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Item 1A. Risk Factors

2021-03-01 compared with 2020-03-02 · 121 added, 83 removed, 216 unchanged (49% of the section changed)

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See “Cautionary Notice Regarding Forward-Looking Statements.”

Risks Related to Extensive Regulation of Our Business

If the Universities fail to comply with the extensive legal and regulatory requirements for higher education institutions, they could face significant monetary or other liabilities and penalties, including loss of access to federal student loans and grants for their students.

As providers of higher education, the Universities are subject to extensive laws and regulation on both the federal and state levels and by accrediting agencies.

Risks Related to Extensive Regulation of Our U.S.

If Strayer University and Capella University fail to comply with the extensive legal and regulatory requirements for higher education institutions, they could face significant monetary or other liabilities and penalties, including loss of access to federal student loans and grants for their students.

As providers of higher education, Strayer University and Capella University are subject to extensive laws and regulation on both the federal and state levels and by accrediting agencies.

In particular, the Higher Education Act and related regulations subject Strayer University, Capella University, and all other higher education institutions that participate in the various Title IV programs to significant regulatory scrutiny.

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Title IV requirements are enforced by the Department of Education and, in some instances, by private plaintiffs.

If the Universities are found not to be in compliance with these laws, regulations, standards, or policies, they could lose access to Title IV program funds, which would have a material adverse effect on the Company.

If Strayer University and Capella University are found not to be in compliance with these laws, regulations, standards, or policies, they could lose access to Title IV program funds, which would have a material adverse effect on the Company.

Congressional examination of for-profit post-secondary education could lead to legislation or other governmental action that may negatively affect the industry.

Since 2010, Congress has increased its focus on for-profit higher education institutions, including regarding participation in Title IV programs and oversight by the Department of Defense of tuition assistance and by the Department of Veterans Affairs (“VA”) of veterans education benefits for military service members and veterans, respectively, attending for-profit colleges.

Since 2010, Congress has increased its focus on for-profit higher education institutions, including regarding participation in Title IV programs and oversight by the Department of Defense of tuition assistance and by the VA of veterans education benefits for military service members and veterans, respectively, attending for-profit colleges.

The Senate Committee on Health, Education, Labor and Pensions and other congressional committees have held hearings into, among other things, the proprietary education sector and its participation in Title IV programs, the standards and procedures of accrediting agencies, credit hours and program length, the portion of federal student financial aid going to proprietary institutions, and the receipt of military tuition assistance and veterans education benefits by students enrolled at proprietary institutions.

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

Any action by Congress that significantly reduces funding for Title IV programs or the ability of the Universities or their or students to participate in these programs could materially harm our business.

Any action or inaction by Congress that significantly reduces funding for Title IV programs or the ability of Strayer University, Capella University, or their students to participate in these programs could materially harm our business.

A reduction in government funding levels could lead to lower enrollments at our school and require us to arrange for alternative sources of financial aid for our students.

Lower student enrollments or our inability to arrange such alternative sources of funding could adversely affect our business.

In addition, the Universities’ ability to conduct their business, including obtaining necessary approvals from the Department of Education, may be affected by staffing levels at the Department and the volume of applications and other requests to the Department.

If the Department lacks adequate personnel or the Department’s workload exceeds its capacity, action by the Department on requests by the Universities could be significantly delayed, and such delays could have a material adverse effect on the Universities and our business.

The Universities are subject to compliance reviews, which, if they resulted in a material finding of noncompliance, could affect their ability to participate in Title IV programs.

In addition, Strayer University's and Capella University's ability to conduct their business, including obtaining necessary approvals from the Department of Education, may be affected by staffing levels or review procedures at the Department and the volume of applications and other requests to the Department.

If the Department lacks adequate personnel or adopts time-consuming procedures or the Department’s workload exceeds its capacity, action by the Department on requests by the Universities could be significantly delayed, and such delays could have a material adverse effect on the Universities and our business.

Strayer University and Capella University are subject to compliance reviews, which, if they resulted in a material finding of noncompliance, could affect their ability to participate in Title IV programs.

Because the Universities operate in a highly regulated industry, they are subject to compliance reviews and claims of noncompliance and related lawsuits by government agencies, accrediting agencies, and third parties, including claims brought by third parties on behalf of the federal government.

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The review covered the 2017-2018 and 2018-2019 federal financial aid years.

The program review has not concluded.

In general, after the Department conducts its site visit and reviews data supplied by the institution, it sends the institution a program review report.

The institution has the opportunity to respond to any findings in the report.

The Department of Education then issues a Final Program Review Determination, which identifies any liabilities.

The institution may appeal any monetary liabilities specified in the Final Program Review Determination.

The Department issued its preliminary program report on November 13, 2020, and Capella University responded to the report.

