the Army’s systems also adversely impacted APUS’s ability to invoice the Army for Army registrations and has adversely impacted accounts receivable. While we have seen improvement in Army’s processing of invoices and payments to APUS during recent periods, this improvement may not continue, and we cannot predict when this disruption will be resolved with the Army’s systems fully operational or the timing of expected cash receipts from the Army. Furthermore, if payments from the Army that would otherwise have been expected in 2022 are delayed into 2023, that could cause APUS’s 90/10 Rule percentage to increase and have an adverse impact on its ability to meet the requirements of the 90/10 Rule.
During the third quarter of 2022, the Army transitioned from the initial version of ArmyIgnitED to an upgraded ArmyIgnitED 2.0, with a new third-party service provider, and announced that all TA requests for courses beginning on or after October 1, 2022 must be submitted via ArmyIgnitED 2.0. As part of this change, the Army stopped allowing institutions to submit invoices from July 30, 2022 until August 29, 2022, which impacted our ability to collect on our accounts receivable and caused our accounts receivable to increase and, as a result, may cause our bad debt expense to increase. As of September 30, 2022, approximately $13.8 million, of which $6.3 million is older than 60 days from the course start date, was due from the
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Army due to the disruption caused by the transition to ArmyIgnitED. There can be no assurance that our efforts to mitigate any adverse impact of the transition to ArmyIgnitED 2.0 on accounts receivable, bad debt, and cash flow or that ArmyIgnitED 2.0 will work as expected. Difficulties associated with this or any further upgrade or transition to a new service provider, including the related data migration, could cause further disruption to soldiers’ ability to seek and obtain TA and to the Army’s processing of invoices and payments to APUS. We could experience similar challenges with any other system transitions undertaken by other branches of the DoD or the government. For example, VA has announced that it plans in 2023 to upgrade systems used for veteran education benefits, and we have no assurance that this upgrade will not disrupt veteran access to those benefits and our ability to collect on related accounts receivable. The inability of soldiers to participate in TA programs, or of veterans to access VA education benefit programs, or continued or additional limitations on their ability to apply and participate, would have an adverse effect on our results of operations and financial condition, particularly because soldiers make up the largest group of TA participants at APUS.
Our ongoing transition away from Collegis for currently outsourced RU information technology and marketing functions may not be timely, efficient, or cost-effective, or may pose other operational challenges.
RU currently relies on Collegis for a variety of outsourced information technology functions, including data center, learning management system, user support, and network and voice services, and for marketing services under one contract for information technology and another for marketing services. In April 2022, we notified Collegis that we intended to permit the contracts to expire by their terms on September 30, 2024. Subsequently, in October 2022, RU and Collegis mutually agreed to the termination of the marketing services contract effective January 31, 2023. These developments with Collegis could have adverse impacts on our ongoing relationship with Collegis or the level of service that it provides. We plan to transition all of the services currently outsourced to Collegis back to our operations or to one or more other third-party vendors by September 30, 2024. We have transitioned some services and continue work on the transition of certain marketing services. As we continue to develop our transition plans, at this time, we are unable to predict the full costs of the transition, in which periods we will incur those costs, or the impact on our financial results. However, the transition will cause us to incur significant time and expense, may not be timely, efficient, or cost-effective, or may otherwise be difficult to implement or pose operational challenges, any of which could adversely affect our business, financial condition, results of operations, and cash flows. This transition will require the efforts of multiple parties, including third-party vendors, and we cannot be assured that the level of cooperation among the parties will not create added challenges. In addition, there is no assurance that any contracts with third parties that replace Collegis for any of these services will be on terms that are favorable to us.
If we are unable to attract, retain, and develop skilled personnel and management, our business and growth prospects could be severely harmed, and changes in management could cause disruption and uncertainty.
