What changed in this filing

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Item 1A. Risk Factors

2022-02-28 compared with 2021-03-01 · 73 added, 44 removed, 293 unchanged (29% of the section changed)

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and (3) state education regulatory bodies.

In addition, other federal agencies such as the Consumer Financial Protection Bureau, Federal Trade Commission, and Federal Communications Commission and various state agencies and state attorneys general enforce consumer protection, calling and texting, marketing, privacy and data security, and other laws applicable to post-secondary educational institutions.

In addition, other federal agencies such as the Consumer Financial Protection Bureau, Federal Trade Commission (“FTC”), and Federal Communications Commission and various state agencies and state attorneys general enforce consumer protection, calling and texting, marketing, privacy and data security, and other laws applicable to post-secondary educational institutions.

Findings of noncompliance could result in monetary damages, fines, penalties, injunctions, or restrictions or obligations that could have a material adverse effect on our business.

Some of these laws also include private rights of action.

On October 8, 2021, the Department of Education announced establishment of an Office of Enforcement within the Department’s Office of 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.

The 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.

On October 6, 2021 the 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.

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 that same day an informational 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, although 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.

The laws, regulations, standards, and policies applicable to our business frequently change, and changes in, or new interpretations of, applicable laws, regulations, standards, or policies could have a material adverse effect on our accreditation, authorization to operate in various states, permissible activities, ability to communicate with prospective students, receipt of funds under Title IV programs, or costs of doing business.

The Department of Education periodically engages in negotiated rulemaking sessions to revise regulations that govern the federal Title IV student financial aid programs.

As discussed in Note 22, Regulation, in the consolidated financial statements appearing in Part II, Item 8 of this report under “Current Negotiated Rulemaking,” the Department of Education has convened negotiated rulemaking committees to address issues such as borrower defense to repayment, misrepresentation, mandatory arbitration agreements, gainful employment rules, and federal government oversight into changes in ownership for institutions of higher education.

Certain proposals related to these issues could raise the cost of compliance for Strayer University or Capella University or require changes in the educational programs offered by Strayer University and Capella University in order to comply with new rules.

We cannot predict whether the Department of Education will promulgate any regulations that would negatively affect Strayer University or Capella University.

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

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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.

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.

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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 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 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.

On December 13, 2021, 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 September 30, 2025.

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.

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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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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.

Each of the Universities applies separately to non-SARA member states (e.g., 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 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.

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 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.

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Under the agreement, the institution agrees to follow the Department of Education’s rules and regulations governing Title IV programs.

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 Program Participation Agreement, approving Capella University’s continued participation in Title IV programs with provisional certification through December 31, 2022.

A failure to demonstrate financial responsibility or administrative capability may result in the loss of eligibility to participate in Title IV programs.

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Institutions with a cohort default rate equal to or greater than 15% for any of the three most recent fiscal years for which data are available are subject to a 30-day delayed disbursement period for first-year, first-time borrowers.

While its cohort default rate for 2017 was 11.3%, Strayer University voluntarily delays disbursement of Direct Loans in this manner.

In addition, an institution may lose its eligibility to participate in some or all Title IV programs if its default rate for a federal fiscal year was greater than 40%.

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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.

Despite the pause on federal student loan payments and interest accrual, 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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Capella University derived approximately 71.98% of its cash-basis revenues from Title IV program funds in 2020.

Our Universities’ computations for 2020 have not yet been finalized and audited;

however, we believe each University will remain in compliance with the 90/10 Rule requirement.

Certain members of Congress have proposed to revise the 90/10 Rule to count tuition assistance provided by the Department of Defense and veterans education benefits, along with Title IV revenue, toward the 90% limit and to reduce the limit to 85% of total revenue.

Such proposals could make it difficult for the Universities to comply with the 90/10 rule.

On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021, which amends the “90/10 Rule” to include “all federal education assistance” in the “90” side of the ratio calculation.

The legislation requires the Department to conduct a negotiated rulemaking process to modify related Department regulations, which is currently underway through the Institutional and Programmatic Eligibility negotiated rulemaking.

Meetings of this negotiated rulemaking committee are scheduled to occur January-March 2022.

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

Department of Defense and U.S.

Department of Veterans Affairs, in addition to the Title IV programs already covered by the 90/10 Rule.

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).

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

If one of the Universities were to violate the 90/10 Rule, the loss of eligibility to participate in the federal student financial aid programs would have a material adverse effect on our business.

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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.

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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In the event of substantial misrepresentation, the Department of Education may revoke or terminate an institution’s program participation agreement, limit the institution’s participation in Title IV programs, deny applications from the institution, such as to add new programs or locations, initiate proceedings to fine the institution or limit, suspend, or terminate its eligibility to participate in Title IV programs;

relieve the borrower of the obligation to repay federal education loans in whole or in part and require the institution to reimburse the Department of Education for those amounts.

