What changed in this filing

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Item 1A. Risk Factors

2023-08-08 compared with 2023-05-09 · 80 added, 9 removed, 9 unchanged (91% of the section changed)

7 unchanged sentences

ACEN conducted a site visit at the Bloomington, Minnesota ADN program for April 2023.

We believe that ACEN’s site visit team is planning to recommend withdrawal of accreditation following its April 2023 site visit based on the team’s findings that the program did not demonstrate compliance with certain accreditation criteria related to student outcomes.

RU will have an opportunity to respond to that recommendation before the ACEN board makes a decision, and we believe that we have a strong rationale for why accreditation should not be withdrawn for this program.

In June 2023, ACEN’s site visit team recommended denial of continuing accreditation for the Bloomington, MN ADN program based on the team’s findings that the program did not demonstrate compliance with certain accreditation criteria related to student outcomes.

However, RU has an opportunity to respond to this recommendation before the ACEN board makes a decision, and we believe that we have a strong rationale for why continuing accreditation should not be denied for this program.

We expect the ACEN board to make a decision in September 2023.

If ACEN denies continuing accreditation, RU has the ability to immediately reapply for accreditation with ACEN or with another national nursing accreditor, the first step of which would be candidacy.

If RU is unable to obtain accreditation or candidacy status with ACEN or another national nursing accrediting body, RU would likely have to close the Bloomington, Minnesota ADN program.

In addition, a stipulation and consent order with the MBN requires the Bloomington, Minnesota ADN program to among other things reach applicable NCLEX pass rate standards by the end of 2023 and maintain a specified student to faculty ratio in 2023, with a potential penalty up to and including withdrawal of program approval.

The student to faculty ratio

limit constrains our ability to enroll students based on our ability to attract and retain qualified faculty.

RU has voluntarily further reduced enrollments in the Bloomington, Minnesota ADN program new cohorts starting in January 2023, but there can be no assurance that these or other efforts will improve NCLEX scores above the applicable threshold or by the required deadline, if at all, or that the program will be found to be in compliance with the order.

As a result of the order, the Minnesota Office of Higher Education, or MOHE, informed RU that it expects RU to identify a clinical site for each student within 50 miles from the student’s home, disclose to potential students that RU may not be able to satisfy the MBN’s order, provide options for students unable to complete the program if the MBN were to withdraw program approval, including a refund option, and to provide MOHE with copies of any reports submitted to MBN or ACEN as they become available.

The MBN order and MOHE’s related scrutiny could have an adverse impact on our reputation and ability to enroll students.

Due to previously self-imposed enrollment caps, enrollment in this program currently represents approximately 2% of RU’s current total enrollment.

If RU is unable to obtain accreditation or candidacy status with ACEN or another national nursing accrediting body, RU would likely have to close its Bloomington, Minnesota ADN program, which would have an adverse impact on RU’s enrollments and RU’s and our results of operations, cash flows, and financial condition.

In addition, a stipulation and consent order with the Minnesota Board of Nursing, or MBN, requires the Bloomington, Minnesota ADN program to among other things reach applicable NCLEX pass rate standards by the end of 2023 and maintain a specified student to faculty ratio in 2023, with a potential penalty up to and including withdrawal of program approval.

The student to faculty ratio limit constrains our ability to enroll students based on our ability to attract and retain qualified faculty.

RU voluntarily further reduced enrollments in the Bloomington ADN program for new cohorts that started in January 2023, but there can be no assurance that these or other efforts will improve NCLEX scores above the applicable threshold or by the required deadline, if at all, or that the program will be found to be in compliance with the order.

As a result of the order, the Minnesota Office of Higher Education, or MOHE, informed RU that it expects RU to identify a clinical site for each student within 50 miles from the student’s home, disclose to potential students that RU may not be able to satisfy the MBN’s order, provide options for students unable to complete the program if the MBN were to withdraw program approval, including a refund option, and provide MOHE with copies of any reports submitted to MBN or ACEN as they become available.

The MBN order and MOHE’s related scrutiny could have an adverse impact on our reputation and ability to enroll students, and could result in the closure of the Bloomington, Minnesota ADN program, which would have an adverse impact on RU’s enrollments and RU’s and our results of operations, cash flows, and financial condition.