On February 9, 2021, Capella University received the Department’s Final Program Review Determination, which closed the Program Review without further action required on the part of Capella University.

On October 11, 2017, the Department and Strayer University executed a new Program Participation Agreement, approving Strayer University’s continued participation in Title IV programs with full certification through June 30, 2021.

On January 18, 2019, consistent with standard procedure upon a Title IV institution’s change of ownership, the Department and Capella University executed a new Provisional Program Participation Agreement, approving Capella University’s continued participation in Title IV programs with provisional certification through December 31, 2022.

If either of the Universities fails to maintain its institutional accreditation or if its institutional accrediting body loses recognition by the Department of Education, the University would lose its ability to participate in Title IV programs.

If either Strayer University or Capella University fails to maintain its institutional accreditation or if its institutional accrediting body loses recognition by the Department of Education, the University would lose its ability to participate in Title IV programs.

The loss of Strayer University’s accreditation by Middle States or Middle States’ loss of recognition by the Department of Education would render Strayer University ineligible to participate in Title IV programs and would have a material adverse effect on our business.

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NACIQI reviewed Middle States at its February 2018 meeting and recommended that the Secretary of Education extend its recognition for five years.

NACIQI also reviewed the Higher Learning Commission at its February 2018 meeting and recommended that the Secretary of Education extend its recognition for five years.

NACIQI also reviewed the Higher Learning Commission ("HLC") at its February 2018 meeting and recommended that the Secretary of Education extend its recognition for five years.

On July 29, 2020, NACIQI held a meeting to review compliance by HLC with Department of Education requirements for recognized accrediting agencies.

On October 26, 2020, a Senior Department Official ("SDO") found HLC non-compliant, in part.

While the SDO required that HLC submit periodic reporting for twelve months, the SDO did not restrict HLC's scope of accreditation or ability to accredit new institutions.

HLC did not appeal the Secretary’s decision.

Increased scrutiny of accreditors by the Secretary of Education in connection with the Department of Education’s recognition process may result in increased scrutiny of institutions by accreditors or have other adverse consequences.

If either of the Universities fails to maintain any of its state authorizations, the University would lose its ability to operate in that state and to participate in Title IV programs there.

If either Strayer University or Capella University fails to maintain any of its state authorizations, the University would lose its ability to operate in that state and to participate in Title IV programs there.

Each Strayer University campus is authorized to operate and to grant degrees, diplomas, or certificates by the applicable education agency or agencies of the state where the campus is located.

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The loss of state authorization would, among other things, limit Strayer University’s ability to operate in that state, render Strayer University ineligible to participate in Title IV programs at least at those state campus locations, and could have a material adverse effect on our business.

Capella University is registered as a private institution with the Minnesota Office of Higher Education (“MOHE”), as required for most post-secondary private institutions that grant degrees at the associate level or above in Minnesota and as required by the Higher Education Act to participate in Title IV programs.

Capella University is registered as a private institution with the Minnesota Office of Higher Education, as required for most post-secondary private institutions that grant degrees at the associate level or above in Minnesota and as required by the Higher Education Act to participate in Title IV programs.

The loss of state authorization would, among other things, limit Capella University’s ability to operate in that state, render Capella University ineligible to participate in Title IV programs, and could have a material adverse effect on our business.

Capella is also registered in Florida, and registered in Colorado, Georgia and Tennessee for purposes of operating campus centers, and loss of authorization in any of those states could render Capella University ineligible to operate current campus centers or any that may open in the future.

Effective July 1, 2011, Department of Education regulations provide that an institution is considered legally authorized by a state if the state has a process to review and appropriately act on complaints concerning the institution, including enforcing applicable state laws, and the institution complies with any applicable state approval or licensure requirements consistent with the new rules.

If a state in which Strayer University or Capella University is located fails to comply in the future with the provisions of the new rule or fails to provide the University with legal authorization, it could limit the University’s ability to operate in that state and to participate in Title IV programs at least for students in that state and could have a material adverse effect on our operations.

Strayer University and Capella University participate in the State Authorization Reciprocity Agreement (“SARA”), which allows the Universities to enroll students in distance education programs in each SARA member state.

Each of the Universities applies separately to non-SARA member states (i.e., California) for authorization to enroll students, if such authorization is required by the state.

If Strayer University or Capella University failed to comply with the requirements to participate in SARA or state licensing or authorization requirements to provide distance education in a non-SARA state, the University could lose its ability to participate in SARA or may be subject to the loss of state licensure or authorization to provide distance education in that non-SARA state, respectively.

On December 19, 2016, the Department of Education published final regulations addressing, among other issues, state authorization of programs offered through distance education.

The final regulations, which became effective on May 26, 2019,

require an institution offering distance education programs to be authorized by each state in which the institution enrolls students (other than the state(s) in which the institution is physically located), if such authorization is required by the state, in order to award Title IV aid to such students.

