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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: JUNE 30, 2004
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Commission file number: 1-13988
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DeVRY INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 36-3150143
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification
No.)
ONE TOWER LANE, SUITE 1000, OAKBROOK TERRACE, ILLINOIS 60181
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number; including area code (630) 571-7700
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Securities registered pursuant to section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer.
Yes [X] No [ ]
AUGUST 2, 2004 - $1,183,695,000.00
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State the aggregate market value of the voting stock held by non-
affiliates of the registrant. The market value was computed using the
closing sale price of the common stock on the date indicated. Shares of
common stock held directly or controlled by each director and executive
officer have been excluded in that such persons may be deemed to be
affiliates.
AUGUST 2, 2004 - 70,337,137 shares of common stock, $0.01 par value
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Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents incorporated by reference and the Part of
the Form 10-K (e.g. Part I, Part II, etc.) into which the document is
incorporated:
Certain portions of the Registrant's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on November 16, 2004, are
incorporated into Part III of this Form 10-K to the extent stated herein.
Exhibit Index located on Pages 148-151 Total number of pages, 192
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DeVry INC.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED JUNE 30, 2004
TABLE OF CONTENTS
PAGE #
PART I ------
Item 1 - Business 3
Item 2 - Properties 56
Item 3 - Legal Proceedings 62
Item 4 - Submission of Matters to a Vote of Security Holders 63
- Executive Officers 64
PART II
Item 5 - Market for Common Equity and
Related Stockholder Matters 72
Item 6 - Selected Financial Data 73
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 73
Item 7A - Quantitative and Qualitative Disclosures
about Market Risk
102
Item 8 - Financial Statements and Supplementary Data 104
Item 9 - Changes in and Disagreements with Accountants 104
Item 9A - Controls and Procedure 104
PART III
Item 10 - Directors and Executive Officers 143
Item 11 - Executive Compensation 143
Item 12 - Security Ownership of Beneficial Owners and Management 143
Item 13 - Certain Relationships and Transactions 143
Item 14 - Principal Accountant Fees and Services 143
PART IV
Item 15 - Exhibits, Financial Statements and Reports on Form 8-K
- Financial Statements 144
- Financial Statement Schedules 144
- Exhibits 144
- Reports on Form 8-K 144
- Signatures 146
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PART I
Certain information contained in this Annual Report on Form 10-K may
constitute forward-looking statements made pursuant to the safe harbor
provision of the Private Securities Litigation Reform Act of 1995. Forward-
looking statements are based upon the Company's current expectations and
beliefs about future events. Such statements are inherently uncertain and
may involve risks that could cause future results to differ materially from
the forward-looking statements. Potential risks and uncertainties include,
but are not limited to, undergraduate program concentration in computer
information systems, electronics and telecommunication technology;
dependence on student financial aid; dependence on state and provincial
approvals and licensing requirements; dependence on continued accreditation
for DeVry and Ross University and the other factors detailed in the
Company's Securities and Exchange Commission ("SEC") filings, including
those discussed under the heading entitled "Risk Factors" in the Company's
Registration Statement on Form S-3 (No. 333-22457) filed with the SEC.
Copies of the Company's SEC filings on Forms 3, 4, 8-K, 10-Q and Annual
Reports on Form 10-K may be obtained free of charge through the Company's
website, www.devry.com.
ITEM 1 - BUSINESS
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DeVry Inc. (the "Company") is incorporated under the laws of the State of
Delaware. The Company's executive offices are located at One Tower Lane,
Oakbrook Terrace, Illinois, 60181. The Company's telephone number is
(630)571-7700.
The Company, through its wholly-owned subsidiaries, owns and operates DeVry
University, Ross University and Becker Professional Review ("Becker").
DeVry University includes DeVry undergraduate programs in technology and
business, and Keller Graduate School of Management ("Keller"), with
graduate programs in management. In fiscal 1999, the holding company for
these degree-granting operations was renamed from Keller Graduate School of
Management, Inc. to DeVry University, Inc. The new name better reflects
the comprehensive higher education system that it has become, offering
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programs in technology, business and management at the undergraduate and
graduate level. DeVry University is one of the largest private, degree-
granting, regionally accredited higher education systems in North America.
Ross University is one of the world's largest providers of medical and
veterinary medical education.
Becker prepares candidates for the Certified Public Accountant ("CPA"),
Certified Management Accountant ("CMA") and Chartered Financial Analyst
("CFA") professional certification examinations.
In July 1999, the Company completed its acquisition of substantially all of
the net tangible operating assets, trademarks and other intangible assets
of the Denver Technical College ("DTC"). At the time of its acquisition,
DTC offered diploma and undergraduate degree programs in electronics,
computer technology, business and medical technology to approximately 1,700
students on campuses in Denver and Colorado Springs, Colorado. Effective
July 2001, Denver Technical College was integrated into DeVry University.
All new students, starting with the July 2001 term, were enrolled in DeVry
undergraduate programs and no further enrollments were accepted to the
original DTC programs. Students enrolled in the original DTC programs were
able to continue their enrollment until they finished their program, most
of which were completed by the end of fiscal 2003.
In July 1999, the Company also completed its acquisition of certain
tangible operating assets, trademarks and other intangible assets of
Conviser Duffy CPA Review ("Conviser Duffy"). Conviser Duffy, which had
operated as a unit of Harcourt General, Inc., was a nationally known
training firm preparing approximately 12,000 students annually to pass the
CPA certification exam.
In January 2001, as a complement to its Becker Professional Review
operation, the Company acquired the operations of Stalla Seminars
("Stalla"), a leading provider of review courses and study materials for
the CFA certification exams.
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To further diversify its educational program offerings, in May 2003, the
Company acquired the stock of Dominica Management, Inc. ("DMI"). DMI owns
and operates the Ross University School of Medicine and the Ross University
School of Veterinary Medicine, operating in the Caribbean countries of
Dominica and St. Kitts/Nevis, respectively.
In October 2003, the Company acquired the assets of Person Wolinsky CPA
Review to further complement its Becker Professional Review operation.
Person Wolinsky offered CPA review courses in the New York City,
Philadelphia and Washington, D.C. areas.
The amounts of revenue and identifiable long-lived assets of the Company's
U.S. and foreign operations are presented in Note 10 to the Consolidated
Financial Statements, "Segment Information".
DeVry University
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The DeVry undergraduate programs trace their origin to Dr. Herman DeVry.
For more than 70 years DeVry has provided career-oriented technology-based
education to high school graduates in the United States and Canada. The
first DeVry Institute was opened in Chicago in 1931 as an electronics
school. Today, the DeVry undergraduate programs are offered on twenty
three campuses in the United States and Canada, and at approximately fifty
smaller DeVry University Center ("DVUC") teaching locations operated in
conjunction with graduate school program offerings at these sites.
Selected undergraduate programs are also offered through DeVry University
Online.
Originally offering only undergraduate programs in electronics, DeVry
introduced its undergraduate computer information systems curriculum in
1979. As the number of high school graduates in the U.S. declined during
the 1980's, DeVry expanded its program offerings and delivery schedule into
the evening hours to serve larger numbers of working adults. In the summer
of 1986, a bachelor's degree program in business operations was introduced,
followed by the telecommunications management program and the introduction
of an accounting program in the spring of 1988. In 1994, DeVry introduced
the undergraduate technical management degree completion program which
focuses on business and management skills for students who already have an
associate degree. In 1997, the undergraduate business operations program
was redefined and is now the business administration program with a
concentration in accounting, replacing the previously separate accounting
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program. Today, other concentrations in the business administration
program include e-commerce, operations management, project management,
business information systems and several others. In 1998, in response to
the increasing employment demands of the information technology field, a
one year Information Technology program was introduced to bachelor's level
college graduates of any discipline seeking career change and enhancement
opportunities in IT.
In fiscal 2000, DeVry introduced a new undergraduate bachelor's degree
program in computer engineering technology, ("CET"). This program is aimed
at helping students develop skills and knowledge in software engineering,
operating systems, data structures and algorithms, and distributed computer
systems.
