Perdoceo Education (PRDO) Risk Factors

Our institutions frequently need to obtain approvals from regulatory agencies in the conduct of their business. For example, to establish a new educational program or substantive changes to existing programs, we are required to obtain the appropriate approvals from the Department and applicable state and accrediting regulatory agencies. Staffing levels at the Department and other regulatory agencies and the volume of applications and other requests may delay our receipt of necessary approvals. Further, approvals may be conditioned or denied in a manner that could significantly affect our strategic plans and future growth. Approval by these regulatory agencies may also be negatively impacted due to regulatory inquiries or reviews and any adverse publicity relating to such matters or the industry generally.

Our institutions must maintain systems and processes to identify and prevent fraudulent applications for enrollment and financial aid. We cannot be certain that our institutions' systems and processes will continue to be adequate in the face of increasingly sophisticated fraud schemes, or that we will be able to expand such systems and processes at a pace consistent with the changing nature of these fraud schemes. We believe the risk of outside parties attempting to perpetrate fraud in connection with the award and disbursement of Title IV program funds, including as a result of identity theft, is heightened due to being an exclusively online education provider. The Department requires institutions that participate in Title IV Programs to refer to the Department's Office of the Inspector General credible information about fraud or other illegal conduct involving Title IV programs. If the systems and processes that our institutions have established to detect and prevent fraud are inadequate, the Department may find that our institutions do not satisfy the Department's administrative capability requirements, which could have the adverse effects described in the risk factor captioned "A failure to demonstrate "financial responsibility" or "administrative capability" or meet new "certification" requirements would have negative impacts on our operations." In addition, our ability to participate in Title IV Programs is conditioned on maintaining accreditation by an accrediting agency that is recognized by the Department. Any significant failure to adequately detect fraudulent activity related to student enrollment and financial aid could cause us to fail to meet accreditors' standards. Furthermore, accrediting agencies that evaluate institutions offering online programs, must require such institutions to have processes through which the institution establishes that a student who registers for such a program is the same student who participates in and receives credit for the program. Failure to meet the requirements of our institutions' accrediting agencies could result in the loss of accreditation of one or more of our institutions, which could result in their loss of eligibility to participate in Title IV Programs.

An institution must be accredited by an accrediting agency recognized by the Department in order to participate in Title IV Programs. See Item 1, "Business – Accreditation, Jurisdictional Authorizations and Other Compliance Matters – Institutional Accreditation." The failure to comply with accreditation standards subjects an institution to additional oversight and reporting requirements, accreditation proceedings such as a show-cause directive, an action to defer or deny action related to an institution's application for a new grant of accreditation, an action to suspend an institution's accreditation or a program's approval, or other negative actions. Future inquiries or actions by state or federal agencies could negatively impact our accreditation status. If our institutions or programs are subject to accreditation actions or are placed on probationary or other negative accreditation status, we may experience adverse publicity, impaired ability to attract and retain students and substantial expense to obtain unqualified accreditation status. The inability to obtain reaccreditation following periodic reviews or any final loss of institutional accreditation after exhaustion of the administrative agency processes would result in a loss of Title IV Program funds for the affected institution and its students. In addition, if an accrediting body of our institutions loses recognition by the Department, that institution could lose its ability to participate in Title IV Programs. See Item 1, "Business - Student Financial Aid and Related Federal Regulation - Eligibility and Certification by the Department," for more information. Many states and professional associations require professional programs to be accredited. While programmatic accreditation is not a sufficient basis to qualify for institutional Title IV Program certification, programmatic accreditation may be a prerequisite for or improve employment opportunities of program graduates in their chosen field. Those of our programs that do not have such programmatic accreditation, where available, or fail to maintain such accreditation, may experience adverse publicity, declining enrollments, litigation or other claims from students or suffer other adverse impacts, which could result in it being impractical for us to continue offering such programs.

On November 1, 2016, the Department adopted regulations that cover multiple enforcement issues, including revised processes and standards for the discharge of student loans for borrowers commonly referred to as "borrower defense to repayment" regulations. Changes made to the borrower defense to repayment regulations, as well as to the closed school loan discharge regulations, are extensive and generally will make it easier for student borrowers to obtain discharges of their loans and for the Department to attempt to assess liabilities and other sanctions against institutions based on loan discharges. Included in the 2016 regulations were expansions of the Department's authority to process group discharge claims and authority to seek recoupment from institutions. On September 23, 2019, the Department published revised final borrower defense to repayment regulations that became effective on July 1, 2020. The processes and standards that apply are determined by the date a student loan is disbursed, and student loans disbursed before July 1, 2017 followed the Department's original discharge standards and processes that specify that a borrower may assert a defense to repayment based on an act or omission by the school that would give rise to a cause of action under state law. On November 1, 2022, the Department published further revised borrower defense to repayment regulations that were scheduled to become effective on July 1, 2023, with the express purpose of making it easier for students to have their loans discharged and to streamline the process of recoupment of discharged loan funds from institutions. The new regulations expanded the types of conduct that could support a successful borrower defense to repayment claim, including expanding the types of substantial misrepresentations that could support a claim and providing new sections addressing substantial omissions of fact, aggressive and deceptive recruitment, and adverse actions by the Department against institutions. Further, the processes and standards for a loan discharge are no longer governed by the loan disbursal date. These new loan discharge processes and standards were scheduled to apply to all future and pending discharge applications. In addition, the Department reinstated the group claims process and created a "third-party requester" process, which allows state attorneys general and legal aid organizations to file group claims on a borrower's behalf. On February 28, 2023, the Career Colleges & Schools of Texas ("CCST") filed a lawsuit in the U.S. District Court for the Northern District of Texas challenging the Department's recently promulgated borrower defense to repayment and closed school loan discharge regulations. CCST initiated the lawsuit in an effort to set aside the BDR Rule on the grounds that it violates the U.S. Constitution and the Administrative Procedure Act. On August 7, 2023, a three-judge Fifth Circuit Court of Appeals panel granted a motion for an injunction pending appeal in the lawsuit. The motion stayed the effective date of the borrower defense to repayment and closed school loan discharge provisions of the most recent BDR Rule scheduled to go into effect on July 1, 2023. On November 6, 2023, oral argument was heard by a three judge panel of the Fifth Circuit. As of this writing, the court has not issued its ruling. The stay is in effect until that same Fifth Circuit panel issues an order on the appeal. On November 16, 2022, a California federal court in Sweet v. Cardona, No. 3:19-cv-3674 (N.D. Cal.) approved a settlement agreement entered into by the Department in a class action lawsuit that challenges the way the Department has been dealing with borrower defense applications over the past few years ("Sweet Settlement"). The Sweet Settlement would provide a streamlined path to debt forgiveness for former students of over 150 schools, including AIUS, CTU, and institutions of ours that have previously closed. Neither the Company nor our current or former institutions are a party to this lawsuit. The Department has neither identified the number of claims nor the specific claims covered by the Sweet Settlement that are related to our institutions. It is unclear whether the Department would seek to impose liabilities on us or our institutions based on relief provided to our former students under the settlement agreement. Because the process agreed to by the Department in the Sweet Settlement does not follow the claim adjudication procedures set out in applicable regulations, it is uncertain whether the Department will seek recoupment against the Company or our institutions for claims covered by the Sweet Settlement. In May 2021, the Department began providing us with borrower defense applications that assert claims regarding our institutions, including institutions that have ceased operations. The initial volume of several thousand significantly expanded as the Department and outside interest groups promoted different pathways for students to receive loan forgiveness or loan discharge. Despite our belief expressed in responses submitted to the Department that the applications fail to establish a valid borrower defense and the Department should therefore deny them, the Department has already agreed in the Sweet Settlement to discharge most of the applications we are aware of. Almost all of the applications we have been provided to date would be covered by procedures set forth in the Sweet Settlement. It remains unclear what loan discharge applications the Department may grant in the future and whether they will assert repayment claims against us regardless of the date the student loan was disbursed and the corresponding discharge standards and processes. Our defenses to the asserted repayment liability may not succeed. See Item 1, "Business – Student Financial Aid and Related Federal Regulation – Compliance with Federal Regulatory Standards and Effect of Federal Regulatory Violations – Borrower Defense to Repayment," for more information about the borrower defense to repayment regulations and our responses to these applications. The Department's interpretation and enforcement of the different versions of the borrower defense to repayment regulations, additional rule modifications regarding these regulations and other regulations regarding loan discharges, and the change in Department administration and policy objectives, has led to increased enforcement activities by the Department. For example, on February 16, 2022, the Department announced that nearly 16,000 borrowers will receive $415 million in borrower defense to repayment discharges for several institutions following the approval of four new findings and the continued review of claims. This includes approximately 1,800 former DeVry University students who will receive approximately $71.7 million in full borrower defense discharges, with the Department anticipating an increase in these amounts. DeVry University is a for-profit postsecondary institution, and the Department noted in its announcement that these are the first approved borrower defense claims associated with a currently operating institution and that it will seek to recoup the cost of the discharges from DeVry University. Other recent examples include Ashford University and University of Phoenix. On August 30, 2023, the Department announced the approval of $72 million in borrower defense to repayment discharges for more than 2,300 students who applied for relief from loans they took out to attend Ashford University (now owned by University of Arizona Global Campus), which was an online for-profit school based in San Diego. On September 20, 2023, the Department announced the approval of nearly $37 million in borrower defense to repayment discharges for more than 1,200 students who attended the University of Phoenix. The Department indicated that it intends to initiate recoupment proceedings against University of Arizona Global Campus and University of Phoenix to seek repayment of the liabilities associated with these approved claims. If the Department determines, despite the Sweet Settlement, that a significant number of borrowers who attended our current, former, or acquired institutions have a defense to repayment of their student loans, and successfully asserts recoupment against the Company or its institutions, we could be subject to significant repayment liability to the Department, which may limit our ability to make investments in our business and negatively impact our future growth. In addition to potential liability associated with loan discharges, both the 2016 and 2019 borrower defense to repayment regulations include discussion of triggering events that may provide the Department discretion regarding periodic determinations of our financial responsibility and associated enhanced financial protection in the form of a letter of credit or other security it determines it needs. Recently promulgated changes to the financial responsibility regulations effective July 1, 2024 include additional triggering events that are discussed further below. If in the future we are required to post a letter of credit pursuant to the borrower defense to repayment regulations, we may not have the capacity to do so. Even if we are able to post a required letter of credit, doing so may limit our ability to make investments in our business which could negatively impact our future growth. In addition to a borrower defense to repayment discharge of student loans based on an act or omission by a school, Department regulations provide that upon the closure of an institution participating in the Title IV Programs, including any location thereof, certain students who had attended such an institution or location may be eligible to obtain a "closed school loan discharge" of their federal student loans related to attendance at that institution or location, if they do not complete their educational programs at another location or online, or through transfer or teach-out with other postsecondary institutions. In order to obtain a closed school loan discharge, a student generally must have been enrolled or on an approved leave of absence within 180 days from when the institution or location closed. Under Department regulations published on October 31, 2022, which took effect on July 1, 2023 (and are currently stayed under the CCST litigation), the Department may grant automatic closed school loan discharges to students who do not re-enroll in another Title IV-participating institution within one year after becoming unable to complete their educational program due to a closure of their institution or institutional location. The Department has asserted loan discharge claims against us relating to closed campuses in our former All Other Campuses reporting segment for select students that withdrew or were dismissed from school just prior to a campus closure, despite the availability of a teach-out and opportunity to complete or other mitigating factors. In addition, pursuant to our acquisition of substantially all of the assets of Trident University, Trident University's operations were brought within the scope of AIUS' state licensure, accreditation and Department approval, with Trident University relinquishing its accreditor and Department approvals. As a result, we have incurred some and may incur additional closed school discharge liabilities if Trident University students do not complete their educational program after the closing of the transaction. We cannot predict the impact various defense to repayment regulations will have on student enrollments, the volume of claims for loan discharge (including closed school discharge), the amount of claims for loan discharge the Department approves, the amount of discharged loans the Department asserts we have repayment liability for, our future financial responsibility as determined by the Department, or any sanctions or other actions the Department might take against our institutions based on loans discharged, all of which could be materially adverse to our business.

All higher education institutions participating in Title IV Programs must, among other things, satisfy financial and administrative standards. Failure to meet these standards may subject an institution to: (1) additional monitoring and reporting procedures, the costs of which may be significant,; (2) alterations in the timing and process for receipt of cash pursuant to Title IV Programs; (3) a requirement to submit an irrevocable letter of credit to the Department in an amount equal to 10-100% or more of the Title IV Program funds received during its most recently completed fiscal year, which we may not have the capacity to provide; or (4) provisional certification for up to three years, in each case depending on the level of compliance with the standards and the Department's discretion. On October 31, 2023, the Department published new regulations on financial responsibility, administrative capability, and certification that become effective July 1, 2024. They impose a broad range of additional requirements on our institutions and would increase the possibility that our schools could be subject to additional monitoring, restrictions, financial protection, and reporting requirements, potential liabilities and sanctions, and potential loss of Title IV liability, which would have a material adverse effect on our business and results of operations. The new Financial Responsibility regulations, among other things, significantly modify and expand the mandatory and discretionary triggering events that require an institution to post a letter of credit or other form of financial protection with the Department. The rules provide that a separate letter of credit of not less than 10% of the institution's prior year Title IV receipts is required for each mandatory or discretionary triggering event, such that multiple triggering events could subject our institutions to substantial cumulative financial protection obligations. Examples of mandatory triggering events in the regulations include: lawsuits by federal or state authorities to impose an injunction, establish fines or penalties, or to obtain financial relief, or in a qui tam action in which the federal government has intervened, subject to certain timing requirements; an action by the Department to recover from the institution for adjudicated borrower defense to repayment claims where the potential amount of recovery would cause the institution's recalculated composite score to drop below 1.0; the institution has received at least 50% of its Title IV funds in its most recently completed fiscal year from programs that are failing the GE rule; the institution is required to submit a teach-out plan by a state or federal agency, an accrediting agency, or other oversight body for reasons related to financial concerns; for an institution owned at least 50% by a publicly traded entity, the entity is subject to certain actions or events specified in the rule initiated by the Securities and Exchange Commission; the institution fails the 90-10 rule for its most recently completed fiscal year; and, the institution is subject to a default or other adverse condition under a line of credit, loan agreement, security agreement or other financing arrangement due to an action by the Department. Specified discretionary triggers provide the Department flexibility on whether to require a letter of credit based on the financial impact the triggering event would have on the institution. Examples of discretionary triggers include: an accrediting agency or a federal, state, or other authority places the institution on probation, show cause, or comparable status; the institution is subject to a default or other specified adverse condition under a credit or financing arrangement (unless due to an action by the Department, which is a mandatory trigger); a "significant fluctuation" in Direct Loan or Pell Grant funds received by the institution over different award years that cannot be accounted for by changes in those programs; the institution has high annual dropout rates as calculated by the Department; the institution is under prior financial reporting obligations to the Department and has any of the following occurrences: negative cash flows, failure of other financial ratios, cash flows that significantly miss projections submitted to the Department, significant increases in withdrawal rates or other indicators of a significant change in the institution's financial condition; pending group-process BDR claims; a discontinuation of programs that enroll more than 25% of the institution's students who receive Title IV funds; a closure of locations that enroll more than 25% of its students who receive Title IV funds; a citation by a state licensing agency for failing to meet its requirements; the institution or a program loses eligibility to participate in another federal educational assistance program due to an administrative action; for an institution owned at least 50% by a publicly traded entity, a disclosure by the entity in a public filing that it is under investigation for possible violations of state, federal or foreign law; a citation and potential loss of education assistance funds from another federal agency if it does not comply with agency requirements; the institution is required to submit a teach-out plan or agreement, including programmatic teach-outs, by a state, the Department or another federal agency, an accrediting agency, or other oversight body; or any other event or condition that the Department learns about from the institution or other parties where the Department determines that the event or condition is likely to have a significant adverse effect on the financial condition of the institution. The Department has used its discretion to selectively impose letter of credit requirements to create liquidity pressures and financially destabilize otherwise fiscally sound institutions. The new regulations also add additional circumstances that would deem an institution to lack financial responsibility, such as: failing to make debt payments for more than 90 days; failing to meet payroll obligations; borrowing from employee retirement plans or restricted funds without authorization; failing to make timely refunds or returns of Title IV funds or pay Title IV credit balances; or failing to make repayments of any Title IV liabilities. Finally, the regulations establish new rules for evaluating financial responsibility during a change in ownership. The Administrative Capability regulations expand the requirements for institutions to demonstrate that they are administratively capable of providing the education they promise and of properly managing Title IV program funds, adding new standards related to financial counseling and career services, adequate clinical and externship opportunities, timely disbursement of Title IV funds, compliance with high school diploma verification requirements, aggressive and deceptive recruitment tactics or conduct, gainful employment requirements, and significant negative actions by federal, state or accreditation agencies. The changes also provide the Department with increased and explicit authority to make an administrative capability finding based on a broader set of issues than it has used historically. Such findings could lead to fines, limitations, suspensions, terminations or other actions, including placing the institution on a provisional program participation agreement or heightened cash monitoring. The revised Certification regulations provide a more rigorous process for certifying institutions to participate in the Title IV programs, both initially and on an ongoing basis and include provisions that may further limit our ability to promote reduced student borrowing. The changes increase the Department's oversight of institutions at critical points of institutional review including initial certification, during provisional certification, after a change of ownership, at recertification, and when there is a risk of closure. The regulations add additional events that lead to provisional certification, such as if an institution is required to post a letter of credit because of a mandatory or discretionary triggers in the financial responsibility regulations, the Department determines the institution is at risk of closure, or the institution fails the 90-10 rule. It establishes new supplementary performance measures the Department may consider in determining whether to certify or condition the participation of the institution, such as withdrawal rates, the amount of educational and pre-enrollment expenditures, and licensure pass rates where the institution is required by an accrediting agency or state to report licensure exam passage rates. The regulations also add a provision to include all federal agencies and add state attorneys general to the list of entities that have the authority to share with each other and the Department any information pertaining to an institution's eligibility for or participation in Title IV Programs or any information on fraud, abuse, or other violations of law. The new regulations establish a non-exhaustive list of conditions that the Department may apply to provisionally certified institutions, such as the submission of teach-out plans, the release of holds on student transcripts, restrictions or limitations on the addition of new programs or locations, restrictions on growth in enrollments or Title IV volume, restrictions on the ability to provide a teach-out on behalf of another institution, restrictions on the acquisition of other institutions, additional financial reporting requirements, and limitations on entering into written arrangements with other institutions for the provision of educational instruction. Finally, the new regulations require provisionally certified schools that have major consumer protection issues to recertify after no more than three years. For institutions alleged or found to have engaged in misrepresentation, aggressive recruiting, or incentive compensation violations, the Department may require that the institution engage a monitor and submit marketing materials to the Department for its review and approval. Accreditor and state regulatory requirements also address financial responsibility and administrative capability, and these requirements vary among agencies and also may differ from Department requirements. Any developments relating to our satisfaction of the Department's financial responsibility requirements or administrative capability may lead to additional focus or review by our accreditors or applicable state agencies regarding their respective financial responsibility requirements. If our institutions fail to maintain financial responsibility or administrative capability, they could lose their eligibility to participate in Title IV Programs, have that eligibility adversely conditioned or be subject to similar negative consequences under accreditor and state regulatory requirements, which would have a material adverse effect on our operations. In particular, limitations on participation in Title IV Programs resulting from the failure to demonstrate financial responsibility or administrative capability could materially reduce the enrollments and revenue at the impacted institution, and a termination of participation would cause a dramatic decline in revenue and we would be unable to continue our business as it currently is conducted.

Under revised regulations effective for calendar year 2023, any of our institutions may lose eligibility to participate in Title IV Programs if, on modified cash basis accounting, the percentage of the cash receipts derived from federal funding programs for two consecutive fiscal years is greater than 90%. The Department specified the sources of federal funding to be included in the 90-10 Rule in mid-December 2022, well after a substantial majority of students for the upcoming 2023 calendar year, a majority of those students which were in the process of continuing through their program, had already enrolled and elected financing for upcoming classes. Federal funding now includes tuition assistance under the Title IV program as well as tuition assistance benefits provided to members of the military and veterans as well as a significant number of other federal programs supporting higher education and training. Under this modified 90-10 Rule, an institution that derives more than 90% of its cash receipts from federal funding sources for any fiscal year will be placed on provisional participation status for its next two fiscal years and is required to issue notices to existing students about the potential loss of Title IV funding. The issuance of any required notice could deter prospective students from enrolling at our institutions and current students from continuing in their programs. We have substantially no control over the amount of Title IV student loans and grants, military or veteran education benefits, or other federal education assistance funds sought by or awarded to our students and given the significant existing student populations at our institutions when these rules were adopted, the 90-10 Rule operates retroactively to capture the significant federal funding those students were already utilizing and entitled to. Additionally, we may not know at the time of receipt that funding used by a student was derived from a federal program. In addition, if the institution violates the 90-10 Rule for two consecutive fiscal years and becomes ineligible to participate in Title IV Programs, but continues to disburse Title IV Program funds, the Department would require the repayment of all Title IV Program funds received by it after the effective date of the loss of eligibility. The Department also noted in its regulatory publication adopting the new rule that one of its expectations for this revised rule was to push students away from for-profit schools and into taxpayer subsidized community colleges and so we expect interpretations, guidance, and enforcement to generally be adverse to institutional compliance. Several factors such as the increase in Title IV Program aid availability, including year-round Pell Grant funds, and budget-related reductions in state grant programs, workforce training programs, and other alternative funding sources have adversely affected our institutions' 90-10 Rule percentages in recent years, and we expect this negative impact to continue. Additionally, the lack of visibility into potential federal fund sources students may be using, the timing of the identification of the federal fund sources applicable to the 90-10 Rule, the lack of clarity regarding the definition of federal funds and those funds counting in the "10" as well as some of the technical aspects of the calculation methodology under the 90-10 Rule, and interest levels and variability in the timing of receipts of future cash payments made for allowable non-Title IV programs offered by our institutions, all make it difficult to predict future compliance with the 90-10 Rule. We have implemented various measures intended to reduce the percentage of our institutions' cash basis revenue attributable to designated federal funding sources, including efforts to diversify the sources of our revenue. However, these measures may not be adequate to prevent our institutions' 90-10 Rule percentages from exceeding 90%, and may not be sufficient to allow our institutions to serve degree-seeking prospective students at the same rates as we have historically, or may require limiting the type or volume of new students we enroll or programs we offer. We may be required to modify our business operations, including reducing our investments in prospective student outreach and recruitment, in order to preserve our existing students' ability to continue benefitting from financial assistance for their education pursuant to Title IV Programs. For example, in 2023, we materially reduced prospective student enrollment, marketing and outreach processes at AIUS during the year to limit the volume of new federal funding that the institution would receive to preserve available funding for existing students. Any necessary business changes could materially impact our revenue, operating costs and opportunities for growth. Furthermore, these business changes could make more difficult our ability to comply with other important regulatory requirements. The ability of our institutions to comply with the 90-10 Rule will depend upon the composition of our future student population and their personal circumstances, as well as on regulatory changes and other factors outside of our control, including any increases or reductions in federally funded education assistance. The Department may attempt to impose additional sanctions on institutions that fail the 90-10 Rule, but there is only limited precedent available to determine their legality or predict what those additional sanctions might be. For example, the new Financial Responsibility rule imposes a mandatory trigger for institutions that fail one year of the 90-10 Rule. The financial protection required would be a minimum of 10 percent of the previous year's Title IV funds. This protection would remain in place until the institution passes the 90-10 Rule for two consecutive years. The Department could specify a wide range of additional conditions as part of the provisional certification and the institutions' continued participation in Title IV Programs. These conditions may include, but are not limited to: restrictions on the total amount of Title IV Program funds that may be distributed to students attending the institutions; restrictions on programmatic, enrollment, and geographic expansion; requirements to obtain and post letters of credit; and additional reporting requirements to include additional interim financial or enrollment reporting. See Item 1, "Business – Student Financial Aid and Related Federal Regulation – Compliance with Federal Regulatory Standards and Effect of Federal Regulatory Violations - ‘90-10 Rule,'" for more information about the 90-10 Rule and the measures we have implemented to improve our compliance. If any of our institutions lose eligibility to participate in Title IV Programs due to violation of the prior or modified 90-10 Rule, the institution would experience a dramatic decline in revenue and would be unable to continue its business as it currently is conducted. Efforts to reduce the 90-10 Rule percentage for our institutions have and may in the future involve taking measures that reduce our revenue, increase our operating expenses or involve interpretations of the 90-10 Rule or other Title IV regulations that are without clear precedent (or all of the foregoing, in each case perhaps significantly).

The regulations, standards and policies of our regulators change frequently and are subject to interpretation, and interpretations may change over time or due to changes in presidential administrations. In particular, the Department promulgated a number of new regulations that become effective on July 1, 2024, including the Financial Value Transparency and Gainful Employment Rule, and revised Financial Responsibility, Administrative Capability, and Certification rules. In addition, the Department has announced and is in the process of promulgating a substantial number of new regulations that impact our business, including but not limited to updates to accreditation, state authorization, and distance education regulations discussed in a separate risk factor below. The Higher Education Act guides the federal government's support of postsecondary education. The U.S. Congress is required to periodically reauthorize the Higher Education Act and other laws governing Title IV Programs and annually determines the funding level for each Title IV Program. The Higher Education Act was last reauthorized by the U.S. Congress in 2008. When the Higher Education Act is reauthorized, existing programs and participation requirements are subject to change. Additionally, funding for student financial assistance programs may be impacted during appropriations and budget actions. See Item 1, "Business-Student Financial Aid and Related Federal Regulation-Legislative Action and Recent Department Regulatory Initiatives," for more information about the reauthorization of the Higher Education Act. In recent years, Congress, the Department, states, accrediting agencies, the CFPB, the FTC, state attorneys general, consumer advocacy groups, and the media have scrutinized the for-profit postsecondary education sector. See Item 1, "Business-Student Financial Aid and Related Federal Regulation-Scrutiny of the For-Profit Postsecondary Education Sector," for more information about the focus on our industry. This scrutiny and efforts of the current administration led to significant regulatory changes. The Department has enacted and is continuing to pursue significant rulemaking initiatives that are likely to negatively impact our business. See Item 1, "Business-Student Financial Aid and Related Federal Regulation-Legislative Action and Recent Department Regulatory Initiatives," for an overview of regulatory initiatives by the Department. Ongoing efforts by activists to change state authorization regulations, State Authorization Reciprocity Agreement ("SARA") reciprocity rules, and state-by-state standards could increase regulatory burdens on our business. See Item 1, "Business - Accreditation, State Regulation and Other Compliance Matters - State Regulation," for more information about state regulation and SARA. The Department issued a Dear Colleague Letter on February 15, 2023 that updated its existing guidance to significantly expand its interpretation of the types of service providers that qualify as participating in the administration of Title IV funds under the definition of a "Third Party Servicer." This guidance was rescinded and the Department announced that it would provide stakeholders advance notice of any proposed changes. New guidance is expected in 2024. We may have service providers that elect to discontinue working with our institutions in light of the additional costs, administrative burdens and/or risk imposed by having to comply with Title IV requirements applicable to Third Party Servicers, which include annual compliance audits and contractual commitments to joint and several liability with the institution. Many of these ancillary support services have not traditionally had any role related to the administration of Title IV funds, but may in some limited way interact with or have access to provide support for our students. We will assess the support provided by various service providers against updated guidance, but