We may not achieve the anticipated benefits of our cost savings efforts, including reductions in force, and any savings may be offset by increased costs in other areas.

On August 1, 2023, we completed a reduction in force that resulted in the termination of 35 employees and the elimination of 46 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 2023 of approximately $3.8 million, excluding severance costs, and approximately $8.1 million in savings on an annualized basis.

The headcount reductions reflect our ongoing efforts focused on realigning our organizational structure, eliminating redundancies, and optimizing certain functions.

We continue to examine our cost structure for additional opportunities in the near term.

We anticipate completing our current review during the third quarter of 2023, and there can be no assurance that we will be successful or recognize the benefits we anticipate from our cost savings efforts.

Furthermore, some of the savings anticipated in 2023 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, or by additional hiring if we determine it is necessary.

Reductions in force may also result in increased costs, as opposed to cost savings, including due to associated legal risks, and could distract management and employees.

This headcount reduction, together with previous headcount reductions, could also adversely affect employee morale and make it more difficult to hire and retain qualified personnel.

ED’s recently proposed rulemaking on gainful employment requirements could materially and adversely affect our business if finalized.

On May 19, 2023, ED released a notice of proposed rulemaking that would modify regulations related to Title IV participation, including gainful employment requirements, or the GE Proposal.

The GE Proposal contemplates two new metrics that ED would use to determine the Title IV eligibility of gainful employment programs.

The two metrics are referred to as the debt-to-earnings rates (which include two rates, the discretionary earnings rate and the annual earnings rate) and the earnings premium measure.

ED released with the GE Proposal a data set, referred to as the program performance data, or the PPD, that includes calculations of the two metrics.

The methodology ED used to produce the PPD differs from the proposed methodology in the GE Proposal because of data limitations, and any final regulation’s methodology may change as compared to the GE Proposal.

However, out of the 30 RU programs, 47 APUS programs, and three HCN programs that ED assessed, which includes one program no longer offered at HCN, in the PPD for which gainful employment data was available, six RU programs and three APUS programs failed one or both of the new measures.

Programs that fail at least one of the metrics would need to warn students that the program risks losing access to Title IV funding, and programs that fail to meet the metrics twice in a three-year period would lose access to Title IV funding.

Under the GE Proposal, the failure of any of our institutions’ programs to meet the required metrics could therefore adversely impact those institutions and programs.

At this time, the outcome of the gainful employment rulemaking remains uncertain, and it is difficult to predict whether our institutions’ programs will satisfy any future gainful employment metrics, including whether the programs identified as failing in the PPD will in fact fail or whether other programs will fail or pass.

Any final gainful employment requirements would be effective no earlier than July 1, 2024.

ED is conducting and will 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 and the ED OIG regularly conducts audits and investigations of such institutions.

ED finalized a Title IV program review of RU in July 2023, and APUS is currently subject to an ongoing Title IV program review.

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 report required 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 timely provided.

In July 2023, RU received a final program review report from ED in which ED found that all the findings of noncompliance with Title IV rules had been resolved with a total liability of approximately $4,200 including a de minimis amount of interest associated with the liability.

In July 2023, ED began a program review of APUS’s administration of Title IV programs during the 2021-2022 and 2022-2023 award years that includes a review of compliance with the 90/10 Rule.

At this time, we cannot predict the outcome of the APUS program review, when it will be completed, whether there will be any adverse findings in the resulting program review report, what findings there may be related to 90/10 Rule compliance, if any, or whether ED will place any liability or other limitations on APUS as a result of the review.

If the results of compliance reviews or other proceedings are unfavorable to us, our institutions may be required to pay monetary damages or be subject to fines, limitations, loss of Title IV funding, injunctions, or other penalties, including the requirement to make refunds.

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

In addition, 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.

HLC moved APUS from the Open Pathway for reaffirmation of accreditation to the Standard Pathway, which will result in a comprehensive site visit occurring for the mid-cycle review in year four of the ten year accreditation cycle instead of a panel review.

HLC has determined to conduct a focused visit at APUS no later than March 2024.

Specifically, HLC found potential concerns regarding APUS’s compliance with standards related to program development oversight and program assessment processes as a result of certain courses not being available for students in one program.

Pursuant to HLC policy, APUS has transitioned from the Open Pathway to the Standard Pathway because of the decision to conduct a focused visit.

