What changed in this filing

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Item 1. Financial Statements

2021-11-05 compared with 2021-07-29 · 219 added, 151 removed, 802 unchanged (32% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

December 31, 2020 June 30, 2021

December 31, 2020 September 30, 2021

Current assets:

29 unchanged sentences

32,000,000 shares authorized;

24,418,939 and 24,621,111 shares issued and outstanding at December 31, 2020 and June 30, 2021, respectively

24,418,939 and 24,600,479 shares issued and outstanding at December 31, 2020 and September 30, 2021, respectively

Additional paid-in capital 1,519,549 1,525,189

7 unchanged sentences

(in thousands, except per share data)

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

8 unchanged sentences

Income from operations 15,422 7,348 105,776 46,048

Other income 1,639 757 3,762 2,924

Other income (expense) 912 ( 1,848 ) 4,674 1,076

Income before income taxes 16,334 5,500 110,450 47,124

8 unchanged sentences

STRATEGIC EDUCATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

Net income $ 10,960 $ 3,854 $ 80,351 $ 33,407

Other comprehensive income:

Foreign currency translation adjustment — ( 9,276 ) — ( 17,988 )

Other comprehensive income (loss):

Foreign currency translation adjustment, net of tax — ( 28,876 ) — ( 46,864 )

Unrealized gains (losses) on marketable securities, net of tax 101 9 527 ( 60 )

Comprehensive income $ 34,558 $ 10,735 $ 69,817 $ 11,496

Comprehensive income (loss) $ 11,061 $ ( 25,013 ) $ 80,878 $ ( 13,517 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(in thousands, except share data)

For the three months ended June 30, 2020

For the three months ended September 30, 2020

Common Stock Additional

3 unchanged sentences

Shares Par Value

Balance at March 31, 2020 22,213,587 $ 222 $ 1,287,406 $ 171,266 $ 253 $ 1,459,147

Balance at June 30, 2020 22,222,936 $ 222 $ 1,291,597 $ 192,072 $ 659 $ 1,484,550

Issuance of common stock in public offering 2,185,000 22 220,226 — — 220,248

Stock-based compensation — — 3,860 15 — 3,875

5 unchanged sentences

Net income — — — 10,960 — 10,960

Balance at June 30, 2020 22,222,936 $ 222 $ 1,291,597 $ 192,072 $ 659 $ 1,484,550

For the three months ended June 30, 2021

Balance at September 30, 2020 24,403,364 $ 244 $ 1,515,662 $ 188,392 $ 760 $ 1,705,058

For the three months ended September 30, 2021

Common Stock Additional

3 unchanged sentences

Shares Par Value

Balance at March 31, 2021 24,651,205 $ 247 $ 1,521,145 $ 174,469 $ 40,064 $ 1,735,925

Balance at June 30, 2021 24,621,111 $ 246 $ 1,523,022 $ 179,089 $ 30,823 $ 1,733,180

Stock-based compensation — — 4,624 22 — 4,646

Exercise of stock options, net 833 — 43 — — 43

Issuance of restricted stock, net 18,843 1 — — — 1

2 unchanged sentences

— — — ( 14,757 ) — ( 14,757 )

Foreign currency translation adjustment — — — — ( 9,276 ) ( 9,276 )

Foreign currency translation adjustment, net of tax — — — — ( 28,876 ) ( 28,876 )

Unrealized gains on marketable securities, net of tax — — — — 9 9

Net income — — — 3,854 — 3,854

Balance at June 30, 2021 24,621,111 $ 246 $ 1,523,022 $ 179,089 $ 30,823 $ 1,733,180

Balance at September 30, 2021 24,600,479 $ 246 $ 1,525,189 $ 167,665 $ 1,956 $ 1,695,056

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(in thousands, except share data)

For the six months ended June 30, 2020

For the nine months ended September 30, 2020

Common Stock Additional

5 unchanged sentences

Impact of adoption of new accounting standard — — — ( 3,311 ) — ( 3,311 )

Issuance of common stock in public offering 2,185,000 22 220,226 — — 220,248

Stock-based compensation — — 10,743 16 — 10,759

6 unchanged sentences

Net income — — — 80,351 — 80,351

Balance at June 30, 2020 22,222,936 $ 222 $ 1,291,597 $ 192,072 $ 659 $ 1,484,550

For the six months ended June 30, 2021

Balance at September 30, 2020 24,403,364 $ 244 $ 1,515,662 $ 188,392 $ 760 $ 1,705,058

For the nine months ended September 30, 2021

Common Stock Additional

10 unchanged sentences

— — — ( 44,329 ) — ( 44,329 )

Foreign currency translation adjustment — — — — ( 17,988 ) ( 17,988 )

Foreign currency translation adjustment, net of tax — — — — ( 46,864 ) ( 46,864 )

Unrealized losses on marketable securities, net of tax — — — — ( 60 ) ( 60 )

Net income — — — 33,407 — 33,407

Balance at June 30, 2021 24,621,111 $ 246 $ 1,523,022 $ 179,089 $ 30,823 $ 1,733,180

Balance at September 30, 2021 24,600,479 $ 246 $ 1,525,189 $ 167,665 $ 1,956 $ 1,695,056

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

For the six months ended June 30,

For the nine months ended September 30,

Cash flows from operating activities:

1 unchanged sentence

Adjustments to reconcile net income to net cash provided by operating activities:

Loss on sale of marketable securities — 781

Gain on sale of property and equipment — ( 681 )

Amortization of deferred financing costs 250 414

16 unchanged sentences

Proceeds from marketable securities 22,868 9,300

Proceeds from sale of property and equipment — 4,328

Other investments ( 768 ) ( 589 )

1 unchanged sentence

Cash flows from financing activities:

Net proceeds from issuance of common stock 220,248 —

Common dividends paid ( 41,305 ) ( 44,289 )

1 unchanged sentence

Repurchase of common stock ( 247 ) ( 5,905 )

Net cash used in financing activities ( 51,667 ) ( 34,736 )

Net cash provided by (used in) financing activities 153,918 ( 52,477 )

Effect of exchange rate changes on cash, cash equivalents, and restricted cash — ( 3,280 )

27 unchanged sentences

Accordingly, the financial results of the Company as of and for any periods ended prior to November 3, 2020 do not include the financial results of ANZ and therefore are not directly comparable.

All information as of June 30, 2020 and 2021, and for the three and six months ended June 30, 2020 and 2021 is unaudited but, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the condensed consolidated financial position, results of operations, and cash flows of the Company.

All information as of September 30, 2020 and 2021, and for the three and nine months ended September 30, 2020 and 2021 is unaudited but, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the condensed consolidated financial position, results of operations, and cash flows of the Company.

The condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited consolidated financial statements at that date.

1 unchanged sentence

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the full fiscal year.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full fiscal year.

Below is a description of the nature of the costs included in the Company’s operating expense categories.

23 unchanged sentences

The Company generally does not receive funds from these programs prior to the start of the corresponding academic term.

The Company may be required to return certain funds for students who withdraw from Strayer University or Capella University during the academic term.