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.

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The final rule became effective August 14, 2020.

On August 24, 2021, the Department of Education Office for Civil Rights issued guidance indicating it would cease enforcement of the rules’ prohibition against consideration of statements made by individuals failing to submit to cross-examination at a live hearing.

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

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These developments, as well as legislative and regulatory changes, such as those relating to gainful employment and repayment rates, creating uncertainty in the industry, and general credit market conditions may cause some lenders to decide not to provide certain loan products and may impose increased administrative and regulatory costs.

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.

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 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.

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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.

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.

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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.

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.

As with all nondiscrimination laws that apply to recipients of federal financial assistance, an institution may lose access to certain federal financial assistance if it does not comply with Section 504 requirements.

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

Our enrollment in 2022 will be affected by legislative uncertainty and regulatory activity in the U.S., and macroeconomic conditions globally, including those affected by the COVID-19 pandemic.

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

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.

This strong competition could adversely affect our business.

Strayer University and Capella University, with their online programs, operate in a highly competitive market with rapid technological changes, and they may not compete successfully.

Online education is a highly fragmented and competitive market that is subject to rapid technological change.

Competitors vary in size and organization from traditional colleges and universities, many of which have some form of online education programs, to for-profit schools, corporate universities, and software companies providing online education and training software.

We expect the online education and training market to be subject to rapid changes in technologies.

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

The Company relies on exclusive proprietary rights and intellectual property, and competitors may attempt to duplicate our programs and methods.

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Any interruption to the Universities’ computer systems or operations could have a material adverse effect on our ability to attract and retain students.

The Company’s computer networks may be vulnerable to security risks that could disrupt operations and require them to expend significant resources.

The Company’s computer networks may be vulnerable to unauthorized access, computer hackers, computer viruses, and other security problems.

The Company’s computer networks, and those of third parties we use in our operations, may be vulnerable to security risks that could disrupt operations and require them to expend significant resources.

The Company’s computer networks, and those of third-parties we use in our operations, may be vulnerable to unauthorized access, computer hackers, computer viruses, and other security problems, such as ransomware attacks, denial of service attacks, physical or electronic break-ins and similar disruptions.

These systems may be subject to directed attacks intended to lead to interruptions in our service and operations as well as loss, misuse or theft of personal information (of third parties, employees, and our students) and other data, confidential information or intellectual property.

A user who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in operations.

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 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.

These efforts require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated, and may limit the functionality of or otherwise negatively impact our service offering and systems.

These systems also may be vulnerable to disruptions from other factors, including pandemic, violent incident, natural disaster, power loss, telecommunications and Internet failures, civil unrest, and other events beyond our reasonable control.

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

The Company has operations in the U.S., Australia, and New Zealand, and is subject to complex business, economic, legal, political, geopolitical, 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 also contract with vendors who may have employees in various countries.

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

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• political elections and changes in government policies;

• potential economic, political, and geopolitical instability affecting the countries in which we and our vendors operate;

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

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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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state and federal legislative and regulatory burdens that could, among other things, require notification of data breaches and restrict our use of personal information.

The risk of hacking and cyber-attacks has increased, as has the sophistication of such attacks, including email phishing schemes targeting employees to give up their credentials.

The risk of hacking and cyber-attacks has increased, as has the sophistication of such attacks, including ransomware attacks and email phishing schemes targeting employees to give up their credentials.

We cannot assure you that a breach, loss, or theft of personal information will not occur.

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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.

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 is able to transfer and process personal information.

Further, were a U.S.

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If we do not maintain adequate systems to prevent and deter such fraudulent activity, the Department of Education may find a lack of “administrative capability” and could limit our access to Title IV funding.

Strayer University and Capella University, with their online programs, operate in a highly competitive market with rapid technological changes, and they may not compete successfully.

Online education is a highly fragmented and competitive market that is subject to rapid technological change.

We expect the online education and training market to be subject to rapid changes in technologies.

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

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.

Integrating SEI and the recently acquired Torrens University and associated 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 acquisition.

The success of the Company will depend on, among other things, our ability 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 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 acquisitions of Capella Education Company (“CEC”) and 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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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.

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 at times 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.

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

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

In addition, as the pandemic has continued, we have seen sustained weakness in demand, especially in the United States, where total average enrollment in our U.S.

Higher Education segment decreased 11.0% in 2021 compared to 2020.

Enrollment in ANZ also has been impacted by the pandemic and the related closure of international borders in Australia and New Zealand.

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:

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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.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the Consolidated Appropriations Act of 2021, the American Rescue Plan Act of 2021 (“ARP”) 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.

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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