Programmatic initiatives developed during the past several years have also
expanded the DeVry University undergraduate program reach. These
initiatives include new delivery formats, such as weekend class schedules,
compressed and accelerated course schedules, technology-assisted delivery
options for classroom based courses and courses offered completely online.
In fiscal 2001, DeVry announced two new undergraduate educational program
delivery initiatives. The bachelor of business administration degree
program was the first undergraduate DeVry program to be offered in a fully
online format. Subsequently, the bachelor of information technology and
the bachelor of technical management programs were added in an online
format and the undergraduate Computer Information Systems curriculum was
also added to the online program offerings, bringing to four the number of
undergraduate programs offered online. In June 2004, DeVry University
announced that it would begin offering new concentrations in security
management and hospitality management as a part of its online bachelor's
degree program in business administration. Additional concentrations and
programs are expected to be added in an online format in the future. The
online format allows DeVry to better serve place-bound students and others
whose schedules prevent them from attending classes in person.
The second new delivery initiative was the formation of DeVry University
Centers. In fiscal 2001, DeVry University opened the first adult-learner
DeVry University Center in conjunction with the existing graduate school
teaching site in the downtown Chicago area. By the end of fiscal 2004,
undergraduate programs were offered at approximately 40 DeVry University
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Center locations. Additional DeVry University Centers are planned to be
opened in fiscal 2005. The addition of undergraduate program offerings at
these former graduate teaching centers is aimed at providing both
undergraduate and graduate education convenient to working adults with the
option to combine online with on-site coursework.
At the start of fiscal 2004, DeVry University introduced three new
undergraduate educational programs at selected campuses. The new programs
were Biomedical Engineering Technology ("BMET"), Biomedical Informatics
("BMI") and Health Information Technology ("HIT").
Biomedical Engineering Technology is an interdisciplinary program that
covers engineering design and implementation of equipment and processes for
life sciences with applications in pharmaceuticals and environmental
science; and physical science applications in areas such as development of
artificial limbs and biomedical computing. At the end of fiscal 2004, this
program was being offered at four campuses.
Biomedical Informatics is the application of information technology to
healthcare with applications in fields such as healthcare administration,
medical communications and biomedical research. At the end of fiscal 2004,
this program was being offered at six campuses.
The Health Information Technology program is an associate degree program
that centers around the management of electronic patient record systems
including maintenance, analysis, assurance of privacy and security of these
records. In a recent speech by the U.S. Health and Human Services
Secretary, a plan was presented to bring electronic health records into
physician offices and hospitals, improve access to health information and
clinical research among other objectives. DeVry's Health Information
Technology program is designed to provide the necessary worker education to
facilitate achieving these objectives. At the end of fiscal 2004, this
program was being offered at 3 campuses.
These healthcare education programs are expected to be offered at
additional locations in the coming terms.
In addition to the new healthcare programs, the Telecommunications
Management program was revised and renamed Network and Communications
Management. The change in name better reflects the evolution of the
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content and focus of the program since its introduction to include newer
areas of telecommunications such as enterprise network design,
administration, security and management. Also, additional majors were
introduced within the Business Administration program, including Health
Services, Human Resources, Small Business Management and Sales and
Marketing.
In August 2003, the Company announced that its subsidiary, DeVry Canada
LLC, had signed a letter of intent with RCC College of Technology ("RCC")
that would enable DeVry to phase out its operations at its Toronto campus
commencing with the term that began in November 2003. An agreement was
subsequently finalized with RCC for management of the completion of
programs of study for the remaining DeVry students at the Toronto campus.
July 2003 was the last term for which new students were admitted to the
Toronto campus.
Keller Graduate School was founded in Chicago in 1973 based upon the
concept that the most important components of management education are
effective teaching and student mastery of practical management skills.
Keller emphasizes practitioner orientation, excellence in teaching and
service to working adults. Classes are offered in the evenings and on
weekends. Building on its original MBA program offering, Keller now offers
a total of seven management masters degree programs and numerous
concentrations within some of these programs at more than 60 sites in the
U.S.
At the graduate level, in addition to its original Master of Business
Administration ("MBA") program which Keller Graduate School began offering
in 1977, Keller introduced a Master of Project Management ("MPM") degree
program in 1991 and a Master of Human Resource Management ("MHRM") degree
program in 1993. In 1995, Keller began offering a Health Services
Management ("HSM") concentration within its MBA program. In 1997, Keller
introduced a Master of Telecommunications Management ("MTM") program. In
1998, Keller began offering two new programs, the Master of Information
Systems Management ("MISM") and the Master of Accounting and Financial
Management ("MAFM"). The MAFM program offers students a choice of three
professional certification exam-preparation emphases: Certified Public
Accountant, Certified Management Accountant or Chartered Financial Analyst.
These exam-preparation concentrations were developed in conjunction with
the Becker Professional Review.
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To broaden the scope and appeal of the original MBA program,
concentrations have been developed in a number of areas of interest
including electronic commerce, international business, marketing and public
administration. In fiscal 2002, the MBA program in Illinois was offered
with a specialization in the management of public and private K-12
educational systems. This program was designed to prepare students to be
effective educational leaders.
Also new for fiscal 2002, approval was granted to offer a 7th graduate
degree program, the Master of Public Administration ("MPA"). The MPA
consists of three tracks: Government Management, Nonprofit Management and
Public Health Management. The MPA incorporates the same practitioner focus
as the other graduate programs and is designed for students who want to
become successful managers in the not-for-profit or government arenas.
All of the Keller graduate programs and concentrations are aimed at
satisfying the need for advanced education in high demand areas. In
addition to its expanding network of classroom based program offerings,
Keller offers all seven of its degree programs in an online format. These
offerings are designed to allow students to efficiently complete their
degrees entirely online or in any combination of online and on-site
coursework that suits their needs.
Effective with the start of fiscal 2004, DeVry University adopted a uniform
academic calendar for both the undergraduate and graduate programs across
all methods of educational delivery, on-site and online. The uniform
academic calendar consists of three academic periods of 16 weeks each.
Within these periods are a 15-week semester and two 8-week sessions. To
align the undergraduate and graduate programs to fit this schedule, the
Keller graduate curriculum was redesigned so that its courses, delivered
both on-site and online, could be offered in the new 8-week session.
To enhance the learning process, undergraduate accelerated programs offered
in the 8-week session format and graduate school courses are being taught
using the Integrated Learning System that incorporates both on-site and
online instruction. This model better supports student learning by
combining once-a-week on-site classes with support of faculty and students
by online interaction throughout the week.
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In addition to its programmatic expansion and new delivery method
initiatives, DeVry University embarked upon a strategy of facility
improvement and expansion to attract and retain increased student
enrollment. This improvement and expansion strategy includes facility
renovations, expansion of existing campuses, openings of new campuses and
the formation of DeVry University Centers.
Expansions and improvements during the past several years include the July
2000, acquisition of the operations of Denver Technical College with two
undergraduate campuses in Colorado, the Company's first campuses in that
state. In November 2000, a new undergraduate campus was opened in Orlando,
Florida, the first campus in that state. Further expansion was
accomplished with the completion of a technology center addition to the
urban Chicago campus, a renovation and expansion program at the Columbus,
Ohio, campus and completion of the expansion of the New York undergraduate
campus, bringing that campus to its full facility size.
In July 2001, a new undergraduate campus was opened in the Seattle,
Washington, area, the first campus in that state. In November 2001, a new
undergraduate campus was opened in the Washington, D.C. area, the first
campus in that area.
In July 2002, a new undergraduate campus was opened in the Philadelphia,
Pennsylvania, area, the first DeVry University undergraduate campus in that
state. In November 2002, a new undergraduate campus was opened in Miramar,
Florida, the second campus in the state of Florida. Also, in March 2003, a
new campus was opened in the Denver, Colorado area, replacing as the
primary operating location the original site acquired in the July 2000
purchase of Denver Technical College.
In September 2003, a new campus was opened in Houston, Texas, the second
campus in the state of Texas.
Keller graduate classes are being offered at more than 60 locations
nationwide. Additional teaching centers are planned to be opened in fiscal
2005. Some of Keller's teaching sites are co-located on DeVry
undergraduate campuses but most operate as a part of smaller, more
centrally located DeVry University Centers, offering both graduate and
undergraduate programs. Also, one teaching site is located in the
Company's corporate headquarters in Illinois. In addition, some DeVry
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University teaching sites host Becker exam review classes where space and
location are appropriate.
In addition to its expanding network of undergraduate and graduate program
teaching locations, graduate programs were first offered online in
September 1998. The first online undergraduate program was introduced in
2001. DeVry University Online not only serves the online student but also
supports campus and DeVry University Center-based students with an option
to "mix and match" on-site and online courses of study to best meet their
individual needs and schedules. Online programs offerings extend delivery
of all seven of the master's degree programs and four of the undergraduate
programs to students who reside beyond the geographic reach of local
centers, whose schedules preclude attending weekly classes on-site and/or
who cannot find their desired course at the teaching center near where they
live or work.
At the beginning of the spring 2004 semester, which was the final semester
in the Company's fiscal year 2004, approximately 41,135 full and part-time
students were enrolled in DeVry University undergraduate day, evening and
online programs, including enrollments at the Toronto campus where
educational programs are being phased out under the terms of the previously
discussed teachout agreement with RCC. The Company's undergraduate
programs accounted for approximately 72% of the Company's revenues in
fiscal 2004. In addition, there were approximately 11,140 coursetakers in
graduate school programs for the Spring term that began in May.
Classes began in July for the DeVry University undergraduate summer 2004
semester. This is the first semester in the Company's fiscal year 2005.
DeVry undergraduate enrollments have been concentrated in the areas of
computer and electronics technology. The Company believes that interest in
these programs as careers has been adversely affected by the news of
employee layoffs and financial difficulty encountered by many firms in the
technology sector of the economy. A recent report by USA Today cites
several examples of other colleges and universities with fewer students
enrolled in computer science majors than last year. The Computing Research
Association says that last year, the number of newly declared computer
science and computer engineering majors in the U.S. and Canada fell 23% vs.
the year before and they say that the figures are not expected to improve
this year. Partly as a result of these factors, total undergraduate
enrollment for the summer term was 38,189, including the remaining
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enrollments at the Toronto campus, compared to 41,075 in the previous
summer. In the graduate school programs, there were approximately 10,275
coursetakers in the summer term that began in July, an increase of 8.4%
from the July term of last year.
With expanded marketing emphasis on its undergraduate business programs,
the increased number of DeVry University Center locations and the growing
demand for its online programs, new student undergraduate enrollments for
the summer term of 2004 increased by 0.9% from the previous year, excluding
from 2003 the final admission of new students to the Toronto campus which
is being phased out of operation.
DeVry University operates in the higher education segment of the overall
education market. Higher education gross revenue in the United States now
exceeds an estimated $315 billion. Changing demographics are expected to
increase the size of the higher education market and benefit the Company's
future enrollment. According to the Department of Education's National
Center for Education Statistics, in 2003 there were an estimated 15,756,000
students enrolled at postsecondary degree-granting institutions in the
United States. This was expected to grow by 6.2% to 16,738,000 in 2008 and
by 12% to 17,673,000 in 2012.
The total postsecondary student population can be thought of as two
separate categories of students - career-launchers who are mostly
traditional college age students and career-enhancers who are most working
adult students. After a period of nearly two decades during which the
number of graduating high school seniors (career-launchers) declined by 25
percent to approximately 2.5 million, 1995 marked the beginning of a slow
but steady increase in the number of high school graduates resulting from
the "baby boom echo".
The Western Interstate Commission for Higher Education forecasts that the
number of graduating high school seniors will increase to more than 3.1
million by 2006/2007. The forecasted rate of increase in the number of
high school graduates in many of the states in which the Company's
undergraduate programs are offered is greater than the forecasted national
rate of increase, further contributing to future enrollment growth
opportunities. In addition, it is expected that a greater percentage of
individuals who graduate high school will choose to continue their
education. Since bottoming at 46.6% in 1973, the percentage of U.S. high
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school graduates entering college has increased, reaching an estimated 63%
in 2001 and is expected to increase further, possibly exceeding 65% by
2010.
Students in the 18 to 24 year-old age cohort represent a substantial
portion of DeVry University's full-time undergraduate day school
enrollments. An increasing proportion of these students is demographically
different from college bound generations of the past. They include more
minorities, women, recent immigrants and lower income candidates. Some of
the DeVry undergraduate campuses rank at or near the top on the list of
institutions with degrees granted to minority students in the fields of
computer and information science, business and all academic disciplines
combined. DeVry undergraduate programs have attracted many students from
immigrant and minority populations. Often these students are the first in
their family to attend college.
In addition to the projected growing number of traditional-age students,
more adults, primarily working adult career-enhancers, are returning to
college. It is currently estimated that perhaps as many as 60% of all
college students are 25 years of age or older, up from about 28% in 1970
and 43% in 2000. Approximately 48% of DeVry University's undergraduate
enrollment in the fall 2003 semester were 25 years of age or older. At
DeVry Online and DeVry University Centers that are designed for the adult
student, an estimated 80% or more of the students are age 25 or older.
The increased number of older students attending college today has
positively influenced DeVry University enrollments and has been fueled by
(1) the development of the knowledge-based economy, (2) the rapid pace of
technological change in the workplace, (3) the growing recognition of the
strong correlation between education and income, (4) the emergence of e-
learning tools that make continuing education more accessible and
convenient, and (5) growing recognition of the importance of lifelong
learning. The number of college students who are 25 years of age or older
is projected to reach 6.4 million in 2008 and 6.7 million in 2012, an
increase of about six and ten percent, respectively, over 2002. The U.S.
Census Bureau reported that in 2003, only an estimated 27% of American
adults over 25 had a bachelor's degree. Therefore, adult student
participation rates in postsecondary education are expected to continue to
be stable or favorable through at least the end of the decade.
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A strong motivation for the growing enrollments in postsecondary
institutions is the income premium associated with additional education.
In 2000, the mean income of U.S. employees with a bachelor's degree
($43,782) was nearly double the mean income for those with only a high
school education. The wage gap is even larger for those with graduate
degrees. According to a recent report by the College Board, over a
lifetime, the gap in earnings between those with a high school diploma and
a B.A. or higher exceeds $1,000,000.
Women made up about 56% of U.S. college enrollments in 2000 but are only
about 29% of students enrolled at DeVry. The Company believes that the
smaller proportion of women at DeVry is the result of their lesser interest
in technical areas of study than for their male counterparts.
Online learning is growing rapidly within higher education. The vast
majority of online students are adult learners attracted by the flexibility
and convenience of this form of learning. The DeVry University approach to
distance learning is to focus on the quality of education delivered to the
student. The technical feasibility of the delivery system, while an
integral component of online course delivery, is not the sole or primary
focus. DeVry's online enrollment strategy is not limited to exclusive
enrollment in distance education programs. Many DeVry University students
are attracted by the "mix and match" formats that allow for added
convenience and flexibility. This option better serves students by
effectively complementing the student's preferred learning style and
providing increased course scheduling flexibility.
DeVry University Online offers undergraduate and graduate programs in
business and technology via the Web. It builds on the successful model
initially implemented at the graduate level in 1998 and draws on the
content and pedagogy of both the undergraduate and graduate systems. DeVry
University Online currently offers all seven of the Keller graduate
programs and the DeVry undergraduate Business Administration (BSBA),
Technical Management (BSTM), Information Technology (IT) and Computer
Information Systems (CIS) programs. Additional online programs may be
offered in the future.
DeVry University Online is a cornerstone of both the DeVry University
Center initiative and the educational system capacity strategy in that it
provides mix-and-match capability, ensuring the availability of a full
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complement of courses and helping optimize use of faculty and classroom
space at all teaching locations.
Each of the undergraduate programs is designed to integrate general
education and technology or business. General education courses develop
skills and competencies that help graduates enhance both their professional
and personal capabilities. Businesses require graduates who can fit into
an organization by working collaboratively, having an understanding of how
business works, communicating clearly and having the in-depth technical
knowledge to get the job done. Laboratory courses throughout each
curriculum provide the opportunity to translate classroom learning into a
practical, hands-on experience that better prepares the student for the
workplace.
Undergraduate classes at DeVry campuses are generally offered in morning,
afternoon or evening sessions which help students maintain a part-time job.
The availability of part-time employment and government-provided financial
aid partially offset the competitive advantage of schools charging a lower
tuition. Undergraduate classes at DeVry University Centers are generally
offered in the evening for the scheduling convenience of the predominantly
working adult student although daytime class schedules are being added in
markets where there is a demand. Each curriculum is generally consistent
at all of the undergraduate campuses, with content variations introduced to
meet local employment market needs. This common curriculum is another
competitive advantage that allows students to transfer, if necessary, to an
undergraduate campus at a different location without interrupting their
studies.
Graduate program faculty members are practicing professionals who bring
their expertise to the classroom, emphasizing theory and practices that
will best serve students in their work as managers. Critical competencies
in areas such as business communications, technology, quality and
international issues are woven throughout the curricula. Keller's
curricula, like the undergraduate curricula, are generally consistent at
all locations, and are regularly reviewed for relevance to both students
and employers.
To facilitate student success, DeVry University invests in resources for
libraries and academic support services that can assist students in any
phase of their educational program. In addition, DeVry undergraduate
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students are encouraged to participate in an array of offered social and
professional activities. DeVry supports student organizations closely
linked to the professional aspirations of graduates. Campuses regularly
invite technology and business leaders into the classroom. Faculty members
serve as mentors for student chapters of professional associations and
sponsor a wide range of student co-curricular projects. Each student is
also required to complete a student success or problem solving strategy
course aiming at preparing students to assume responsibility for their
learning and growth through practical strategies and methods for realizing
success.
Ross University
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Founded a quarter of a century ago, Ross University operates two schools.
Ross University School of Medicine offers a Doctor of Medicine (M.D.)
degree and Ross University School of Veterinary Medicine offers a Doctor of
Veterinary Medicine (D.V.M.) degree. Ross University is one of the world's
largest providers of medical and veterinary medical education with over
3,300 students enrolled in the May 2004 semester. The schools are located
in the Caribbean island countries of Dominica and St. Kitts/Nevis,
respectively.
Ross medical students complete a four semester (approximately 16 months)
basic science and pre-clinical curriculum in modern classrooms and
laboratories on a campus located on Dominica followed by a one semester
course of Advanced Introduction to Clinical Medicine at a campus in Miami,
Florida. Following their successful passage of the USMLE Step 1 exam, the
remainder of the ten semester program is completed through clinical
rotations conducted at more than 40 affiliated teaching hospitals in the
U.S. The educational program, with three academic semesters per year
beginning in May, September and January, is designed to prepare students
for general medical practice and to provide the foundation for postgraduate
specialty training in the U.S.
Ross veterinary students complete a seven semester pre-clinical (basic
sciences plus medicine and surgery) curriculum in a large modern facility
on St. Kitts. The basic science curriculum is structured to provide a
veterinary education that is fully comparable to that offered at U.S.
veterinary schools. After completing their preclinical curriculum, Ross
veterinary students enter a clinical clerkship of approximately 48 weeks
duration at one of 21 affiliated U.S. Colleges of Veterinary Medicine, with
17
Michigan State and Ohio State Universities as the two most recent additions
to this list.
The student population at both schools is selected from applicants who
typically have (1) applied to U.S. medical or veterinary schools but failed
to gain entry, or (2) elected not to apply to U.S. schools because of self-
perceived shortcomings in their academic record but who still desire to
become U.S. physicians or veterinarians. Admission standards at Ross
closely parallel those of U.S. schools, but at somewhat lower levels of
performance. The average Ross medical student is 26 years old, two years
older than the U.S. medical school average and is somewhat more than 50%
male. The average Ross veterinary student is 25 years old, one year older
than the U.S. veterinary school average and is 71% female. Most Ross
students are either citizens or permanent residents of the U.S.
Professional and Training
-------------------------
In June 1996, the Company acquired the Becker CPA Review. At the time of
acquisition, Becker was a leading international training firm preparing
students to take the national Certified Public Accountant and Certified
Management Accountant examinations.
Between 1996 and 1999, Becker acquired several regional CPA review firms,
strengthening its presence in the east coast market. In July 1999, the
Company acquired the operations of Conviser Duffy CPA Review. Conviser was
a national provider of CPA review courses, serving approximately 12,000
students annually at more than 200 locations. With the Conviser Duffy
acquisition, Becker teaching sites included numerous college campuses
throughout the United States.
Most recently, the Company acquired the assets of Person Wolinsky CPA
Review. Person Wolinsky offered CPA review courses in the New York City,
Philadelphia and Washington D.C. areas.
Becker offers CPA review classes at approximately 250 locations, including
sites in more than 30 foreign countries. Becker's numerous teaching
locations and the availability of online makeup sessions help students
whose schedules may occasionally conflict with class dates. To reach
students for whom class attendance is not practical because of location or
schedule, Becker offers the complete CPA review course conveniently
packaged on CD-ROM or in an online format. Online review course
18
enrollments have recently equalled approximately 40% of all students,
pointing to the importance of this method of delivery for many potential
exam takers. The CD-ROM and online products are interactive, bridging the
gap between classroom study and self study. The Becker CD-ROM course
provides the same instructor-led lessons and classroom materials that are
used in the classroom course. This method of study offers the opportunity
to study at one's own pace in the convenience of home, office or anywhere
else.
The Becker online course provides the same materials as are offered in the
classroom format. In addition each student is assigned a dedicated online
instructor providing individualized attention. The structured lesson plan
emphasizes the "work and remember" teaching system which has been so
successful in the Becker classroom environment.
Becker's proprietary course materials and teaching methods, which include
CD-ROM based presentation materials coupled with live classroom
instruction, result in pass rates on the CPA exam for Becker students which
the Company believes are substantially higher than the national average
pass rate, producing nearly one half of all students passing the CPA exam.
The November 2003 CPA exam was the last exam offered in the traditional
paper and pencil, fixed date and place format. Beginning in April 2004,
the exam is now offered only in a computer-based, on-demand format. The
new exam is administered for two months out of every three. For example,
the new exam was offered in April and May 2004, but not in June, and then
offered again in July and August.
Unlike the previous exam, which covered all four parts in a single exam
administration, a candidate may now elect to sit for less than all four
parts at one time. The Company believes that the effect of this change
increased enrollments for the review course leading to the last of the old
format exams in November but resulted in lower enrollments for review
courses preceding the first of the new exams in April, as some potential
exam takers took the opportunity to assess the experiences and results for
the first takers of the new exam format. However, the Company expects that
the number of exam candidates will return to historical levels from the
current reduced levels over the period of the next several quarters. The
19
Company also believes that some candidates will elect to take only one part
of the new exam at a time, extending the period over which its review
course revenue is earned.
In the spring of 2000, Becker offered a pilot version of its own CFA review
course for the Level 1 examination. In January 2001, the Company acquired
Stalla Seminars as a complement to its own review course. Stalla is a
leading provider of CFA review courses and study materials, offering
classroom seminars in selected cities in the United States and in major
financial centers around the world. Stalla also offers CFA exam study
materials in print, on video as a supplement to its classroom based
seminars or for use in independent study and in an online format. Although
the number of candidates seeking the Chartered Financial Analyst
professional designation has increased significantly over the past several
years, periodic employment reductions at some financial services firms has
negatively impacted the number of exam takers in some years and may affect
them again in the future. However, the Company believes that declining
exam pass rates, estimated now to be in the mid-thirty percent range for
the Level 1 and Level 2, exams may encourage more exam takers to enroll in
review courses such as those offered by the Company instead of just
purchasing books and trying to study for the exam on their own as many exam
takers have done in the past.