The Company had approximately $ 0.1 million and $ 0.3 million of these unpaid obligations as of December 31, 2020 and June 30, 2021, respectively.

The Company may be required to return certain funds for students who withdraw from a U.S.

Higher Education institution during the academic term.

The Company had approximately $ 0.1 million and $ 1.7 million of these unpaid obligations as of December 31, 2020 and September 30, 2021, respectively.

In Australia and New Zealand, advance tuition payments from international students are required to be restricted until that student commences his or her course.

In addition, a portion of tuition prepayments from students enrolled in a vocational education and training program are held in trust by a third party law firm to adhere to tuition protection requirements.

As of December 31, 2020 and June 30, 2021, the Company had approximately $ 13.9 million and $ 11.5 million, respectively, of restricted cash related to these requirements in Australia and New Zealand.

As of December 31, 2020 and September 30, 2021, the Company had approximately $ 13.9 million and $ 9.9 million, respectively, of restricted cash related to these requirements in Australia and New Zealand.

These balances are recorded as restricted cash and included in other current assets in the unaudited condensed consolidated balance sheets.

1 unchanged sentence

The Company holds these funds in an interest-bearing account, which is included in other assets.

The following table illustrates the reconciliation of cash, cash equivalents, and restricted cash shown in the unaudited condensed consolidated statements of cash flows as of June 30, 2020 and 2021 (in thousands):

As of June 30,

As of September 30,

Cash and cash equivalents $ 717,804 $ 274,774

12 unchanged sentences

In the event that current collection trends differ from historical trends, an adjustment is made to the allowance for credit losses and bad debt expense.

The Company’s tuition receivable and allowance for credit losses were as follows as of December 31, 2020 and June 30, 2021 (in thousands):

December 31, 2020 June 30, 2021

The Company’s tuition receivable and allowance for credit losses were as follows as of December 31, 2020 and September 30, 2021 (in thousands):

December 31, 2020 September 30, 2021

Tuition receivable $ 99,942 $ 136,401

1 unchanged sentence

Tuition receivable, net $ 50,169 $ 87,123

Approximately $ 3.6 million and $ 3.2 million of tuition receivable are included in other assets as of December 31, 2020 and June 30, 2021, respectively, because these amounts are expected to be collected after 12 months.

The following table illustrates changes in the Company’s allowance for credit losses for the three and six months ended June 30, 2020 and 2021 (in thousands).

For the three months ended June 30, For the six months ended June 30,

Approximately $ 3.6 million and $ 2.9 million of tuition receivable are included in other assets as of December 31, 2020 and September 30, 2021, respectively, because these amounts are expected to be collected after 12 months.

The following table illustrates changes in the Company’s allowance for credit losses for the three and nine months ended September 30, 2020 and 2021 (in thousands).

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

14 unchanged sentences

Higher Education campus locations for sale.

The long-lived assets being marketed for sale consist of land, buildings, and building improvements.

As a result, the Company determined that it met all of the criteria to classify these assets as held for sale as of June 30, 2021.

No impairment charge was recorded as the carrying amount of the net assets was less than the fair value less costs to sell.

The long-lived assets marketed for sale consist of land, buildings, and building improvements.

The Company determined that it met all of the criteria to classify these assets as held for sale as of June 30, 2021.

No loss was recorded as the carrying amount of the net assets was less than the fair value less costs to sell.

Fair value was determined based upon the anticipated sales price of these assets.

Upon close, the Company will record any gains related to the sale of these assets in its unaudited condensed consolidated statements of income.

During the third quarter of 2021, the Company sold the long-lived assets related to one of these U.S.

Higher Education campuses and recognized a $ 0.7 million gain on sale, which is included in Restructuring costs on the unaudited condensed consolidated statements of income.

The long-lived assets associated with the other campus for sale continued to meet all of the criteria to be classified as assets held for sale as of September 30, 2021.

On October 15, 2021, the Company completed the sale of these long-lived assets and recognized a gain on the sale at that time.

Goodwill and Intangible Assets

9 unchanged sentences

Authorized Stock

The Company has authorized 32,000,000 shares of common stock, par value $ 0.01 , of which 24,418,939 and 24,621,111 shares were issued and outstanding as of December 31, 2020 and June 30, 2021, respectively.

The Company has authorized 32,000,000 shares of common stock, par value $ 0.01 , of which 24,418,939 and 24,600,479 shares were issued and outstanding as of December 31, 2020 and September 30, 2021, respectively.

The Company also has authorized 8,000,000 shares of preferred stock, no ne of which is issued or outstanding.

Before any preferred stock may be issued in the future, the Board of Directors would need to establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, and the terms or conditions of the redemption of the preferred stock.

In April 2021, the Company’s Board of Directors declared a regular, quarterly cash dividend of $ 0.60 per share of common stock.

The dividend was paid on June 7, 2021.

In July 2021, the Company’s Board of Directors declared a regular, quarterly cash dividend of $ 0.60 per share of common stock.

The dividend was paid on September 13, 2021.

Net Income Per Share

5 unchanged sentences

Stock options are not included in the computation of diluted earnings per share when the stock option exercise price of an individual grant exceeds the average market price for the period.

Set forth below is a reconciliation of shares used to calculate basic and diluted earnings per share for the three and six months ended June 30, 2020 and 2021 (in thousands):

For the three months ended June 30, For the six months ended June 30,

Set forth below is a reconciliation of shares used to calculate basic and diluted earnings per share for the three and nine months ended September 30, 2020 and 2021 (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

6 unchanged sentences

Comprehensive income includes net income and all changes in the Company’s equity during a period from non-owner sources, which for the Company consists of unrealized gains and losses on available-for-sale marketable securities, net of tax, and foreign currency translation adjustments.

As of December 31, 2020 and June 30, 2021, the balance of accumulated other comprehensive income was $ 48.9 million, net of tax of $ 0.3 million and $ 30.8 million, net of tax of $ 0.3 million, respectively.

During the three and six months ended June 30, 2020, approximately $ 25,000 , net of tax of $ 10,000 , of unrealized gains on available-for-sale marketable securities was reclassified out of accumulated other comprehensive income to Other income on the unaudited condensed consolidated statements of income.

There were no reclassifications out of accumulated other comprehensive income to net income for the three and six months ended June 30, 2021.

As of December 31, 2020 and September 30, 2021, the balance of accumulated other comprehensive income was $ 48.9 million, net of tax of $ 0.3 million, and $ 2.0 million, net of tax of $ 0.3 million, respectively.

During the nine months ended September 30, 2020, approximately $ 25,000 , net of tax of $ 10,000 , of unrealized gains on available-for-sale marketable securities was reclassified out of accumulated other comprehensive income to Other income (expense) on the unaudited condensed consolidated statements of income.

There were no reclassifications out of accumulated other comprehensive income to net income for the three and nine months ended September 30, 2021.