We must attract, retain, and develop diverse and highly qualified faculty, management, administrators, and other skilled personnel to our institutions. As we continue to grow our business, make acquisitions, and expand our geographic scope, we need to ensure effective succession for key executive and employee roles in order to meet the growth, development, and profitability goals of our business. Hiring competition is intense, especially for faculty in specialized areas and qualified executives. As the COVID-19 pandemic abates, there continues to be a shortage in access to nursing faculty, which impacts our ability to recruit and retain qualified nursing faculty at RU and HCN. We also believe that current job market dynamics, including low unemployment, have further increased the challenge of hiring and employee retention. Overall, turnover of our employees across the company during the first three quarters of 2022 was approximately 1.6% higher than turnover in 2021, and turnover in 2021 was approximately 6% to 10% higher than in 2020, depending on segment. Although we have taken additional steps to retain our current faculty and source and recruit talent, there can be no assurance that our efforts will be successful.
In parts of the country where RU operates, the challenge with recruiting qualified faculty has been particularly difficult, and in 2022 our faculty to student ratio has increased, which contributed to RU voluntarily reducing enrollments in certain markets in order to focus on student satisfaction and success, including in an effort to improve our NCLEX scores. Specifically, enrollment in Rasmussen’s Bloomington, MN ADN program was reduced 30.1% for the 2022 summer quarter and 43.3% for the fall quarter, each as compared to the prior year period, in order to accommodate a specified faculty to student ratio. RU’s August 2022 stipulation and consent with MBN requires the ADN program to maintain this specified faculty to student ratio through 2023.
While we continue to work to strengthen our management team and to attract and retain high-caliber talent, including through various human resources programs and what we believe are competitive market compensation and benefit practices, our efforts may not be successful. If we fail to attract new faculty, management, administrators, or skilled personnel or fail to retain, develop, and motivate our existing faculty, management, administrators, and skilled personnel, our institutions and our ability to serve our students, acquire new students, expand our programs, open new locations, make investments or acquisitions,
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and update or enhance our technology could be severely harmed, and changes in management could disrupt our business and cause uncertainty.
ED has conducted and may in the future conduct compliance reviews of our institutions, which could disrupt our institutions’ operations and adversely affect their performance.
ED regularly conducts program reviews of educational institutions that are participating in Title IV programs. RU is currently subject to an ongoing Title IV program review, and ED recently completed a program review of HCN.
In September 2022, RU received a program review report from ED with respect to the previously disclosed open program review for the 2015-2016 and 2016-2017 award years. ED asserted 14 findings of noncompliance with Title IV rules, including rules related to Title IV administration, policies, and consumer information and reporting requirements, and the federal work study, Pell Grant, and Federal Supplemental Educational Opportunity Grant programs. The program review requires RU to do a review in connection with the federal work study finding, prepare policies and procedures, return small amounts of funds to two students, provide training, and take other actions in connection with the findings, and to provide a response, which RU plans to timely provide. ED will review the response and then issue a final program review determination specifying any liabilities. At this time, we cannot predict the outcome of the RU program review, when it will be completed, or whether ED will place any liability or other limitations on RU as a result of the review.
If the results of compliance reviews are unfavorable to us, our institutions may be subject to liability or other requirements or limitations. Even if our institutions adequately address issues raised by an agency review, we may have to divert significant financial and management resources from our ongoing business operations to address issues raised by those reviews.
In July 2022, HCN received from ED the final program review determination from a review that had been pending since June 2017, and in September 2022 ED notified HCN that it had closed the program review and no further action was required. The review included findings of a 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 was required to do a full file review in connection with the return of Title IV funds finding, to have the review tested by an independent auditor, and to prepare policies and procedures and take other actions in connection with the findings. Total liabilities were approximately $12,000.
We may not achieve the anticipated benefits of our cost savings efforts, including our recent reduction in force, and any savings may be offset by increased costs in other areas.
On November 2, 2022, we completed a reduction in force that resulted in the termination of 98 non-faculty employees and the elimination of 78 open positions across a variety of roles and departments. The reduction in force is expected to result in pre-tax labor and benefit savings in 2022 of approximately $2.3 million, and approximately $13.5 million on an annualized basis. The headcount reductions reflect ongoing efforts focused on realigning our organizational structure, eliminating redundancies, and optimizing certain functions. There can be no assurance that we will be successful or recognize the benefits we anticipate. Furthermore, some of the savings anticipated in 2022 will be offset in the short-term by severance and other related costs, and over the long-term may be offset by increases to wages and salaries necessary to remain competitive.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.