The final regulations, which became effective on May 26, 2019, require an institution offering distance education programs to be authorized by each state in which the institution enrolls students (other than the state(s) in which the institution is physically located), if such authorization is required by the state, in order to award Title IV aid to such students.

An institution could obtain such authorization directly from the state or (except in California) through a state authorization reciprocity agreement.

Under those rules, if one of the Universities should fail to obtain or maintain required state authorization to provide post-secondary distance education in a specific state in which the institution is not physically located, the institution could lose its ability to provide distance education in that state and to award Title IV aid to online students in that state.

The 2016 rules require that schools disclose all applicable prerequisites for licensure for professional programs and whether the school’s programs satisfy those prerequisites in each state where enrolled students reside.

The 2016 rules require that schools disclose all applicable prerequisites for licensure for

professional programs and whether the school’s programs satisfy those prerequisites in each state where enrolled students reside.

The institution must make direct disclosures to students and prospective students if the institution determines that a program does not meet a state’s professional licensure requirements.

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If one of the Universities failed to make any of these disclosures, the Department of Education could limit, suspend, or terminate its participation in Title IV programs or impose other penalties such as requiring the Universities to make refunds, pay liabilities, or pay an administrative fine upon a material finding of noncompliance.

On November 1, 2019, the Department released final regulations on accreditation and state authorization of distance education, which are scheduled to become effective July 1, 2020.

Strayer University and Capella University participate in the State Authorization Reciprocity Agreement (“SARA”), which originated after the 2016 rulemaking and allows the Universities to enroll students in distance education programs in each SARA member state.

Each of the Universities applies separately to non-SARA member states (i.e., California) for authorization to enroll students, if such authorization is required by the state.

On November 1, 2019, the Department released final regulations on accreditation and state authorization of distance education, which became effective July 1, 2020.

The rules maintain the requirement from the 2016 rule that institutions offering post-secondary education through distance education or correspondence courses to students located in a state in which the institution is not located must meet state requirements in that state or participate in a state authorization reciprocity agreement.

In addition, an institution must make disclosures readily available to enrolled and prospective students regarding whether programs leading to professional licensure or certification meet state educational requirements, and provide a direct disclosure to students in writing if the program leading to professional licensure or certification does not meet state educational requirements in the state in which the student is located, or if no determination for such state has been made by the institution.

If either of the Universities fails to obtain recertification by the Department of Education when required, the Universities would lose their ability to participate in Title IV programs.

If either Strayer University or Capella University fails to obtain recertification by the Department of Education when required, that University would lose its ability to participate in Title IV programs.

An institution generally must seek recertification from the Department of Education at least every six years and possibly more frequently depending on various factors, such as whether it is provisionally certified.

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Such developments could have a material adverse effect on our business.

Student loan defaults could result in the loss of eligibility to participate in Title IV programs.

Student loan defaults in the U.S.

could result in the loss of eligibility to participate in Title IV programs.

In general, under the Higher Education Act, an educational institution may lose its eligibility to participate in some or all Title IV programs if, for three consecutive federal fiscal years, 30% or more of its students who were required to begin repaying their student loans in the relevant federal fiscal year default on their payment by the end of the second federal fiscal year following that fiscal year.

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The average official cohort default rates for proprietary institutions nationally were 15.6%, 15.2%, and 14.7% for federal fiscal years 2015, 2016, and 2017, respectively.

The global spread of COVID-19 has created significant economic uncertainty and disrupted large portions of the economy.

The pandemic and the preventative measures taken to contain the pandemic have caused a substantial increase in unemployment and has had and may continue to have adverse economic consequences.

Such conditions could result in an increase in the number of borrowers defaulting on their student loans, including among our graduates.

Strayer University or Capella University could lose its eligibility to participate in federal student financial aid programs or be provisionally certified with respect to such participation if the percentage of its revenues derived from those programs were too high, or could be restricted from enrolling students in certain states if the percentage of the University’s revenues from federal or state programs were too high.

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If such legislation were to be enacted, and the Universities were unable to meet the threshold, loss of eligibility to enroll students in certain states would have a material adverse effect on our business.

The Universities’ failure to comply with the Department of Education’s incentive compensation rules could result in sanctions and other liability.

The failure by Strayer University or Capella University to comply with the Department of Education’s incentive compensation rules could result in sanctions and other liability.

If one of the Universities pays a bonus, commission, or other incentive payment in violation of applicable Department of Education rules or if the Department of Education or other third parties interpret a University’s compensation practices as noncompliant, the University could be subject to sanctions or other liability.

Such penalties could have a material adverse effect on our business.

The Universities’ failure to comply with the Department of Education’s misrepresentation rules could result in sanctions and other liability.