Becker serves an estimated more than 43,000 students annually through its
CPA, CFA and CMA review courses.
Customized educational and training programs are offered through the Center
for Corporate Education ("CCE"). CCE helps organizations achieve superior
performance through work force development, drawing on faculty and
curriculum resources from the DeVry University undergraduate and graduate
programs.
Competition
- -----------
DeVry University
----------------
The postsecondary education market is highly fragmented and competitive
with no single institution having a significant market share. There are
approximately 4,100 degree granting postsecondary education institutions in
20
the United States. DeVry University competes with other (1) for-profit
institutions, (2) community colleges, (3) public and private universities
that serve similar demographic segments, and (4) online education programs.
The undergraduate programs compete with traditional publicly supported and
independent two-year and four-year colleges, other for-profit schools and
alternatives to higher education, such as employment and military service.
Also, some large corporations have begun to offer their employees
accredited college courses that may be applied toward degrees.
At the graduate level, DeVry University competes for students in a market
consisting of students seeking management skills in business and
technology, additional certification or degree credentialing and
educational formats oriented to working adults. In every market in which
it operates, there are numerous state institutions and private, not-for-
profit universities. In addition, there is growing competition from online
programs and site-based for-profit school programs.
In each market, local community colleges and state universities continue to
provide educational alternatives to students for whom lower tuition cost is
a high priority. In addition, some educational institutions are reaching
out to partner with local businesses to expand their educational reach.
Many educational institutions are also recognizing the growing need for new
and updated programs in what are projected to be future high employment
demand occupations such as information systems, computer networking and
electronics. Although the for-profit segment of postsecondary education
has generally led the way in online education, many traditional
universities are expanding their offerings into the online format.
There is growing competitive pressure from community colleges, traditional
universities and technical colleges that include industry-specific
certification programs, mostly aimed at the computer information field.
Proprietary and community colleges are offering these industry-specific
certification programs and other short-term certificate programs as a
pathway to the job market for students who do not want longer and more
comprehensive career preparation.
Tuition at independent not-for-profit institutions is, on average, higher
than the tuition at DeVry University. Publicly supported colleges may
21
offer similar programs at a lower tuition level due to government
subsidies, tax-deductible contributions and other financial sources not
available to for-profit schools.
There are more than 1,100 public and private community colleges nationwide,
enrolling more than five million degree seeking students. Many local
community colleges offer highly affordable programs similar in content to
DeVry University's associate degree programs. While community colleges may
be viewed as competitors in the recruiting of students, they also provide
DeVry University an opportunity to serve their graduates with bachelor's
and master's degree programs through articulation and transfer agreements.
DeVry University believes that its competitive strengths in undergraduate
program offerings include: career-oriented curricula developed with
regular structured employer input that helps ensure graduates learn skills
that will be marketable to employers; faculty with related industry
experience; the demonstrated effectiveness of undergraduate career services
activities in obtaining education-related employment; national brand name
recognition and market presence; regional accreditation; authorization by
various states to grant degrees; modern facilities; well-equipped
laboratories; evening, weekend and online class schedules; and an academic
calendar schedule that allows attendance year-round, thereby permitting
earlier graduation. Only a limited number of traditional colleges offer a
bachelor's degree program that can be completed in three years. This
results in a significant financial advantage to DeVry students who are able
to enter the work force one year earlier than if they had attended a
traditional four-year undergraduate institution.
The expansion of DeVry University Online and DeVry University Centers has
added to the number of locations, class schedules and learning formats to
more effectively compete with educational program offerings by other
educational institutions.
DeVry University differentiates itself in the graduate program marketplace
by stressing a practitioner approach to education, excellence in teaching
by a faculty of practicing professionals and a high level of service to the
adult student. Beginning with fiscal 2004, graduate programs, both on-site
and online, were offered on a six 8-week term schedule each year.
Classroom-based courses generally meet once a week, either in the evening
or on Saturday. This schedule allows students with heavy travel or other
22
demands on their time to fit courses into their schedules. In addition, in
most markets, there is flexibility in course scheduling, a greater choice
of elective courses and a more convenient location than offered by its
competitors. There is also an accelerated format of the MBA program on
Saturdays at some locations for students who wish to complete their degree
more quickly and without disrupting their work week. As the market for
adult education programs has expanded in recent years, other schools have
implemented multi-location evening and weekend programs. However,
enrollments in DeVry University graduate programs continue to increase,
demonstrating the recognition it has earned as an innovator in providing
quality practical education.
With campuses and DeVry University Centers in an expanding number of states
and multiple locations within many of these states, DeVry University offers
distributed access points throughout the country to adults who may be
transferred from one part of the country to another by their employer or
who capitalize upon personal career opportunities in other locations.
Additionally, with the inclusion of all of its graduate programs and
selected undergraduate programs in a distance delivery format, DeVry
University has expanded its availability to all qualified students without
regard to their location or daily schedule. By delivering courses both on-
site, in an expanding number of sites, and online, DeVry University
benefits from the competitive advantage of enhancing student satisfaction
and success with this scheduling and format flexibility.
Ross University
---------------
For 2003, it is estimated that applications to U.S. medical and veterinary
medical schools aggregated over 35,000 and 6,700, respectively. From these
applicant pools, only approximately 17,000 and 2,300 students,
respectively, were accepted. Acceptance levels have remained largely
unchanged for more than two decades. The large number of denied medical
and veterinary applicants represent the largest segment of prospective
students for Ross University. Based upon the number of Medical College
Admission Test ("MCAT") takers, which exceeded 58,000 in 2003, increasing
from more than 56,000 in 2002, Ross University believes that the potential
market is much larger than the denied applicant pool alone.
The demand for medical education is expected to increase over the next
decade, spurred by a physician/supply demand imbalance that is projected to
grow. The educational capacity of U.S. medical schools has not changed
23
materially in over two decades. Because most university teaching hospitals
are losing money and because of budget pressures at state/federally funded
schools, there is little likelihood of any significant expansion of
capacity. Ross University believes the veterinary medical education market
is subject to many of the same forces.
Competing with Ross University in the medical education market, in addition
to the 125 U.S. based schools of medicine, are twenty U.S. Colleges of
Osteopathic Medicine which admit approximately 3,000 students annually, and
fifteen Caribbean based, U.S. modeled medical schools with U.S. based
clinical rotations. Competing with Ross University in the veterinary
education market, in addition to the U.S. based schools of veterinary
medicine, are two other offshore schools of veterinary medicine with much
lower enrollments.
Compared to its for-profit competitors, Ross University enjoys several
competitive advantages, including a large alumni base and strong
reputation, financial aid eligibility for its students and the large
network and diverse geographical opportunities for clinical rotations.
Professional and Training
-------------------------
Becker competes with other methods of CPA and CFA exam preparation,
including self-study; accounting firm and Association for Investment
Management and Research sponsored courses; courses offered by colleges and
universities; and courses offered by other private training companies.
According to reports by the National Association of State Boards of
Accountancy, more than 60% of first-time CPA exam candidates and more than
half of repeat candidates reported participating in a review course in the
six months prior to taking the exam. Courses offered by colleges and
private competitors generally have a lower total course cost to help
attract students.
Becker differentiates itself from its competitors by providing more
classroom hours of instruction, extensive and constantly updated review and
practice test materials and experienced, qualified instructors for each of
the areas of specialty included in the exam. Becker's CPA courses undergo
regular review and revision to stay current with the latest accounting
practice. With the introduction of the new computerized exam format,
Becker further updated its review course and includes practice simulations,
24
similar to those included in the actual exam. In addition, Becker's CD-ROM
and online courses offer a wider range of study alternatives than other
course providers. The high success rate of students who take the Becker
review course and the numbers of students enrolling after taking other
review courses or independent study, but not passing the CPA exam, are
testimony to the quality and value of the Becker methodology.
CPA, CMA and CFA exam candidates can also take the Becker review course
content and methodology in conjunction with their DeVry University MBA or
MAFM programs in most states in which Keller Graduate School classes are
offered, earning full graduate academic credit. These credits can also be
used to fulfill the 150 hour rule educational requirement to sit for the
CPA exam in those states where the 150 hour rule has been enacted. This
provides both Becker and DeVry University with an important competitive
advantage. To further extend the marketing and operational benefits of
joint operation, Becker offers classes at some DeVry undergraduate campus
and DeVry University Center locations.
The CFA review course is taught live in a classroom setting in selected
large financial markets around the world and in an online format to help
reach potential exam takers not able to attend the classroom course. In
the CFA exam preparation market, much like the CPA exam preparation market,
Becker competes with courses offered by other training companies and
student self- study.
Student Recruiting
- ------------------
DeVry University
----------------
Students are recruited by admissions representatives at on-campus
admissions offices and by field student recruiters. Field student
recruiters are an important nationwide element of the undergraduate
recruiting process because a significant portion of undergraduate students
come from outside the immediate area in which the campus they attend is
located. While all graduate school students are recruited by admissions
representatives, the percentage of undergraduate enrollment which comes
from each of these two recruiting sources varies campus by campus,
depending largely on the school's location and the size of the local market
area. Overall, admissions representatives currently generate more than 75%
of undergraduate total enrollments. DeVry University employs approximately
25
600 undergraduate admissions representatives and field recruiters
throughout the United States and Canada.
In order to recruit students in certain states and Canadian provinces,
representatives and recruiters must be licensed or authorized by the
appropriate regulatory agency. Regulations governing student participation
in U.S. federal financial assistance programs prohibit the payment of
commissions, bonuses or incentives to student recruiters based directly on
the number of students they enroll. The Company believes that its method
of representative and recruiter compensation complies with the current
regulations.
Admissions representatives are salaried, full-time Company employees. They
are located at each undergraduate campus, and at each graduate and DVUC
teaching center. They work with potential applicants who respond to the
Company's advertising or otherwise learn of the school. Admissions
representatives generally work with older students, many of them working
adults wanting to attend class in the evening or on weekends, recently
unemployed adults seeking to improve their job skills as a way to re-enter
the workforce and students transferring to a DeVry undergraduate program
from nearby community colleges. Each DeVry undergraduate campus has
entered into articulation agreements with nearby community colleges to
facilitate the enrollment of their students seeking to transfer course
credits into a DeVry program. Approximately 40% of new students recently
enrolled in U.S. DeVry undergraduate programs had some prior college
experience.
Students applying to the DeVry University undergraduate online education
program are recruited primarily by admissions representatives, either on a
campus or university center if the applicant lives or works in geographic
proximity, or by a central staff of admissions representatives who are
located at the Company's headquarters in Illinois or other Company
facilities and who are dedicated to serving online applicants. Students
seeking admission to the undergraduate online program can complete their
application process by telephone, fax and/or e-mail. In addition, some
students in areas remote from a DeVry University location may also be
recruited by a field sales representative in that territory.
26
Field student recruiters are salaried, full-time Company employees. The
field recruitment organization has the responsibility of managing all
recruitment activity in high schools, community colleges and military bases
in its assigned geographic territory. Field recruiters meet individually
with prospective undergraduate students who are contacted primarily through
high school, club and youth group presentations. These student recruiters
visited over 5,000 high schools in North America last year, making
presentations on career choices and the importance of a college education.
These presentations offer a service to high school educators by providing a
resource for educating students on careers in business and technology
related fields. The outcome of these presentations is the collection of
career surveys from high school juniors and seniors. These surveys provide
a large and important source of leads for student recruitment.
Field recruiters also receive student inquiries generated by direct mail
and television advertising in the particular recruiter's territory. Follow-
up interview sessions with prospective students are generally held in the
student's home with the student and his or her parents. Recruiting
opportunities also exist to U.S. military veterans with military-specific
technical training. Veterans are attracted to DeVry's practical career-
oriented education, and the expanding number of locations across the U.S.
are often near the home area to which the veteran will relocate.
In order to broaden its market position and reverse the pattern of reduced
responses to its undergraduate marketing program for technology programs,
in the spring of 2002 DeVry University hired DraftWorldwide, a large
advertising agency with strong strategic branding and direct response
capabilities. By the fall of 2002, a new ad campaign was introduced,
featuring the "University" in DeVry University, as its theme. Since then,
there have been several adjustments and improvements to the campaign to
improve potential applicant response.
In support of its admissions representatives and field recruiters, DeVry
University advertises on television and radio, in magazines and newspapers,
on various Internet sites, and utilizes telemarketing and direct mail to
reach prospective students. Prospective students are also frequently
referred by high school career counselors, employers, alumni or currently
enrolled students. In addition to these more traditional recruiting
methods, DeVry University's own Internet site provides another avenue for
students to receive information and apply for admission.
27
In addition to the student recruitment activities listed above, DeVry has
undertaken a number of new marketing initiatives to expand its enrollments.
Among these initiatives is the recent partnership agreement with the
Chicago Public School system to create the DeVry Advantage Academy. This
is a dual enrollment and dual credit program that allows high school
students with an aptitude for mathematics and technology to complete their
junior and senior year coursework at DeVry's Chicago campus while also
taking college-level courses taught by DeVry University faculty. After
completing Advantage Academy, students will graduate with both a high
school diploma and an associate degree in network systems administration.
All tuition, textbooks and educational materials are paid for by the
Chicago Board of Education. This program began in July 2004 with an
initial enrollment of 128 students selected from approximately 600
applicants. DeVry University hopes to expand this program to other cities
in which it has undergraduate campuses.
Other outreach and recruitment initiatives offered at some of the DeVry
University campus locations include weekend SAT preparatory classes for
high school seniors, Career Reality workshops to teach students and
educators about trends in business and industry as they relate to the
career decision-making process and the "HerWorld" program that encourages
more young women to pursue careers in technology.
To be admitted to an undergraduate program in the United States, an
applicant must be either a high school graduate, have a General Education
Development ("GED") certificate or have a degree from a DeVry approved
postsecondary institution. Applicants for admission must be 17 years old,
interview with an admissions advisor and complete an application for
admission. In Canada, an applicant must meet either the same criteria as
in the U.S. or meet alternative "mature student" criteria. Applicants must
also meet minimum admissions and placement examination scores which vary
depending on the program to which they are applying. In 1996, the
Computerized Placement Tests ("CPT"), which were designed in collaboration
with The College Board and Educational Testing Service, were first used for
undergraduate admissions. These exams help serve the needs of applicants
by better assessing their achievement levels and developmental needs during
the admission process. Since its introduction, minimum admission and
placement scores on the CPT have been raised several times in an effort to
better select and serve those students most likely to successfully complete
their educational program. Submission of ACT or SAT examination scores
28
deemed appropriate for the desired program or the submission of acceptable
grades in qualifying college-level work completed at an approved
postsecondary institution can also be used to meet undergraduate admission
requirements.
Subsequent to the completion of an application by prospective students who
will be attending a DeVry campus, the campus maintains contact with these
prospective students through phone calls, mailings and invitations to
campus run workshops to improve the rate at which such applicants begin
their program of study.
To be admitted to a graduate program, applicants must hold a baccalaureate
degree from a U.S. institution that is accredited by or is in candidacy
status with a regional accrediting agency. International applicants must
hold a degree recognized to be equivalent to a U.S. bachelors' degree.
Applicants who meet baccalaureate degree requirements and whose
undergraduate cumulative grade point average is 2.70 or higher are eligible
for admission. Applicants with a cumulative grade point average below 2.70
must achieve acceptable scores on either the Graduate Management Admission
Test ("GMAT"), the Graduate Record Examination ("GRE") or an alternative
admission test, designed and validated by Educational Testing Service. All
admissions decisions are based on evaluation of a candidate's academic
credentials, entrance test scores and a personal interview.
To assist students who live distant from the campus that they attend, DeVry
University helps undergraduate students secure local living arrangements.
While DeVry University had not constructed its own dormitory facilities,
lists of nearby available private apartments or rooms are maintained for
students' convenience. In addition, some campuses maintain furnished
apartments for shared rental by students. Students pay their housing
rental and fees to DeVry who contracts with the property owner. Thus,
DeVry becomes the students' landlord and students are assured of a fixed
rental charge per month, similar to more traditional dormitory or apartment
arrangements at other colleges. In an effort to attract more new students,
DeVry University is constructing a traditional dormitory facility adjacent
to its Fremont, California campus. This dormitory is planned to be
available for the start of the November 2004 semester.
29
Ross University
---------------
The Ross University medical and veterinary schools focus their marketing
efforts on attracting highly qualified U.S. applicants with the motivation
and ability to complete their educational programs and to pass the
applicable licensure examinations. To generate interest among potential
students, Ross employs a marketing program that includes a national poster
campaign at U.S. undergraduate campuses, web sites, visits to undergraduate
campuses to meet the pre-med, pre-vet advisors and prospective students,
targeted direct mail campaigns, alumni referrals, information seminars in
key markets and college newspaper advertising to build general awareness of
Ross and promote its information seminars. Nearly half of all leads come
through the Ross web site.
Ross employs regional admissions representatives who pursue expressions of
interest by arranging for interviews, campus tours and by assisting
prospective students in the application process. Admission requirements
include a four year undergraduate degree with courses in biology, chemistry
and math as appropriate to the curriculum. Interviews for the medical
school are conducted principally at Ross University facilities in New
Jersey and Miami, Florida. Interviews are also conducted at locations in
California, Massachusetts and Michigan when appropriate. Interviews for
the veterinary school are conducted principally in Florida, California and
New Jersey. All admission decisions are made by the faculty Admissions
Committees at the respective schools.
Professional and Training
-------------------------
Becker markets its courses directly to potential students and to selected
employers, e.g., the large national and regional accounting and financial
services firms. Alumni referrals, direct mail, print advertising and a
network of on-campus recruiters at colleges and universities across the
country generate the new students who take the CPA, CMA or CFA review
courses. Becker runs its CPA review program on about 70 college campuses,
recruiting students attending that college. Becker is also the preferred
provider of CPA review for several of the largest CPA firms. The Becker
Internet site provides another source of information to interested
applicants. Becker also enrolls many students who have previously
completed a competitor's course or a self-study program but were then
unable to pass the exam.
30
In response to the 150 credit hour requirement to take the CPA exam, some
of the top colleges and universities have designed their accounting
programs to add a fifth year, either with a master of accounting curriculum
or in connection with their MBA programs. In 1998, Keller introduced a
graduate program, Master of Accounting and Financial Management. The MAFM
program includes tracks for CPA, CMA, and CFA candidates and culminates
with the appropriate Becker exam review course.
Becker has introduced the CPA review course on CD-ROM and online for
students who are unable to attend classroom based instruction. With the
acquisition of Stalla Seminars, the CFA exam course is now offered in an
expanded number of classroom locations and online.
Accreditation and Approvals
- ---------------------------
Accreditation is a process for recognizing educational institutions and the
programs offered by those institutions for achieving a level of quality
that entitles them to the confidence of the educational community and the
public they serve. In the United States, this recognition is extended
primarily through nongovernmental, voluntary, regional or specialized
accrediting associations. Accredited institutions are subject to periodic
review by accrediting bodies to ensure that these institutions maintain the
levels of performance, evidence institutional and program improvement,
demonstrate integrity and fulfill other requirements established by the
accrediting body.
Although regional accreditation in the United States is a voluntary process
designed to promote educational quality and improvement, it is an important
strength for DeVry University, providing significant advantages over most
other for-profit colleges. College and university administrators depend on
the accredited status of an institution in evaluating transfers of credit
and applications to their schools. Employers rely on the accredited status
of an institution when evaluating a candidate's credentials, and parents
and high school counselors look to accreditation for assurance that an
institution meets quality educational standards. Moreover, accreditation
is necessary for students to qualify for eligibility for federal financial
assistance. Also, most scholarship commissions restrict their awards to
students attending accredited institutions.
31
DeVry University
----------------
Until February 2002, DeVry Institutes and Keller Graduate School were each
separately accredited by The Higher Learning Commission of the North
Central Association of Colleges and Schools ("NCA"), one of the six
regional collegiate accrediting agencies recognized by the U.S. Department
of Education. The North Central Association is the same accrediting agency
that accredits other four-year publicly supported and independent colleges
and universities in the North Central region. Keller Graduate School was
first awarded its NCA accreditation status in 1977 and DeVry Institutes was
first awarded NCA accreditation status in 1981. The DeVry Institutes and
Keller separate accreditations were last reaffirmed by the Higher Learning
Commission of The North Central Association in 1992 for the maximum ten
year period.
In February 2002, the Higher Learning Commission of the North Central
Association approved the merger of DeVry Institutes and Keller Graduate
School of Management into a single educational institution with the name
DeVry University. This represents institutional recognition of the
corporate governance and comprehensive higher-education system that is
DeVry University.
A comprehensive evaluation visit by NCA was conducted during August 2002.
Subsequently, the Higher Learning Commission of NCA approved another 10
year re-accreditation for DeVry University. NCA further affirmed that
DeVry University can offer, without restriction, any of its programs on-
site, online or through any combination of the two. As a part of the re-
accreditation, DeVry University submitted an interim report in May 2004
that included a status of the implementation of the merger into a single
entity. The Company received notification that its report was reviewed and
accepted. This successfully completed all requirements related to the 2002
NCA evaluation.
Until recently, under Canadian law, the Canadian undergraduate campuses
were not permitted to grant degrees. However, students at the Canadian
campuses could transfer to campuses in the U.S. to complete their degree
requirements. In 1995, the Alberta Department of Advanced Education, the
State of Arizona and the Higher Learning Commission of the North Central
Association of Colleges and Schools approved the DeVry campus in Phoenix to
offer several bachelor of science degree-completion programs on the Calgary
campus. This allowed students attending classes at the Calgary campus to
32
complete their degree studies without relocating to a campus in the United
States. In 2001, the province of Alberta granted accreditation to DeVry
Calgary to offer bachelor of technology degree programs in electronics
engineering technology and computer information systems, as well as a
bachelor of business operations degree program. DeVry Calgary became the
first private, for-profit institution in Canada to be provincially
accredited to grant baccalaureate degrees.
Accreditations of DeVry University in the United States and Canada are as
follows:
UNITED STATES CANADA
---------------------------------- -----------------------------------
Higher Learning Commission of the Calgary campus bachelor of
North Central Association. NCA is technology in Electronics
listed by the U.S. Department of Engineering Technology, bachelor of
Education as a recognized technology in Computer Information
accrediting association. Systems and bachelor of Business
Operations is accredited by the
The baccalaureate Electronics Alberta Private Colleges
Engineering Technology (EET) Accreditation Board.
programs at most U.S. locations are
accredited by the Technology Calgary campus Computer Engineering
Accreditation Commission of the Technology and Information
Accreditation Board for Engineering Technology curricula continue
and Technology (TAC of ABET). The accreditation under the DeVry
associate-and baccalaureate-level University campus in Phoenix as an
EET programs in North Brunswick are off-site instructional location.
TAC of ABET accredited.
The Electronics Engineering
Technology program is accredited by
the Canadian Technology
Accreditation Board (CTAB).
DeVry campuses will apply for TAC of ABET accreditation for the Biomedical
Engineering Technology and Computer Engineering Technology programs when
their first classes graduate. Also, newly opened DeVry campus locations
will apply for TAC of ABET accreditation for their eligible programs when
their first classes graduate.
33
In the United States, each DeVry University location is approved to grant
associate, bachelor's or master's degrees by the respective state in which
it is located.