Use of Estimates

1 unchanged sentence

The most significant management estimates include allowances for credit losses, useful lives of property and equipment and intangible assets, incremental borrowing rates, potential sublease income and vacancy periods, accrued expenses, forfeiture rates and the likelihood of achieving performance criteria for stock-based awards, value of free courses earned by students that will be redeemed in the future, valuation of goodwill and intangible assets, and the provision for income taxes.

During the six months ended June 30, 2020 and 2021, management estimates also include potential impacts the COVID-19 pandemic will have on student enrollment, tuition pricing, and collections in future periods.

During the nine months ended September 30, 2020 and 2021, management estimates also include potential impacts the COVID-19 pandemic will have on student enrollment, tuition pricing, and collections in future periods.

The duration and severity of the COVID-19 pandemic and its impact on the Company’s condensed consolidated financial statements is subject to uncertainty.

1 unchanged sentence

Recently Issued Accounting Standards Not Yet Adopted

ASUs recently issued by the FASB but not yet effective are not expected to have a material effect on the Company’s consolidated financial statements.

Accounting Standards Updates recently issued by the FASB but not yet effective are not expected to have a material effect on the Company’s consolidated financial statements.

Acquisition of Torrens University and Associated Assets in Australia and New Zealand

1 unchanged sentence

The acquired operations include Torrens University Australia, Think Education, and Media Design School, which together provide diversified student curricula to approximately 19,000 students across five industry verticals, including business, hospitality, health, education, creative technology and design.

Pursuant to the Purchase Agreement, the aggregate consideration paid was approximately $ 658.4 million in cash, which reflected the original agreed upon purchase price of $ 642.7 million, plus a $ 15.7 million adjustment reflecting an estimated $ 11.0 million of net cash at close, and an estimated $ 4.7 million related to higher net working capital.

These estimated adjustments are subject to a final true-up of net cash and net working capital, based on the closing accounts to be finalized by both parties.

Pursuant to the Purchase Agreement, the aggregate consideration paid was approximately $ 658.4 million in cash, which reflected the original agreed upon purchase price of $ 642.7 million, plus a $ 15.7 million adjustment reflecting $ 11.0 million of net cash at close, and $ 4.7 million related to higher net working capital.

The Company applied the acquisition method of accounting to ANZ, whereby the excess of the acquisition date fair value of consideration transferred over the fair value of identifiable net assets was allocated to goodwill.

Goodwill reflects workforce and synergies expected from cost savings, operations, and revenue enhancements of the combined company that are expected to result from the acquisition.

Goodwill reflects workforce and synergies expected from cost savings, operations, and revenue enhancements of the combined company that are expected to result

from the acquisition.

The goodwill recorded as part of the acquisition was allocated to the Australia/New Zealand reportable segment in the amount of $ 546.3 million, and is not deductible for tax purposes.

Through June 30, 2021, the Company has incurred $ 8.1 million of acquisition-related costs which have been recognized in Merger and integration costs in the unaudited condensed consolidated statements of income.

Through September 30, 2021, the Company has incurred $ 8.1 million of acquisition-related costs which have been recognized in Merger and integration costs in the unaudited condensed consolidated statements of income.

These costs were primarily attributable to legal, financial, and accounting support services incurred by the Company in connection with the acquisition.

47 unchanged sentences

Torrens University offers the majority of its education programs on a trimester system having three primary academic terms, which all occur within the calendar year.

The following table presents the Company’s revenues from contracts with customers disaggregated by material revenue category for the three and six months ended June 30, 2020 and 2021 (in thousands):

For the three months June 30, For the six months ended June 30,

The following table presents the Company’s revenues from contracts with customers disaggregated by material revenue category for the three and nine months ended September 30, 2020 and 2021 (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

25 unchanged sentences

Revenue derived from course materials is recognized ratably over the duration of the course as the Company provides the student with continuous access to these materials during the term.

For sales of certain other course materials, the Company is considered the agent in the transaction, and as such, the Company recognizes revenue net of amounts owed to the

vendor at the time of sale.

For sales of certain other course materials, the Company is considered the agent in the transaction, and as such, the Company recognizes revenue net of amounts owed to the vendor at the time of sale.

Revenues also include certain academic fees recognized within the quarter of instruction, and certificate revenue and licensing revenue, which are recognized as the services are provided.

13 unchanged sentences

The table below presents activity in the contract liability related to the Graduation Fund (in thousands):

For the six months ended June 30,

For the nine months ended September 30,

Balance at beginning of period $ 49,641 $ 53,314

6 unchanged sentences

When control of the materials passes to the student in advance of the term of enrollment, an unbilled receivable and related revenue are recorded.

The balance of unbilled receivables related to such materials was $ 0.5 million as of June 30, 2021, and is included in tuition receivable.

The balance of unbilled receivables related to such materials was $ 0.8 million as of September 30, 2021, and is included in tuition receivable.

Costs to Obtain a Contract

7 unchanged sentences

Under this plan, the Company incurred severance and other employee separation costs related to voluntary and involuntary employee terminations.

The following details the changes in the Company’s severance and other employee separation costs restructuring liabilities during the six months ended June 30, 2020 and 2021 (in thousands):

The following details the changes in the Company’s severance and other employee separation costs restructuring liabilities during the nine months ended September 30, 2020 and 2021 (in thousands):

Integration Plan 2020

4 unchanged sentences

Adjustments — — —

Balance at June 30, 2020 $ 4,297 $ — $ 4,297

Balance at September 30, 2020 $ 2,882 $ 3,990 $ 6,872

Balance at December 31, 2020 (1)

3 unchanged sentences

Adjustments — — —

Balance at June 30, 2021 (1)

Balance at September 30, 2021 (1)

$ — $ 797 $ 797

1 unchanged sentence

(1) Restructuring liabilities are included in accounts payable and accrued expenses.

In addition, the 2020 restructuring plan included an evaluation of the Company's owned and leased real estate portfolio, which resulted in the closure of underutilized campus and corporate offices.

During the three and six months ended June 30, 2021, the Company recorded right-of-use lease asset charges of approximately $ 2.6 million and $ 17.0 million, respectively, related to the campus and corporate locations closed as a result of the restructuring plan.

The Company also recorded fixed asset impairment charges of approximately $ 2.0 million during the six months ended June 30, 2021.

All severance and other employee separation charges and right-of-use lease asset and fixed asset impairment charges related to the 2020 restructuring plan are included in Restructuring costs on the unaudited condensed consolidated statements of income.

In addition, the 2020 restructuring plan included an evaluation of the Company's owned and leased real estate portfolio, which resulted in the closure and sale of underutilized campus and corporate offices.

During the three and nine months ended September 30, 2021, the Company recorded right-of-use lease asset charges of approximately $ 1.9 million and $ 18.9 million, respectively, related to the campus and corporate locations closed as a result of the restructuring plan.

The Company also recorded fixed asset impairment charges of approximately $ 0.6 million and $ 2.6 million during the three and nine months ended September 30, 2021, respectively.

During the three and nine months ended September 30, 2021, the Company recorded a $ 0.7 million gain from the sale of property and equipment of an owned campus that was closed in connection with the 2020 restructuring plan.

All severance and other employee separation charges, right-of-use lease asset and fixed asset impairment charges, and gains on the sale of property and equipment related to the 2020 restructuring plan are included in Restructuring costs on the unaudited condensed consolidated statements of income.

Marketable Securities

The following is a summary of available-for-sale securities as of June 30, 2021 (in thousands):

The following is a summary of available-for-sale securities as of September 30, 2021 (in thousands):

Amortized Cost Gross Unrealized Gain Gross Unrealized (Losses) Estimated Fair Value

7 unchanged sentences

Total $ 37,010 $ 817 $ — $ 37,827

The unrealized gains on the Company’s investments in corporate debt and municipal securities as of December 31, 2020 and June 30, 2021 were caused by changes in market values primarily due to interest rate changes.

As of June 30, 2021, there were no securities in an unrealized loss position for a period longer than twelve months.

The unrealized gains on the Company’s investments in corporate debt and municipal securities as of December 31, 2020 and September 30, 2021 were caused by changes in market values primarily due to interest rate changes.

As of September 30, 2021, there were no securities in an unrealized loss position for a period longer than twelve months.

The Company has no allowance for credit losses related to its available-for-sale securities as all investments are in investment grade securities.

The Company does not intend to sell these securities, and it is not more likely than not that the Company will be required to sell these securities prior to the recovery of their amortized cost basis, which may be at maturity.

No impairment charges were recorded during the three and six months ended June 30, 2020 and 2021.

The following table summarizes the maturities of the Company’s marketable securities as of December 31, 2020 and June 30, 2021 (in thousands):

December 31, 2020 June 30, 2021

No impairment charges were recorded during the three and nine months ended September 30, 2020 and 2021.

The following table summarizes the maturities of the Company’s marketable securities as of December 31, 2020 and September 30, 2021 (in thousands):

December 31, 2020 September 30, 2021

Due within one year $ 7,557 $ 2,632

1 unchanged sentence

Total $ 37,827 $ 30,199

The following table summarizes the proceeds from the maturities and sales of available-for-sale securities for the three and six months ended June 30, 2020 and 2021 (in thousands):

For the three months ended June 30, For the six months ended June 30,

The following table summarizes the proceeds from the maturities and sales of available-for-sale securities for the three and nine months ended September 30, 2020 and 2021 (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

2 unchanged sentences

Total $ 3,999 $ 3,705 $ 22,868 $ 9,300

The Company recorded approximately $ 35,000 in gross realized gains in net income during the three and six months ended June 30, 2020 related to the sale of marketable securities.

The Company did no t record any gross realized gains or losses in net income during the three and six months ended June 30, 2021.

The Company recorded approximately $ 35,000 in gross realized gains in net income during the nine months ended September 30, 2020 and approximately $ 0.8 million in gross realized losses in net income during the three and nine months ended September 30, 2021 related to the sales of marketable securities.

Fair Value Measurement

Assets and liabilities measured at fair value on a recurring basis consist of the following as of June 30, 2021 (in thousands):

Assets and liabilities measured at fair value on a recurring basis consist of the following as of September 30, 2021 (in thousands):

Fair Value Measurements at Reporting Date Using

June 30, 2021 Quoted Prices in

September 30, 2021 Quoted Prices in

Active Markets

26 unchanged sentences

The Company records any net unrealized gains and losses for changes in fair value as a component of accumulated other comprehensive income in stockholders' equity.

The Company's cash and cash equivalents held at December 31, 2020 and June 30, 2021 approximate fair value and are not disclosed in the above tables because of the short-term nature of the financial instruments.

The Company's cash and cash equivalents held at December 31, 2020 and September 30, 2021 approximate fair value and are not disclosed in the above tables because of the short-term nature of the financial instruments.

• Marketable securities – Classified in Level 2 and valued using readily available pricing sources for comparable instruments utilizing observable inputs from active markets.

4 unchanged sentences

These assumptions are subject to change as the underlying data sources evolve and the programs mature.

The short-term portion of deferred payments was $ 1.4 million as of June 30, 2021 and is included in accounts payable and accrued expense.

The Company did not change its valuation techniques associated with recurring fair value measurements from prior periods and did not transfer assets or liabilities between levels of the fair value hierarchy during the six months ended June 30, 2020 and 2021.

Changes in the fair value of the Company’s Level 3 liabilities during the six months ended June 30, 2020 and 2021 are as follows (in thousands):

As of June 30,

The short-term portion of deferred payments was $ 0.6 million as of September 30, 2021 and is included in accounts payable and accrued expense.

Changes in the fair value of the Company’s Level 3 liabilities during the nine months ended September 30, 2020 and 2021 are as follows (in thousands):

As of September 30,

Balance as of the beginning of period $ 3,257 $ 1,658

4 unchanged sentences

During the first quarter of 2021, the Company reallocated a portion of its goodwill to the Alternative Learning segment based on a relative fair value analysis performed using several probability weighted scenarios.

The following table presents changes in the carrying value of goodwill by segment for the six months ended June 30, 2021 (in thousands):

The following table presents changes in the carrying value of goodwill by segment for the nine months ended September 30, 2021 (in thousands):

Higher Education Australia /

7 unchanged sentences

Adjustments to prior acquisitions (2)

Balance as of June 30, 2021 $ 632,075 $ 571,788 $ 100,000 $ 1,303,863

Balance as of September 30, 2021 $ 632,075 $ 548,146 $ 100,000 $ 1,280,221

_____________________________________

2 unchanged sentences

The Company assesses goodwill at least annually for impairment during the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit below its carrying amount.

No events or circumstances occurred in the three and six months ended June 30, 2021 to indicate an impairment to goodwill at any of its segments.

There were no impairment charges related to goodwill recorded during the three and six month periods ended June 30, 2020 and 2021.

No events or circumstances occurred in the three and nine months ended September 30, 2021 to indicate an impairment to goodwill at any of its segments.

There were no impairment charges related to goodwill recorded during the three and nine month periods ended September 30, 2020 and 2021.

Intangible Assets

The following table represents the balance of the Company’s intangible assets as of December 31, 2020 and June 30, 2021 (in thousands):

December 31, 2020 June 30, 2021

The following table represents the balance of the Company’s intangible assets as of December 31, 2020 and September 30, 2021 (in thousands):

December 31, 2020 September 30, 2021

Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net

6 unchanged sentences

Straight-line amortization expense for finite-lived intangible assets reflects the pattern in which the economic benefits of the assets are consumed over their estimated useful lives.

Amortization expense related to finite-lived intangible assets was $ 27.7 million and $ 33.8 million for the six months ended June 30, 2020 and 2021, respectively.

Amortization expense related to finite-lived intangible assets was $ 41.5 million and $ 41.4 million for the nine months ended September 30, 2020 and 2021, respectively.

Indefinite-lived intangible assets not subject to amortization consist of trade names.

2 unchanged sentences

The Company assesses indefinite-lived intangible assets at least annually for impairment during the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective indefinite-lived intangible asset below its carrying amount.

No events or circumstances occurred in the three and six months ended June 30, 2021 to indicate an impairment to indefinite-lived intangible assets.