The failure by Strayer University or Capella University to comply with the Department of Education’s misrepresentation rules could result in sanctions and other liability.

The Higher Education Act prohibits an institution that participates in Title IV programs from engaging in “substantial misrepresentation” of the nature of its educational program, its financial charges, or the employability of its graduates.

The Department of Education’s regulations that took effect July 1, 2011, which are sometimes referred to as the program integrity regulations, interpret this provision to prohibit any statement on those topics made by the institution or a third party that provides educational programs, marketing, advertising, recruiting, or admissions services to the institution that has the likelihood or tendency to confuse.

Court of Appeals for the District of Columbia held on June 5, 2012, that the term “substantial misrepresentation” could not include true, nondeceitful statements that are merely confusing.

Final regulations that, among other changes, expanded the definition of misrepresentation to include “any statement that has the likelihood or tendency to mislead under the circumstances” and “any statement that omits information in such a way as to make the statement false, erroneous, or misleading” were scheduled to take effect July 1, 2017 but, after a series of delays, became effective October 16, 2018.

On August 30, 2019, the Department released final Borrower Defense to Repayment regulations

that included a new definition of “misrepresentation,” which is effective July 1, 2020.

Final regulations that defined misrepresentation to include “any statement that has the likelihood or tendency to mislead under the circumstances” and “any statement that omits information in such a way as to make the statement false, erroneous, or misleading” were scheduled to take effect July 1, 2017 but, after a series of delays, became effective October 16, 2018.

On August 30, 2019, the Department released final Borrower Defense to Repayment regulations that included a new definition of

“misrepresentation,” which became effective July 1, 2020.

The final rule defines a “misrepresentation” as:

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If the Department of Education or other third parties interpret statements made by one of the Universities or on the University’s behalf to be in violation of the new regulations, the University could be subject to sanctions and other liability, which could have a material adverse effect on our business.

The Universities’ failure to comply with the Department of Education’s credit hour or direct assessment rules could result in sanctions and other liability.

Effective July 1, 2011, Title IV regulations define the term “credit hour” and require accrediting agencies and state authorization agencies to review the reliability and accuracy of an institution’s credit hour assignments.

The failure by Strayer University or Capella University to comply with the Department of Education’s credit hour or direct assessment rules could result in sanctions and other liability.

Title IV regulations define the term “credit hour” and require accrediting agencies and state authorization agencies to review the reliability and accuracy of an institution’s credit hour assignments.

If an accreditor does not comply with this requirement, its recognition by the Department of Education could be jeopardized.

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Such penalties could have a material adverse effect on our business.

The Universities’ failure to comply with the Clery Act or Title IX could result in sanctions and other liability.

The failure by Strayer University or Capella University to comply with the Clery Act or Title IX could result in sanctions and other liability.

Strayer University and Capella University must comply with the campus safety and security reporting requirements as well as other requirements in the Clery Act, including changes made to the Clery Act by the Violence Against Women Reauthorization Act of 2013.

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In addition, individuals alleging sex discrimination may sue an institution under Title IX for corrective action and monetary damages.

On November 29, 2018, the Department of Education published proposed rules related to implementation of Title IX.

The proposed rules would define what constitutes sexual harassment for purposes of Title IX in the administrative enforcement context, would describe what actions trigger an institution’s obligation to respond to incidents of alleged sexual harassment, and would specify how an institution must respond to allegations of sexual harassment.

The Department of Education accepted public comments through January 30, 2019.

We cannot predict what final regulations will be adopted as a result of this rulemaking process.

The Universities are subject to sanctions if they fail to calculate accurately and make timely payment of refunds of Title IV program funds for students who withdraw before completing their educational program.

On May 6, 2020, the Department of Education published final rules related to implementation of Title IX, which prohibits discrimination on the basis of sex in education programs that receive funding from the federal government.

The final rules define what constitutes sexual harassment for purposes of Title IX in the 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.

Among other things, the new rules include a requirement for live hearings on Title IX sexual harassment claims, which includes direct and cross-examination of parties, university-provided advisors (in the event a student or party does not provide an advisor), rulings on questions of relevance by decision-makers, and the creation and maintenance of a record of the live hearing proceedings.

The final rule became effective August 14, 2020.

Failure to comply with these final rules and the resulting sanctions could have a material adverse effect on our business.

Strayer University and Capella University are subject to sanctions if they fail to calculate accurately and make timely payment of refunds of Title IV program funds for students who withdraw before completing their educational program.

The Higher Education Act and Department of Education regulations require the Universities to calculate refunds of unearned Title IV program funds disbursed to students who withdraw from their educational program before completing it.

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Such consequences could have a material adverse effect on our business.