As a result of this transition, APUS will be subject to a comprehensive site-visit for the year four mid-cycle review under the Standard Pathway, to take place in 2024-2025.

The reaffirmation of accreditation site visit date remains unchanged and will take place 2030-2031.

HLC’s focused visit will result in a written report addressing the topics of concern identified in the action letter calling for the focused visit.

The focused visit team report will include a recommendation to accept the report or may call for additional monitoring, sanction, show-cause order, or withdrawal of accreditation.

Although APUS would have the opportunity to respond prior to any HLC action on the report, we cannot be sure that the HLC team will not identify deficiencies at APUS during the focused visit or call for negative accreditation-related action against APUS as a result.

RU’s Illinois ADN program has been adversely impacted by regulatory action, including as a result of the failure to meet applicable NCLEX pass rates, and further action by regulators and accreditors could result in additional adverse impacts.

RU’s Illinois ADN program has not met state-established first-time NCLEX benchmarks for three consecutive years.

In February 2022, RU’s 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 admitted students 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.

While we have seen a recent improvement in the RU Illinois ADN program’s first-time NCLEX pass rate, the improved rate may not persist or further improve, and the IDFPR could require us to continue on probationary status, impose additional restrictions on RU’s Illinois ADN program, or determine that the program should be disapproved, which would have an adverse effect on our results of operations, cash flows, and financial condition.

An Illinois statute also requires nursing programs in the state to have achieved accreditation by the end of 2022 in order to meet state approval requirements.

RU’s Illinois ADN program has been in candidacy status for initial accreditation

with ACEN since July 2020.

Although the IDFPR has indicated that candidacy status satisfies this requirement, the IDFPR could change its position.

ACEN will not grant accreditation to a program on probationary status with the IDFPR, as RU’s Illinois ADN program is.

The current candidacy is set to expire in July 2024.

If ACEN ultimately denies initial accreditation and RU is unable to obtain accreditation or candidacy status with another national nursing accrediting body, RU would likely have to close the Illinois ADN program.

Illinois HB2509, which is described in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Regulatory and Legislative Activity” above, may provide a path forward for RU.

It could lead to RU’s removal from probation and full ACEN accreditation, providing RU with additional time to improve NCLEX rates.

However, there is no assurance that HB2509 will be signed into law, or that if signed, it will benefit RU’s Illinois ADN program as anticipated.

Our institutions may lose eligibility to participate in Title IV programs if their student loan default rates are too high, and our future growth could be impaired as a result.

As described more fully under “Regulatory Environment – Student Financing Sources and Related Regulations/ Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – Student Loan Defaults” in our Annual Report, to remain eligible to participate in Title IV programs, an educational institution’s federal student loan cohort default rates must remain below certain specified levels.

If an institution’s cohort default rate equals or exceeds 30% for any given year, it must establish a default prevention task force and develop a default prevention plan with measurable objectives for improving the cohort default rate.

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

Government policies to minimize the adverse economic impact of the COVID-19 pandemic have artificially lowered our institutions’ cohort default rates, which nevertheless may be higher than otherwise expected as a result of the pandemic.

Congress and ED implemented a temporary freeze on student loan payments and interest accruals, which means borrowers are less likely to default on their loans and our institutions’ cohort default rates are lower not because borrowers are making timely repayments but because the government is allowing them not to make payments.

In June 2023, the Fiscal Responsibility Act was enacted, ending the freeze on payments and interest accruals.

Accordingly, interest accrual on federal student loans will resume on September 1, 2023 and payments will be due beginning October 1, 2023, which may lead to an increase in defaults and therefore an increase in our institutions’ cohort default rates.

ED has announced a 12-month “on-ramp” to repayment, running from October 1, 2023 to September 30, 2024, so that financially vulnerable borrowers who miss monthly payments during this period will not be considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.

ED has also announced other actions intended to provide debt relief and support for student loan borrowers, such as instituting a new income-driven repayment plan.

However, there can be no assurance that our institutions’ cohort default rates will benefit from these efforts, and the eventual end of the “on-ramp” period may also lead to an increase in defaults.

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

In addition, if Congress or ED restricts permitted types of default prevention assistance, the default rates of our former students may be negatively impacted.

Congress could also increase the measuring period, which could also negatively impact student default rates.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors