A reduction in funding or new restrictions on eligibility for the Federal Pell Grant Program, or the
elimination of subsidized Stafford loans, could make college less affordable for certain students at our client institutions, which could negatively impact our client institutions enrollments, revenue and results of operations.
The U.S. Congress must periodically reauthorize the HEA and annually determine the funding level for each Title IV program. In 2008, the HEA
was reauthorized through September 30, 2013 by the Higher Education Opportunity Act. Changes to the HEA, including changes in eligibility and funding for Title IV programs, are likely to occur in subsequent reauthorizations, but we cannot
predict the scope or substance of any such changes.
Any action by Congress that significantly reduces Title IV program funding, whether
through
across-the-board
funding reductions, sequestration or otherwise, or materially impacts the eligibility of our client institutions or students to
participate in Title IV programs would have a material adverse effect on our client institutions enrollment, financial condition, results of operations and cash flows. Congressional action could also require us to modify our practices in ways that
could increase our administrative costs and reduce our operating income, which could have a material adverse effect on our financial condition, results of operations and cash flows.
We cannot offer new programs for our clients or expand client operations into certain states if such actions are not timely approved by the applicable
regulatory agencies, and our clients may have to repay Title IV funds disbursed to students enrolled in any such programs, schools, or states if they do not obtain prior approval.
Our expansion efforts include offering new educational programs for our clients. If we or our client institutions are unable to obtain the
necessary approvals for such new programs or operations, or if we or our client institutions are unable to obtain such approvals in a timely manner, our ability to consummate the planned actions and the ability of our client institutions to provide
Title IV funds to any affected students would be impaired, which could have a material adverse effect on our expansion plans. In addition, if we were to determine erroneously that a new program did not need approval or that we had all required
approvals, our clients could be liable for repayment of the Title IV program funds provided to students in that program or at that location.
If our
client institutions do not maintain state authorization, they may not operate or participate in the Title IV programs.
A school
that grants degrees or certificates must be authorized by the relevant education agency of the state in which it is located. State authorization is also required for their students to be eligible to receive funding under the Title IV programs. To
maintain their state authorization, our client institutions must continuously meet standards relating to, among other things, educational programs, facilities, instructional and administrative staff, marketing and recruitment, financial operations,
addition of new locations and educational programs, and various operational and administrative procedures. If our client institutions fail to satisfy any of these standards, they could lose state authorization to offer educational programs, which
would also cause them to lose eligibility to participate in the Title IV programs and have a material adverse effect on us.
In addition,
almost every state imposes regulatory requirements on educational institutions that have physical facilities located within the states boundaries. Individual state laws establish standards in areas such as educational programs, facilities,
instructional and administrative staff, marketing and recruitment, financial operations, addition of new locations and educational programs, and various operational and administrative procedures, some of which are different than the standards
prescribed by other regulators. Several states have sought to assert jurisdiction over educational institutions offering online degree programs that have no physical location in the state but that have some activity in the state, such as enrolling
or offering educational services to students who reside in the state, employing faculty who reside in the state, or advertising to or recruiting prospective students in the state.
State regulatory requirements for online education have historically varied among the states. To address this issue and to meet new Department
of Education requirements many schools have applied and have been approved to be an approved institutional participant in the State Authorization Reciprocity Agreement (SARA). SARA is an agreement among member states, districts and
territories that establishes comparable national standards for interstate offering of post-secondary distance education courses and programs. It is intended to make it easier for students to take online courses offered by post-secondary institutions
based in another state. SARA is overseen by a national council
(NC-SARA)
and administered by four regional education compacts, for which Arizona is a
W-SARA
member.
There is a yearly renewal for participating in
NC-SARA
and
AZ-SARA
and institutions must agree to meet certain requirements to participate. As of June 30, 2018, all
states other than California are members of SARA.
Any state that does not participate in SARA may impose regulatory requirements on
out-of-state
post-secondary institutions operating within their boundaries, such as those having a physical facility or conducting certain academic activities within the
state. Our current client institution enrolls students in all 50 states and the District of Columbia. Although it is currently licensed, authorized,
in-process,
or exempt in all
non-SARA
jurisdictions in which it operates, if Grand Canyon University fails to comply with state licensing or authorization requirements for a state, or fails to obtain licenses or authorizations when
required, it could lose its state license or authorization by that state or be subject to other sanctions, including restrictions on its activities in, and fines and penalties imposed by,
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