Investigations, legislative and regulatory developments, and general credit market conditions related to the student loan industry may result in fewer lenders and loan products and increased regulatory burdens and costs.

The Higher Education Act regulates relationships between lenders to students and post-secondary education institutions.

In 2009, the Department of Education promulgated regulations that address these relationships, and state legislators have also

passed or may be considering legislation related to relationships between lenders and institutions.

In 2009, the Department of Education promulgated regulations that address these relationships, and state legislators have also passed or may be considering legislation related to relationships between lenders and institutions.

In addition, new procedures introduced and recommendations made by the CFPB create uncertainty about whether Congress will impose new burdens on private student lenders.

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Such actions could reduce demand for and/or availability of private education loans, decrease Strayer University’s or Capella University’s non-Title IV revenue, and thereby increase Strayer University’s or Capella University’s 90/10 ratio, and have a material adverse effect on our business.

We rely on one or more third parties for software and services necessary to administer the Universities’ participation in Title IV programs and failure of such a third party to provide compliant software and services, or by us in our use of the software, could cause the Universities’ to lose eligibility to participate in Title IV programs.

We rely on one or more third parties for software and services necessary to administer Strayer University's and Capella University's participation in Title IV programs and failure of such a third party to provide compliant software and services, or by us in our use of the software, could cause Strayer University or Capella University to lose eligibility to participate in Title IV programs.

Because each of Strayer University and Capella University is jointly and severally liable to the Department of Education for the actions of third-party Title IV processing software providers, failure of such providers to comply with applicable regulations could have a material adverse effect on Strayer University or Capella University, including loss of eligibility to participate in Title IV programs.

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Such developments could adversely affect our enrollment, revenues, and results of operations.

Our business could be harmed if the Universities experience a disruption in their ability to process student loans under the Federal Direct Loan Program.

Our business could be harmed if Strayer University or Capella University experience a disruption in their ability to process student loans under the Federal Direct Loan Program.

Each of Strayer University and Capella University collected the majority of its fiscal year 2020 total consolidated net revenue from receipt of Title IV financial aid program funds, principally from federal student loans under the Federal Direct Loan Program.

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To date, these changes have not had a material impact on our business, but future changes in the availability of Title IV funds could affect students’ ability to fund their education and thus may have a material adverse effect on our enrollment, financial condition, results of operations, and cash flows.

As enforcement of laws related to the accessibility of technology continues to evolve, information technology development costs and compliance risks could increase.

As enforcement of laws related to the accessibility of technology continues to evolve in the U.S., information technology development costs and compliance risks could increase.

Strayer University’s and Capella University’s online education programs are made available to students through personal computers and other technological devices.

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For example, Section 504 of the Rehabilitation Act of 1973 ("Section 504"), prohibits discrimination against a person with a disability by any organization that receives federal financial assistance.

The Americans with Disabilities Act (“ADA”) prohibits discrimination based on disability in several areas, including public accommodations.

In 2010, the Department of Education’s Office for Civil Rights, which enforces Section 504, together with the Department of Justice, which enforces the ADA, 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, the Department of Education’s Office of Civil Rights and third parties

have brought enforcement actions against institutions related to website accessibility of online course material.

If Strayer University or Capella University 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.

The Americans

with Disabilities Act (“ADA”) prohibits discrimination based on disability in several areas, including public accommodations.

In 2010, the Department of Education’s Office for Civil Rights, which enforces Section 504, together with the Department of Justice, which enforces the ADA, asserted that requiring the use of technology in a classroom environment when such technology is inaccessible to individuals with disabilities violates Section 504 and the ADA, 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, the Department of Education’s Office of Civil Rights and third parties have brought enforcement actions against institutions related to website accessibility of online course material.

If Strayer University or Capella University is found to have violated Section 504 or the ADA, 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.

As a result of such enforcement action, or as a result of new laws and regulations that require greater accessibility, Strayer University or Capella University may have to modify its online classrooms and other uses of technology to satisfy applicable requirements at potentially substantial cost.

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Our ability to grow enrollment depends on a number of factors, including macroeconomic factors like unemployment and the resulting lower confidence in job prospects, and many of the regulatory risks discussed above.

Our enrollment in 2020 will be affected by legislative uncertainty, regulatory activity, and macroeconomic conditions.

Our enrollment in 2021 will be affected by legislative uncertainty and regulatory activity in the U.S., and macroeconomic conditions globally.

It is likely that legislative, regulatory, and economic uncertainties will continue for the foreseeable future, and thus it is difficult to assess our long-term growth prospects.

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Adding new locations, programs, and services require us to expend significant resources, including making human capital and financial capital investments, incurring marketing expenses, and reallocating other resources.

To open a new location, we are required to obtain appropriate federal, state, and accrediting agency approvals, which may be conditioned or delayed in a manner that could significantly affect our growth plans.