are unable to determine the potential impact it may have on our business at this time. On August 31, 2023, the Department issued a notice of its intent to establish a Student Loan Debt Relief negotiated rulemaking committee in response to the US Supreme Court striking down an earlier attempt by the current administration at broad student loan forgiveness. As part of this rulemaking, which concluded in December 2023, the Department is granting itself additional authority to forgive federal student loans. Subsequently, the Department agreed to reconvene a fourth negotiating session to consider adopting additional authority for loan discharge in the case of financial hardship. The Department completed the negotiated rulemaking in December 2023 and is expected to publish proposed regulations for public comment by spring 2024, however it has already announced broad loan forgiveness that relies on these proposed rules. The authority drafted under this rulemaking gives the Department broad discretion to discharge loans under the Higher Education Act and may encourage the Department to take adverse actions against institutions as a means of achieving the administration's stated goals of achieving the largest volume of student loan forgiveness in history. We are unable to determine the potential impact of any future final regulations on our business at this time. On November 29, 2023, the Department issued a notice of its intent to establish a Program Integrity and Institutional Quality negotiated rulemaking committee to prepare proposed regulations. As part of this rulemaking, the Department is considering revisions to its federal regulations addressing accreditation, state authorization, distance education, Return of Title IV funds, cash management, and eligibility requirements for participation in the Federal TRIO Programs. Negotiating sessions of Program Integrity and Institutional Quality negotiated rulemaking committee are scheduled for January, February, and March 2024. We are closely monitoring the Department's negotiated rulemaking process, but we are unable to determine the potential impact of any future final regulations on our business at this time. As in the past, recent and future regulatory changes may have significant impacts on our business, potentially requiring a large number of operational changes, changes to and elimination of certain educational programs, or other fundamental changes to our business. These actions may reduce our student enrollments and profitability or limit our ability to maintain or grow our business. These recent and future regulatory changes may also make compliance with regulatory requirements even more complex and difficult.

A substantial majority of our students rely upon Title IV Programs to assist in financing their education, and we derive a substantial majority of our revenue and cash flows from Title IV Programs. For example, for the year ended December 31, 2023, a majority of our students who were in a program of study at any date during that year participated in Title IV Programs, which resulted in Title IV Program cash receipts of approximately $484 million. As a result, any legislative or regulatory action that significantly reduces Title IV Program funding or the ability of our students to participate, or that places significant additional burdens on or eliminates our ability to participate, would materially reduce the number of students who enroll at our institutions, our revenue and our profitability, and we would be unable to continue our business as it currently is conducted.

Under the provisions of the Higher Education Act, an institution must apply to the Department for continued certification to participate in Title IV Programs at least every six years or whenever it undergoes a change of control. Generally, the recertification process includes a review by the Department of an institution's educational programs and locations, administrative capability, financial responsibility, and other regulatory oversight categories. Both AIUS and CTU are currently in the recertification process with the Department. AIUS is currently operating on a provisional program participation agreement due to open regulatory review processes with the Department at the time of its prior recertification. During the period of provisional certification, an institution must obtain prior Department approval to add an educational program, open a new location, or make any other significant change, which could negatively impact AIUS' ability to take these actions. Institutions may be given provisional program participation agreements for very nominal or arbitrary reasons and we have seen in some instances without justification, including the existence of an open and pending audit or review within the Department's discretion or unspecified issues arising out of past administrative capability issues. Recently, the Department has imposed a number of additional reporting, limiting and monitoring conditions on continued participation against institutions it has recertified. If the Department finds that any of our institutions do not fully satisfy all required eligibility and certification standards, the Department could deny recertification or limit, suspend, or terminate the institution's participation in Title IV Programs. Continued Title IV program eligibility is critical to the operation of our business. If either of our institutions becomes ineligible to participate in Title IV Programs, or have that participation significantly conditioned, it could not conduct its business as currently conducted and we would experience a dramatic decline in revenue.