There was no impairment charge related to indefinite-lived intangible assets recorded during the three and six months ended June 30, 2020 and 2021.

Other assets consist of the following as of December 31, 2020 and June 30, 2021 (in thousands):

December 31, 2020 June 30, 2021

No events or circumstances occurred in the three and nine months ended September 30, 2021 to indicate an impairment to indefinite-lived intangible assets.

There was no impairment charge related to indefinite-lived intangible assets recorded during the three and nine months ended September 30, 2020 and 2021.

Other assets consist of the following as of December 31, 2020 and September 30, 2021 (in thousands):

December 31, 2020 September 30, 2021

Prepaid expenses, net of current portion $ 22,418 $ 20,606

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Other investments 2,527 2,999

Tuition receivable, non-current 3,585 2,912

Other 4,218 6,710

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In the fourth quarter of 2020, pursuant to the terms of the perpetual license agreement associated with the Jack Welch Management Institute (“JWMI”), the Company made a final one-time cash payment of approximately $ 25.3 million for the right to continue to use the Jack Welch name and likeness.

As of June 30, 2021, $ 19.9 million of this payment is included in the prepaid expenses, net of current portion balance, as the payment is being amortized over an estimated useful life of 15 years.

As of September 30, 2021, $ 19.5 million of this payment is included in the prepaid expenses, net of current portion balance, as the payment is being amortized over an estimated useful life of 15 years.

Equity Method Investments

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The Company's investments range from 3 %- 5 % of any partnership’s interest and are accounted for under the equity method.

The following table illustrates changes in the Company’s limited partnership investments for the three and six months ended June 30, 2020 and 2021 (in thousands):

For the three months ended June 30, For the six months ended June 30,

The following table illustrates changes in the Company’s limited partnership investments for the three and nine months ended September 30, 2020 and 2021 (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

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Capital contributions 75 327 368 589

Pro-rata share in the net income of limited partnerships 1,010 889 1,242 3,603

Pro-rata share in the net income (loss) of limited partnerships 370 ( 610 ) 1,612 2,993

Distributions ( 701 ) ( 2,586 ) ( 1,041 ) ( 4,845 )

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These investments are accounted for at cost less impairment as they do not have readily determinable fair value.

Tuition Receivable

Non-current tuition receivable represents tuition that the Company expects to collect, but not within the next 12 months.

Other is comprised primarily of deferred financing costs associated with the Company's credit facility, deferred contract costs related to commissions paid by ANZ to third party international agents, and refundable security deposits associated with the Company's leased campus and office space.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following as of December 31, 2020 and June 30, 2021 (in thousands):

December 31, 2020 June 30, 2021

Accounts payable and accrued expenses consist of the following as of December 31, 2020 and September 30, 2021 (in thousands):

December 31, 2020 September 30, 2021

Trade payables $ 64,049 $ 57,687

1 unchanged sentence

Accrued student obligations 4,017 9,262

Real estate liabilities 668 640

Other 3,516 3,537

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Department of Education (the “Department” or "Department of Education") Financial Responsibility Composite Score of not less than 1.0 for any fiscal year and not less than 1.5 for any two consecutive fiscal years.

The Company was in compliance with all the terms of the Amended Credit Facility as of June 30, 2021.

As of December 31, 2020 and June 30, 2021, the Company had approximately $ 141.8 million and $ 141.7 million, respectively, outstanding under the Revolving Credit Facility.

Approximately $ 3.8 million and $ 3.7 million was denominated in Australian dollars as of December 31, 2020 and June 30, 2021, respectively.

During the six months ended June 30, 2020 and 2021, the Company paid $ 0.3 million and $ 1.4 million, respectively, of interest and unused commitment fees related to its Revolving Credit Facility.

The Company was in compliance with all the terms of the Amended Credit Facility as of September 30, 2021.

As of December 31, 2020 and September 30, 2021, the Company had approximately $ 141.8 million and $ 141.6 million, respectively, outstanding under the Revolving Credit Facility.

Approximately $ 3.8 million and $ 3.6 million was denominated in Australian dollars as of December 31, 2020 and September 30, 2021, respectively.

During the nine months ended September 30, 2020 and 2021, the Company paid $ 0.4 million and $ 2.1 million, respectively, of interest and unused commitment fees related to its Revolving Credit Facility.

Other Long-Term Liabilities

Other long-term liabilities consist of the following as of December 31, 2020 and June 30, 2021 (in thousands):

December 31, 2020 June 30, 2021

Other long-term liabilities consist of the following as of December 31, 2020 and September 30, 2021 (in thousands):

December 31, 2020 September 30, 2021

Contract liabilities, net of current portion $ 34,866 $ 33,201

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Equity Awards

The following table sets forth the amount of stock-based compensation expense recorded in each of the expense line items for the three and six months ended June 30, 2020 and 2021 (in thousands):

For the three months ended June 30, For the six months ended June 30,

The following table sets forth the amount of stock-based compensation expense recorded in each of the expense line items for the three and nine months ended September 30, 2020 and 2021 (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

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Stock-based compensation expense, net of tax $ 2,878 $ 3,418 $ 7,992 $ 9,355

During the six months ended June 30, 2020 and 2021, the Company recognized a $ 2.8 million windfall tax benefit and an $ 18,000 tax shortfall, respectively, related to share-based payment arrangements, which was recorded as an adjustment to the provision for income taxes.

During the six months ended June 30, 2020 and 2021, the Company recorded income tax expense of $ 24.7 million and $ 12.1 million, reflecting an effective tax rate of 26.3 % and 29.0 %, respectively.

The Company had $ 0.3 million of unrecognized tax benefits as of December 31, 2020 and June 30, 2021.

During the nine months ended September 30, 2020 and 2021, the Company recognized a $ 2.8 million windfall tax benefit and a $ 26,000 tax shortfall, respectively, related to share-based payment arrangements, which was recorded as an adjustment to the provision for income taxes.

During the nine months ended September 30, 2020 and 2021, the Company recorded income tax expense of $ 30.1 million and $ 13.7 million, reflecting an effective tax rate of 27.3 % and 29.1 %, respectively.

The Company had $ 0.3 million of unrecognized tax benefits as of December 31, 2020 and September 30, 2021.

Interest and penalties, including those related to uncertain tax positions, are included in the provision for income taxes in the unaudited condensed consolidated statements of income.

The Company paid $ 16.2 million and $ 17.0 million in income taxes during the six months ended June 30, 2020 and 2021, respectively.

The Company paid $ 32.4 million and $ 21.8 million in income taxes during the nine months ended September 30, 2020 and 2021, respectively.

The tax years since 2017 remain open for Federal tax examination and the tax years since 2016 remain open to examination by state and local taxing jurisdictions in which the Company is subject to taxation.

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The USHE segment provides flexible and affordable certificate and degree programs to working adults primarily through Strayer University and Capella University, including the Jack Welch Management Institute MBA, which is a unit of Strayer University.

USHE also operates non-degree web and mobile application development courses through Hackbright Academy and DevMountain, the latter being a unit of Strayer University.

USHE also operates non-degree web and mobile application development courses through Hackbright Academy and Devmountain, which are units of Strayer University.

The Alternative Learning segment is primarily focused on developing and maintaining relationships with large employers to build employee education benefits programs that provide employees with access to affordable and industry relevant training, certificate, and degree programs.

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The Company’s CODM does not evaluate operating segments using asset information.

A summary of financial information by reportable segment for the three and six months ended June 30, 2020 and 2021 is presented in the following table (in thousands):

For the three months ended June 30, For the six months ended June 30,

A summary of financial information by reportable segment for the three and nine months ended September 30, 2020 and 2021 is presented in the following table (in thousands):

For the three months ended September 30, For the nine months ended September 30,

2020 2021 2020 2021

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Consolidated revenues $ 239,026 $ 270,078 $ 760,159 $ 859,587

Income (loss) from operations

Income from operations

Higher Education $ 33,672 $ 5,168 $ 149,180 $ 84,981

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The Company is involved in litigation and other legal proceedings arising out of the ordinary course of its business.

Certain of these matters are discussed below.

From time to time, certain matters may arise that are other than ordinary and routine.

The outcome of such matters is uncertain, and the Company may incur costs in the future to defend, settle, or otherwise resolve them.

The Company accrues for estimated costs related to existing lawsuits, claims and proceedings when it is probable that it will incur these costs in the future and the costs are reasonably estimable.

The Company currently believes that the ultimate outcome of such matters will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or cash flows.

However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could materially affect future results of operations in a particular period.

On April 20, 2021, Capella University received a letter from the Department of Education referencing the Wright matter (described below), and indicating that the Department will require a fact-finding process pursuant to the borrower defense to repayment regulations to determine the validity of more than 1,000 borrower defense applications that have been submitted regarding Capella.

According to the Department, some of the applications allege similar claims as in the Wright matter concerning alleged misrepresentations of the length of time to complete doctoral programs.

Capella has since received approximately 500 applications for borrower defense to repayment and is cooperating with the Department’s fact-finding process.

At this time, the Company is unable to predict the outcome of the Department's fact-finding process or the resolution of the borrower defense applications.

Wright, et al.

Capella Education Co., et al.

was filed several years ago in the United States District Court for the District of Minnesota.

After the court granted Capella’s motion to dismiss in relation to all but one plaintiff, the plaintiff filed a motion for leave to file a second amended complaint on October 5, 2020, seeking to add six named plaintiffs as well as additional sub-classes and causes of action to the lawsuit.

On April 2, 2021, the magistrate judge issued an order granting plaintiff’s motion to amend the complaint in part, allowing for the addition of six new plaintiffs as well as additional subclasses and causes of action.

On September 22, 2021, the court affirmed the magistrate’s order, and plaintiffs have since filed their second amended complaint.

The Company is currently unable to predict the ultimate timing or outcome of this litigation or reasonably estimate the range of possible losses due to various reasons, including, among other, the early stage of litigation and that there are significant factual and legal issues to be resolved.

Capella intends to vigorously defend this case, including any request for class certification.

United States Regulation

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A small portion of the $39.6 billion allocated for institutions of higher education has been made available for student emergency aid for students at for-profit institutions.

Capella University was eligible for and disbursed $ 184,323 to students of the highest need in June 2021, and Strayer University is eligible and plans to disburse $ 2,554,773 to students of the highest need in July 2021.

Capella University disbursed $ 184,323 to students of the highest need in June 2021, and Strayer University disbursed $ 2,554,682 to students of the highest need in July 2021.

The legislation also amends the “90/10 Rule” to include “all federal education assistance” in the “90” side of the ratio calculation.

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Regulatory Environment – The 90/10 Rule” of the Company’s Annual Report on Form 10-K for a description of the 90/10 Rule.

The legislation requires the Department to conduct a negotiated rulemaking process to modify related Department regulations.

The legislation requires the Department to conduct a negotiated rulemaking process to modify related Department regulations, which the Department has announced its intent to convene beginning no earlier than January 2022.

This rulemaking process may result in a definition of “federal education assistance” that will include tuition assistance programs offered by the U.S.

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Under the legislation, these revisions to the 90/10 Rule would apply to institutional fiscal years beginning on or after January 1, 2023.

Further legislation has been introduced in both chambers of Congress that seek to modify the 90/10 Rule further, including proposals to change the ratio requirement to 85/15 (federal to nonfederal revenue).

Further legislation has been introduced in both chambers of Congress that seeks to modify the 90/10 Rule further, including proposals to change the ratio requirement to 85/15 (federal to nonfederal revenue).

We cannot predict whether Congress will pass any of these legislative proposals .

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On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act of 2021.

Among other things, this package funded the government through September 2021, provides additional COVID-related relief, and made a number of U.S.

Among other things, this package funded the government through September 2021, provided additional COVID-related relief, and made a number of U.S.

higher education changes.

The legislation includes a number of tax provisions, including replacing the tuition deduction with an expanded Lifetime Learning Credit, which now shares the higher income limitations of the American Opportunity Tax Credit.

and extends until January 1, 2026 expanded employer-provided educational assistance permitting employers to pay up to $5,250 toward an employee’s federal student loans as a tax-free benefit.

The legislation also extends until January 1, 2026 expanded employer-provided educational assistance permitting employers to pay up to $5,250 toward an employee’s federal student loans as a tax-free benefit.

The legislation also includes a number of higher education-related provisions, including:

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prohibiting same-day recruitment and registration;

and prohibiting more than three unsolicited recruiting contacts.

The legislation will require guidance from the Department of Veterans Affairs, and most provisions are effective August 1, 2021.

Institutions may seek waivers for certain sections of the new law if they were not able to satisfy compliance requirements by August 1, 2021, but neither Strayer University nor Capella University will seek a waiver.

and prohibiting more than three unsolicited recruiting contacts during any 1-month period.

The legislation will require guidance from the VA, and most provisions are effective August 1, 2021.

Institutions were permitted to seek waivers for certain sections of the new law if they were not able to satisfy compliance requirements by August 1, 2021, but neither Strayer University nor Capella University sought a waiver.

On June 8, 2021, President Biden signed into law the Training in High-Demand Roles to Improve Veteran Employment Act (the “THRIVE Act”), which amended provisions of the Veterans Health Care and Benefits Improvement Act and the American Rescue Plan Act.

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The THRIVE Act requires the VA to take disciplinary action if a person with whom an institution has a recruiting or educational services agreement violates the VA’s incentive compensation bans.

On March 27, 2020, Congress passed and President Trump signed into law the Coronavirus Aid, Relief, and Economic Security ("CARES") Act.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security ("CARES") Act.

Among other things, the $2.2 trillion bill established some flexibilities related to the processing of federal student financial aid, established a higher education emergency fund, and created relief for some federal student loan borrowers.

Through the CARES Act, Congress provided institutions of higher education relief from conducting a return to Title IV (R2T4) calculation in cases where the student withdrew because of COVID-19, including removing the requirement that the institution return unearned funds to the Department of Education and providing loan cancellation for the portion of the Direct Loan associated with a payment period that the student did not complete due to COVID-19.

Through the CARES

Act, Congress provided institutions of higher education relief from conducting a return to Title IV (R2T4) calculation in cases where the student withdrew because of COVID-19, including removing the requirement that the institution return unearned funds to the Department of Education and providing loan cancellation for the portion of the Direct Loan associated with a payment period that the student did not complete due to COVID-19.

The CARES Act also allows institutions to exclude from satisfactory academic progress calculations any attempted credits that the student did not complete due to COVID-19, without requiring an appeal from the student.

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The CARES Act also suspended payments and interest accrual on federal student loans until September 30, 2020, in addition to suspending involuntary collections such as wage garnishment, tax refund reductions, and reductions of federal benefits like Social Security benefits during the same timeframe.

On August 8, 2020, President Trump issued a memorandum directing the Secretary of Education to take action to extend CARES Act student loan relief through December 31, 2020.

On December 4, 2020, the Secretary of Education extended CARES Act student loan relief through January 31, 2021.

On January 20, 2021, the Secretary of Education extended CARES Act student loan relief through September 30, 2021.

On March 30, 2021, the Secretary of Education also extended student loan relief to Federal Family Education Loans that are in default.

The Department issued and will continue to issue sub-regulatory guidance to institutions regarding implementation of the provisions included in the CARES Act.

Through a series of administrative actions, the Secretary of Education extended CARES Act student loan relief through January 31, 2022.

The Department of Education noted in an August 6, 2021 announcement that this would be the final extension of the student loan payment pause.

On March 30, 2021, the Secretary of Education also extended student loan relief to Federal Family Education Loans (“FFEL”) that are in default.

The extension for FFEL also expires on January 31, 2022.

The Department issued sub-regulatory guidance to institutions regarding implementation of the provisions included in the CARES Act.

Finally, the CARES Act allocated $14 billion to higher education through the creation of the Education Stabilization Fund.

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Students who were previously enrolled in exclusively online courses prior to March 13, 2020 are not eligible for these grants.

Institutions may use remaining emergency funds not given to students on costs associated with significant changes to the delivery of instruction due to COVID-19, as long as such costs do not include payment to contractors for the provision of pre-enrollment recruitment activities, including marketing and advertising;

Institutions may use remaining emergency funds not given to students for costs associated with significant changes to the delivery of instruction due to COVID-19, as long as such costs do not include payment to contractors for the provision of pre-enrollment recruitment activities, including marketing and advertising;

or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.

Institutions receive funds under the Education Stabilization Fund based on a formula that factors in their relative percentage of full-time, Federal Pell Grant-eligible students who were not exclusively enrolled in online education prior to the emergency period.

Institutions received funds under the Education Stabilization Fund based on a formula that factors in their relative percentage of full-time, Federal Pell Grant-eligible students who were not exclusively enrolled in online education prior to the emergency period.

On April 9, 2020, the Department published guidance and funding levels for the Education Stabilization Fund, indicating that Strayer University was eligible to receive $ 5,792,122 .

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Because Capella University’s students are exclusively online, Capella was ineligible for Education Stabilization funding.

Congressional Spending Bills

Congress has introduced several large spending bills that include provisions relevant to higher education institutions.

Since the Consolidated Appropriations Act, 2021 funded the federal government only through September 2021, Congress has continued to debate appropriations for fiscal year 2022 (October 1, 2021 through September 30, 2022).

In order to continue funding the federal government while the full budget is still under negotiation, Congress passed a Continuing Resolution providing funding for the federal government until December 3, 2021.

This Continuing Resolution prevented a federal government shutdown.

Additionally, Congress temporarily increased the debt ceiling in October 2021, which allows the federal government to avoid default until at least December 2021.

In addition to the appropriations bill that sets the annual budget, Congress is also examining a social spending bill and an infrastructure bill.

One provision of the social spending bill proposes to increase the maximum amount of an individual student’s Pell Grant by $550, resulting in a new maximum award of $7,045.

However, the additional $550 would only apply for students attending non-profit institutions.

Gainful Employment

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On July 1, 2019, the Department of Education released final gainful employment regulations, which contained a full repeal of the 2015 Regulations and became effective on July 1, 2020.

Both Capella University and Strayer University implemented the July 2019 regulations early, by means permitted by the Secretary, and accordingly were not required to report gainful employment data for the 2018-2019 award year.

Both Capella University and Strayer University implemented the July 2019 regulations early, by means permitted by the Secretary, and accordingly were not required to report gainful employment data

for the 2018-2019 award year.

For the period between July 2019 and July 1, 2020, Capella University and Strayer University were not required to comply with gainful employment disclosure and template publication requirements and were not required to comply with the regulation’s certification requirements with respect to programmatic accreditation and program satisfaction of prerequisites for professional licensure/state certification.

On May 26, 2021, the Department announced its intention to establish negotiated rulemaking committees to prepare proposed regulations for gainful employment and other topics related to programs authorized under Title IV of the Higher Education Act of 1965, as amended.

See “Current Negotiated Rulemaking” below.

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In addition, the closed school discharge window is expanded from 120 days to 180 days prior to the school’s closure, though the final rule does not allow for an automatic closed school loan discharge.

Institutions are required to accept responsibility for the repayment of amounts discharged by the Secretary pursuant to the

borrower defense to repayment, closed school discharge, false certification discharge, and unpaid refund discharge regulations.

Institutions are required to accept responsibility for the repayment of amounts discharged by the Secretary pursuant to the borrower defense to repayment, closed school discharge, false certification discharge, and unpaid refund discharge regulations.

If the Secretary discharges a loan in whole or in part, the Department of Education may require the school to repay the amount of the discharged loan.

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These borrowers will no longer be required to provide proof of insufficient income for the relief program for the three years after discharge of their loans.

On May 26, 2021, the Department announced its intention to establish negotiated rulemaking committees to prepare proposed regulations for borrower defenses to repayment and other topics related to programs authorized under Title IV of the Higher Education Act of 1965, as amended.

On August 10, 2021, the Department announced its intention to establish a negotiated rulemaking committee to prepare proposed regulations for borrower defenses to repayment and other topics related to programs authorized under Title IV of the Higher Education Act of 1965, as amended, and solicited negotiator nominations.

Negotiated rulemaking for the Affordability and

Student Loans Committee began October 4, 2021 and is scheduled to conclude December 10, 2021.

See “Current Negotiated Rulemaking” below.

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The final regulations became effective on July 1, 2020, excepting certain provisions which were eligible to be implemented early by institutions, and certain provisions relating to recognition of accrediting agencies effective January 1 and July 1, 2021.

Neither Capella University nor Strayer University opted for early implementation.

On July 29, 2020, the National Advisory Committee on Institutional Quality and Integrity (“NACIQI”) held a meeting to review compliance by the Higher Learning Commission (“HLC”) with Department of Education requirements for recognized accrediting agencies.