To open a new location, we are required to obtain appropriate federal, state, and accrediting agency approvals, which may be conditioned, delayed, or halted in a manner that could significantly affect our growth plans.

We cannot assure investors that we will open new locations or add new programs or services in the future, or that any new locations, programs or services will be successful.

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Our success depends in part on our ability to update and expand the content of our academic programs, develop new programs in a cost-effective manner, and meet students’ needs in a timely manner.

Prospective employers of our graduates increasingly demand that their entry-level employees possess appropriate technological and other skills.

Prospective employers of our graduates increasingly demand that their employees possess appropriate technological and other skills.

The update and expansion of our existing programs and the development of new programs may not be received favorably by students, prospective employers, or the online education market.

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Our financial performance depends in part on our ability to continue to increase awareness of the academic programs we offer among working adult students.

Awareness of the academic programs we offer among working adult students is critical to the continued acceptance and growth of our programs.

Awareness of the academic programs we offer among working adult students in the U.S.

is critical to the continued acceptance and growth of our programs.

Our inability to increase awareness of the programs we offer through effective marketing and advertising could limit our enrollments and negatively affect our business.

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• our failure to maintain or expand our brand or other factors related to our marketing.

Congressional and other governmental activities could damage the reputation of Strayer University or Capella University and limit our ability to attract and retain students.

Congressional and other governmental activities in the U.S.

could damage the reputation of Strayer University or Capella University and limit our ability to attract and retain students.

In recent years, Congress increased its focus on proprietary educational institutions, including administration of Title IV programs, military tuition assistance, veterans education benefits, and other federal programs.

During the prior Administration, the Department of Education indicated to Congress that it intended to increase its regulation of and attention to proprietary educational institutions, and the Government Accountability Office released several reports of investigations into proprietary educational institutions.

State Attorneys General have also undertaken extensive investigations of proprietary educational institutions.

During a prior Administration, the Department of Education indicated to Congress that it intended to increase its regulation of and attention to proprietary educational institutions, and the Government Accountability Office released several reports of investigations into proprietary educational institutions.

Several state Attorneys General have also undertaken extensive investigations of proprietary educational institutions.

These and other governmental activities, including new regulations on program integrity and gainful employment, even if resulting in no adverse findings or actions against Strayer University or Capella University, singly or cumulatively could affect public perception of proprietary higher education, damage the reputation of Strayer University or Capella University, and limit our ability to attract and retain students.

We face strong competition in the post-secondary education market.

Post-secondary education in the United States is highly competitive.

We compete with traditional public and private two-year and four-year colleges, other for-profit schools, and alternatives to higher education, such as employment and military service.

Post-secondary education is highly competitive.

We compete with traditional public and private two-year and four-year colleges, other for-profit schools, vocational education organizations, and alternatives to higher education, such as employment and military service.

Public colleges may offer programs similar to those of our Universities without tuition or at a lower tuition level as a result of government subsidies (including various "free college" programs), government and foundation grants, tax-deductible contributions, and other financial sources not available to proprietary institutions.

Some of our competitors in both the public and private sectors have substantially greater financial and other resources than we do.

Congress, the Department of Education, and other agencies have required increasing disclosure of information to consumers.

In the United States, Congress, the Department of Education, and other agencies have required increasing disclosure of information to consumers.

While we believe that our Universities provide valuable education to their students, we may not always accurately predict the drivers of a student or potential students’ decisions to choose among the range of educational and other options available to them.

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We experience, and expect to continue to experience, seasonal fluctuations in our revenue.

Historically, our quarterly revenues and income have been lowest in the third quarter (July through September) because fewer students are enrolled during the summer months.

We also incur significant expenses in the third quarter in preparing for our peak enrollment in the fourth quarter (October through December), including investing in online and campus infrastructure necessary to support increased usage.

Historically, our quarterly revenues and income from U.S.

operations have been lowest in the third quarter (July through September) because fewer students are enrolled during the summer months.

ANZ's quarterly revenues and income from operations have been lowest in the first quarter (January through March) because fewer students are enrolled during the summer season in Australia and New Zealand.

We also incur significant expenses in the third quarter in preparing for our peak enrollment in the U.S.

in the fourth quarter (October through December), including investing in online and campus infrastructure necessary to support increased usage.

These investments result in fluctuations in our operating results which could result in volatility or have an adverse effect on the market price of our common stock.

In addition, the online education market is a rapidly evolving market, and we may not be able to accurately forecast future enrollment growth and revenues.

Regulatory requirements may make it more difficult to acquire us.

A change in ownership resulting in a change of control of Strayer University or Capella University would trigger a requirement for recertification of the University by the Department of Education for purposes of participation in federal student financial aid programs, a review of the University’s accreditation by its institutional accrediting agency, and reauthorization of the University by certain state licensing and other regulatory agencies.

If we or one of the Universities underwent a change of

control that required approval by any state authority, any institutional accrediting agency, or any federal agency, and any required regulatory approval were significantly delayed, limited, or denied, there could be a material adverse effect on our ability to offer certain educational programs, award certain degrees, diplomas, or certificates, operate one or more of our locations, admit certain students or participate in Title IV programs, which in turn, could have a material adverse effect on our business.

These factors may discourage takeover attempts.

In addition, the online education market is a rapidly evolving market, and we may not be able to forecast accurately future enrollment growth and revenues.

Regulatory requirements in the U.S.

may make it more difficult to acquire us.

A change in ownership resulting in a change of control of Strayer University or Capella University (or of the Company) would trigger a requirement for recertification of the University (or the Universities) by the Department of Education for purposes of participation in federal student financial aid programs, a review of the University’s accreditation by its institutional accrediting agency, and reauthorization of the University (or the Universities) by certain state licensing and other regulatory agencies.

If we or one of the Universities underwent a change of control that required approval by any state authority, any institutional accrediting agency, or any federal agency, and any required regulatory approval were significantly delayed, limited, or denied, there could be a material adverse effect on our ability to offer certain educational programs, award certain degrees, diplomas, or certificates, operate one or more of our locations, admit certain students or participate in Title IV programs, which in turn, could have a material adverse effect on our business.

These factors may diminish the Company’s appeal as an acquisition target.

Capacity constraints or system disruptions to a University’s computer networks could damage the reputation of the institutions and limit our ability to attract and retain students.

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As a result, the Universities may be required to expend significant resources to protect against the threat of these security breaches or to alleviate problems caused by these breaches.

The personal information that the Universities collect is subject to privacy and data security laws and may be vulnerable to breach, theft, or loss that could adversely affect our reputation and operations.

The Company has operations in the U.S., Australia, and New Zealand, and is subject to complex business, economic, legal, political, and foreign currency risks, which risks may be difficult to address adequately.

With the acquisition of the ANZ portfolio, the Company now operates institutions in three different countries, each of which is subject to complex business, economic, legal, political, tax and foreign currency risks.

We may have difficulty managing and administering an internationally dispersed business, which may materially adversely after our business, financial condition and results of operation.

Additional challenges associated with the international conduct of the business that may materially adversely affect our operating results include:

• each of our institutions is subject to unique regulatory schemes, business challenges, and competitive pressures;

• difficulty maintaining quality standards consistent with our brands and with local accreditation standards;

• fluctuations in exchange rates, possible currency devaluations, inflation and hyperinflation;

• compliance with a variety of domestic and foreign laws and regulations;

• political elections and changes in government policies;

• limitations on the repatriation and investment of funds and foreign currency exchange restrictions.

The personal information that the Company collects may be vulnerable to breach, theft, or loss that could adversely affect our reputation and operations and is subject to privacy and data security laws which may impact operational efficiency

Possession and use of personal information in our operations subject us to risks and costs that could harm our business.

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Some of this personal information is held and managed by certain vendors.

Although we use security and business controls to limit access to and use of personal information, a third party may be able to circumvent those security and business controls, potentially resulting in a breach of student or employee privacy.

Although we use security and business controls to limit access to and use of personal

information, a third party may be able to circumvent those security and business controls, potentially resulting in a breach of student or employee privacy.

In addition, errors in the storage, use, or transmission of personal information could result in a breach of student or employee privacy.

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Were the CCPA to apply and if we were out of compliance, we could be subject to significant civil penalties or private lawsuits brought by consumers.

Moreover, certain of our operations may involve the collection of personal information from individuals outside the U.S., which may render us subject to global privacy and data security laws.

For example, the European Union General Data Protection Regulation (“GDPR”), which came into effect May 25, 2018, contains a number of requirements that are different from or exceed those in U.S.

state and federal privacy and data security laws.

Were an EU regulator to determine that the GDPR applies to the Company, and if we were out of compliance, there is the potential for administrative, civil, or criminal liability with significant monetary penalties as well as reputational harm to the Universities and their employees.

Moreover, certain of our operations involve the collection of personal information from individuals outside the U.S., which may render us subject to global privacy and data security laws.

For example, the European Union General Data Protection Regulation (“GDPR”), Australia’s Federal Privacy Act and Australian Privacy Principles and New Zealand’s Privacy Act, may impact or restrict the manner in which the Company’s foreign subsidiaries are able to transfer and process personal information.

Further, were a U.S.

state regulator or a foreign regulator to find the Company out of compliance with applicable privacy laws or regulations, there is the potential for administrative, civil, or criminal liability with significant monetary penalties as well as reputational harm to the Company.

Failure to maintain adequate processes to prevent and detect fraudulent activity related to student online enrollment or financial aid could adversely affect the Universities’ operations.

Our online environment is susceptible to an increased risk of fraudulent activity by outside parties with respect to the student online learning platform and student financial aid programs.

While we have been able to detect past incidents of fraudulent activity, which have been isolated, and we have increased our internal capabilities to prevent and detect possible

fraudulent activity, we cannot be certain that our systems and processes will continue to be adequate with increasingly sophisticated external fraud schemes.

While we have been able to detect past incidents of fraudulent activity, which have been isolated, and we have increased our internal capabilities to prevent and detect possible fraudulent activity, we cannot be certain that our systems and processes will continue to be adequate with increasingly sophisticated external fraud schemes.

The Department of Education requires institutions that participate in Title IV programs to refer to the Office of the Inspector General any credible information related to fraudulent activity.

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The Universities’ success will depend on their ability to adapt to these changing technologies.

Combining SEI and Capella Education Company may be more difficult, costly or time consuming than expected, and the combined company may not realize all of the anticipated benefits of the merger.

The success of the Company will depend on, among other things, our ability to combine the businesses of SEI and CEC in a manner that does not materially disrupt the existing student relationships of either SEI or CEC or adversely affect current revenues and investments in future growth.

If the Company is not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected.

The goodwill and indefinite-lived intangible assets recorded in connection with the Merger could become impaired in the future.

Integrating SEI and Capella Education Company (“CEC”), and the recently acquired Torrens University and related assets in Australia and New Zealand (“ANZ”) may be more difficult, costly or time consuming than expected, and the combined company may not realize all of the anticipated benefits of the merger and acquisition.

The success of the Company will depend on, among other things, our ability to combine the businesses of SEI and CEC, and to integrate ANZ into SEI, in a manner that does not materially disrupt existing student relationships or adversely affect current revenues and investments in future growth.

If the Company is not able to achieve these objectives, the anticipated benefits of the Merger and the acquisition of ANZ may not be realized fully or at all or may take longer to realize than expected.

The goodwill and indefinite-lived intangible assets recorded in connection with the Merger and the acquisition of ANZ could become impaired in the future.

We are required to assess goodwill and indefinite-lived intangible assets for impairment at least annually.

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Such a potential impairment charge could have a material impact on future operating results and statements of financial position of the Company.

Risks Related to the Pandemic

The current COVID-19 pandemic and other possible future public health emergencies may adversely affect our business, our future results of operations, and our overall financial performance.

The ongoing COVID-19 global pandemic has caused significant volatility and disruption to the domestic and global economy.

Like many other companies, to comply with government mandates and to protect the safety and well-being of our students, faculty and staff, and the communities in which we live, we have instituted a remote work policy for the vast majority of our workforce, closed most physical campus locations, and moved our on-ground courses at Strayer University, which comprised less than 5% of total seat count, to online-only instruction.

The transition to remote working involves many operational challenges and may adversely affect our ability to satisfy student needs.

Remote working may increase the chance of successful cyber-attacks, including email phishing schemes targeting employees to give up their credentials.

Preparing our offices in anticipation of a portion of our workforce returning to physical office locations also presents operational challenges as on-site staff adjust to new equipment, new protocols, and hybrid combinations of on-site and remote work.

The extent to which the COVID-19 pandemic and future public health emergencies will affect our business, operations and financial results is uncertain and will depend on numerous evolving factors that remain uncertain and are impossible to predict, including:

the duration and scope of the pandemic;

the impact on economic activity from the pandemic and actions taken in response, including those of governmental entities;

the impact of the pandemic and the government response thereto on our employees, students, and business partners, including any suspensions or terminations of employer tuition reimbursement programs;

our ability to operate and provide our services with employees working remotely and/or closures of our campus locations;

potential exposure to claims for liability arising out of employees or students who may contract the virus;

and the ability of our students to continue their education notwithstanding the pandemic.

COVID-19 related regulatory and legislative changes may contain ambiguous provisions that could result in penalties in case of institutional noncompliance.

The Coronavirus Aid, Relief, and Economic Security ("CARES") Act, the Consolidated Appropriations Act of 2021, and subsequent guidance from the Department of Education create several changes with regard to the administration of federal financial assistance programs.

All of these changes include several ambiguities that make compliance difficult.

In case of noncompliance, the Universities may face administrative sanctions, including penalties, Title IV program participation restrictions, debarment, and liabilities under applicable law, such as the False Claims Act, any of which could have a material adverse effect on our business.

We are unable to predict whether Congress or the Department of Education plan to implement further changes related to federal financial assistance programs as a result of the COVID-19 pandemic.

Unresolved Staff Comments

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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-K

Item 1A. Risk Factors