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On March 8, 2021, President Biden signed an executive order that requires the Secretary of Education and the Attorney General to review the previous administration’s rulemakings and guidance documents related to Title IX.

In June 2021, the Department of Education held virtual public hearings to gather information for providing enforcement of Title IX, as part of the Office for Civil Rights’ comprehensive review of the regulation.

In June 2021, the Department of Education held virtual public hearings to gather information for providing enforcement of Title IX, as part of the Office for Civil Rights’ (“OCR”) comprehensive review of the regulation.

After the public hearings, the Department of Education indicated that it plans to introduce proposed rule changes for Title IX in May 2022.

On June 16, 2021, the Office for Civil Rights issued a notice of interpretation clarifying that the Department interprets Title IX and its enforcement authority under the regulation to include the prohibition of sex discrimination based on sexual orientation and gender identity.

On July 20, 2021, the Department of Education released a Questions and Answers document outlining the Office for Civil Rights’ interpretation of the Title IX regulations related to sexual harassment.

On June 16, 2021, the OCR issued a notice of interpretation clarifying that the Department interprets Title IX and its enforcement authority under the regulation to include the prohibition of

sex discrimination based on sexual orientation and gender identity.

On July 20, 2021, the Department of Education released a Questions and Answers document outlining the OCR's interpretation of the Title IX regulations related to sexual harassment.

On August 24, 2021, OCR, in alignment with recent federal court decisions, issued guidance indicating it would cease enforcement of Title IX’s current prohibition against consideration of statements made by individuals failing to submit to cross-examination.

Current Negotiated Rulemaking

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At the virtual public hearings and via written comments, members of the public discussed proposed changes for all of the issues noted above, as well as comments addressing data transparency, including disclosures of outcomes for veteran students.

The Department has indicated its intention to convene multiple committees, with a call for negotiator nominations planned for late summer 2021.

The Department has indicated its intention to convene multiple committees, including the Affordability and Student Loans Committee.

See “Affordability and Student Loans Committee” below.

On October 4, 2021 the Department announced its intention to establish a negotiated rulemaking committee to prepare proposed regulations affecting institutional and programmatic eligibility, including the 90/10 rule.

As part of the notice, the Department announced public hearings on October 26 and October 27, with negotiations scheduled to begin no earlier than January 2022.

We cannot predict the outcome of the negotiated rulemaking process.

Affordability and Student Loans Committee

On August 10, 2021, the Department announced its intention to establish the Affordability and Student Loans committee, to prepare proposed regulations to address the following topics:

borrower defense to repayment, closed school discharges, discharges for borrowers with a total and permanent disability, discharges for false certification of student eligibility, loan repayment plans, interest capitalization, mandatory pre-dispute arbitration and prohibition of class action lawsuits provisions in institutions’ enrollment agreements and associated counseling about such arrangements, Pell Grant eligibility or prison education programs, and the Public Service Loan Forgiveness program.

The Department also announced the formation of a Prison Education Program Subcommittee.

The Department selected negotiators in September 2021, with the first session of negotiated rulemaking occurring October 4-8, 2021.

Negotiations were also held November 1-5 and will continue December 6-10, 2021.

Issue papers provided by the Department prior to the first negotiated rulemaking session indicate the Department is considering changes to borrower to defense to repayment regulations that include eliminating a limitations period on claims, making the group claims process the default process for loan relief, establishing the borrower defense application as a form of evidence, and adding aggressive recruitment and adjudications as additional categories of acts that could lead to a borrower defense claim.

See “Current Negotiated Rulemaking” above.

We cannot predict the outcome of the negotiated rulemaking process.

Public Service Loan Forgiveness Program

On October 6, 2021, the Department of Education announced new changes and initiatives related to the Public Service Loan Forgiveness (“PSLF”) program.

This announcement aimed to make discharge of federal student loans easier for those that participate in the PSLF.

One such way the Department of Education is streamlining the PSLF process is by implementing a time-limited waiver, which gives borrowers flexibility in counting prior payments towards PSLF, even if the previous payments were for different loan programs such as FFEL or if the payments were partial payments.

Borrowers with Direct Loans will be able to seek this waiver prior to October 31, 2022.

The Department of Education announced that the waiver will help over 550,000 borrowers progress towards loan relief under PSLF.

Additionally, the Department of Education plans to automate aspects of the PSLF process for federal employees and military service members.

The Department of Education plans to pair these changes to the program with increased support and communications to borrowers who may benefit from PSLF.

Compliance Reviews

5 unchanged sentences

On March 17, 2021, the Department informed Strayer University that it planned to conduct an announced, remote program review.

The review commenced on April 19, 2021 and covers the 2019-2020 and 2020-2021 federal student financial aid years.

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

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

The Department of Education then issues a final program review determination letter, which identifies any liabilities.

The institution may appeal any monetary liabilities specified in the final program review determination letter.

Strayer University has not yet received the Department’s report on the April 2021 program review.

The review commenced on April 19, 2021 and covered the 2019-2020 and 2020-2021 federal student financial aid years.

On September 21, 2021, Strayer University received the Department’s Final Program Review Determination, which closed the Program Review without further action required on the part of Strayer University.

Program Participation Agreement

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Capella will be required to apply for recertification by September 30, 2022.

Federal Trade Commission

On October 6, 2021 the Federal Trade Commission (“FTC”) announced that it is resurrecting Penalty Offense Authority under Section 5(m) of the FTC Act (the “Act”).

Under the Act, the FTC may secure penalties against entities not a party to an original proceeding if the FTC can show that the entity had actual knowledge that the conduct in question was found to be unfair or deceptive.

Entities that have actual knowledge of acts or practices the FTC has found to be unlawful and that subsequently engage in such unlawful acts or practices may be held liable for civil penalties up to $43,792 per violation.

Also on October 6, 2021, in an effort to establish actual knowledge and create a pathway for penalties in the event of post-notice acts or practices, the FTC issued notice to the 70 largest for-profit schools, based on enrollment and revenues.

The notice included a list of acts and practices that the FTC has determined are unfair or deceptive, including but not limited to acts relating to misrepresentation of employment opportunities and other benefits, together with citation to various prior determinations from cases previously litigated by the FTC.

Strayer and Capella University received the FTC’s notice on October 7, 2021.

The FTC made clear that receipt of the notice itself does not reflect any assessment as to whether Capella or Strayer has engaged in deceptive or unfair conduct.

Office of Enforcement

On October 8, 2021, the Department of Education announced establishment of an Office of Enforcement within Federal Student Aid, designed to strengthen oversight over and enforcement against postsecondary schools that participate in federal student loan, grant, and work-study programs.

The Office of Enforcement restores an office first established by the Department in 2016.

Office of Enforcement will be comprised of four existing divisions:

Administrative Actions and Appeals Services Group, Borrower Defense Group, Investigations Group, and Resolution and Referral Management Group.

The Department intends the Office of Enforcement to coordinate with other state and federal partners, including the Department of Justice, Consumer Financial Protection Bureau, Federal Trade Commission, and state attorneys general.

Australian Regulation

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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-Q

Item 1. Financial Statements