Ross University
---------------
The Medical School has been recognized and accredited as a University and
School of Medicine by the Dominican Medical Board ("DMB"). The National
Committee on Foreign Medical Education ("NCFME") of the U.S. Department of
Education has affirmed that the DMB has established and enforced standards
of educational accreditation which are the equivalent of those promulgated
by the U.S. Liaison Committee on Medical Education ("LCME"). In
conjunction with the change in ownership from the Company's acquisition of
Ross University in May 2003, the Dominica Medical Board conducted site
visits to the Dominica campus and the Miami facility. Additional site
visits and reviews are expected to be conducted in 2005 as a part of this
process. In addition, the states of New York, New Jersey, California and
Florida, the only four states to require separate licensure for medical
schools, have approved or found the Ross program of study to be acceptable.
The Veterinary School has been recognized as a University and School of
Veterinary Medicine by the government of the Federation of St. Christopher
Nevis, St. Kitts, and is American Veterinary Medical Association ("AVMA")
listed. The Veterinary School is affiliated with 21 AVMA accredited U.S.
Colleges of Veterinary Medicine. Only students who graduate from an AVMA
listed school are eligible for U.S. licensure.
State and Provincial Approval and Licensing
- -------------------------------------------
Authorizations from state or provincial licensing agencies or ministries
are required to recruit students, operate the Company's schools and exam
preparation courses, and grant degrees. Generally, the addition of any new
program of study or new operating location also requires approval by the
appropriate licensing and regulatory agencies. Many states and provinces
require for-profit postsecondary education institutions to post surety
bonds for licensure. The Company has posted more than $8 million of surety
bonds with state and local regulatory authorities on behalf of DeVry
University and Becker Professional Review in the U.S. and approximately CDN
$1.1 million of surety bonds with regulatory agencies in Canada. Certain
states have set standards of financial responsibility different from those
34
prescribed by federal regulation. The Company believes it is in material
compliance with state and Canadian provincial regulations. If the Company
were unable to meet the tests of financial responsibility for a specific
state, and could not otherwise demonstrate that it was financially
responsible, it could be required to cease operations in that state. To
date, the Company has successfully demonstrated its financial
responsibility where required.
Tuition and Fees
- ----------------
DeVry University
----------------
Effective with the spring 2004 term, tuition at the United States
undergraduate campuses and University Centers for two semesters (one
academic year) ranged from $10,640 to $11,860. Variations in tuition
depend on the particular campus attended. Based upon current tuition
rates, for a student enrolling in the five term undergraduate Electronics
and Computer Technology program, total tuition cost would range from
$26,600 to $29,650. For a student enrolled in the nine term undergraduate
Electronics Engineering Technology program, total tuition cost would range
from $47,880 to $53,370. Students enrolled in an online program pay
somewhat different tuition rates. Students enrolled on less than a full
time basis are charged a somewhat lower tuition. A price tuition increase
of approximately 5.1% has been announced for the November 2004 term.
Undergraduate tuition rates at DeVry University are below the average
tuition at four-year independent institutions, but are higher than the
average at four-year publicly supported institutions. For the academic
year 2003/2004, the average annual tuition and fees at four year private
schools was reported by the College Board to be $19,710, an increase of
6.0% from last year, while the average annual tuition and fees at four year
publicly supported institutions was $4,694, an increase of more than 14%
from last year. Two year publicly supported institutions reportedly
increased their tuition by 13.8% to $1,905 per year. Tuition rate
increases in the past two years have generally been the largest rate
increases since the late 1980s and early 1990s.
The DeVry University undergraduate tuition increase in the summer of 2003
was approximately 6.5%, varying somewhat depending on the campus attended.
Tuition increases in previous years approximated the rate of increase at
35
many other postsecondary education institutions. In early 2002, some state
supported educational institutions, affected by reduced funding because of
declining state tax revenues, announced double digit tuition rate
increases. Similar tuition rate increases occurred in the following year.
However, their tuition rates for students qualifying for in-state tuition
generally remain below those at DeVry University undergraduate campuses.
Tuition rates at the Calgary campus in Canada are somewhat lower than those
at campuses in the U.S.
Students at several DeVry University campuses enrolled in the Computer
Information Systems program receive a laptop computer as part of the
program and pay a somewhat higher tuition.
Effective with the March 2004 term, graduate program tuition per classroom
course (four quarter credit hours) ranges from $1,410 to $1,770, depending
on the location at which the student is enrolled. This is an increase of
approximately 4.8% and compares to tuition rates from $1,345 to $1,690
implemented in July 2003. The price for a graduate course taken online is
$1,800.
If a student leaves school prior to completing a term, federal, state and
Canadian provincial regulations and accreditation criteria permit the
Company to retain only a set percentage of the total tuition received from
the student, which varies with, but generally equals or exceeds, the
percentage of the term completed by the student. Amounts received in
payment by the Company in excess of such set percentages of tuition are
refunded to the student or the appropriate financial aid funding source.
In addition to the tuition amounts described above, students at DeVry
University must purchase textbooks and supplies as part of their
educational program.
Ross University
---------------
Current tuition and fees for the basic sciences portion of the program of
the Medical School and Veterinary School are $10,100 and $10,250 per
semester, respectively. These tuition rates became effective in January
2004 and represent an approximately 5.3% increase from the tuition rates
that were implemented in January 2003. Tuition and fees for the clinical
36
portion of the programs are $11,100 and $12,450 per semester for the
Medical and Vetinerary schools, respectively. These amounts do not include
the cost of books, supplies or living expenses.
The Company believes that the tuition charged by Ross University is at the
low end of the range of prevailing tuition rates in private medical and
veterinary schools but approximately equal to or higher than tuition rates
in publicly supported medical and veterinary schools. Tuition rates have
increased every year and have not produced a decline in new student
enrollments.
Professional and Training
-------------------------
The price of the complete classroom Becker CPA review course is $2,340,
which includes an enrollment fee. The complete CPA review course on CD-ROM
and the complete online review course is also priced at $2,340. Exam
candidates may elect to enroll for individual sections of the exam review
course at a price of $840 per section. Discounts from these tuition rates
are offered under various enrollment promotions at college campuses and for
students employed by participating accounting firms. The list price for the
basic on-site CFA exam course is $1,290 and is subject to various
promotional program discounts.
Financial Aid and Financing Student Education
- ---------------------------------------------
DeVry University
----------------
Students attending DeVry University finance their education through a
combination of family contributions, individual resources (including
earnings from full- or part-time employment), financial aid (including
Company-provided financial aid) and tuition reimbursement from their
employers.
The Company believes that more than 70% of its U.S. undergraduate students
receive some government-sponsored financial aid and that a similar
percentage of the students attending the Calgary, Canada, DeVry campus
receive some government-sponsored financial assistance. A 1999-2000 study
on student financing of undergraduate education found that approximately
55% of all students enrolled in postsecondary education programs received
some form of financial aid from federal, state, institutional or other
sources.
37
DeVry University assists its undergraduate students in locating part-time
employment. Data from the National Center for Education Statistics
indicates that almost half of all full-time college students between the
ages of 16 and 24 are employed. The Company believes that a substantially
greater percentage of its full-time undergraduate students are employed to
help finance their costs of education. DeVry develops an assistance
package for students who require financial aid on the basis of a financial
aid application completed by the student and the student's family.
Government-sponsored financial aid is of great importance to the Company
because more than 60% of the U.S. undergraduate tuition, book and fee
revenues have been financed by government-provided financial aid received
by its students.
Although not as significant for Keller Graduate School, government-
sponsored financial aid is utilized by more than an estimated 50% of its
graduate students, providing approximately 40% of its revenues.
Additionally, the Company believes that more than one half of its graduate
students receive some tuition reimbursement assistance from their
employers.
The government-provided financial aid and assistance programs in which many
of the Company's students participate are subject to political and
governmental budgetary considerations. In the United States, the Higher
Education Act guides the federal government's support of postsecondary
education. The Act was most recently reauthorized in the fall of 1998,
redefining and extending the numerous financial aid programs currently in
existence. Congress is holding hearings on the next Reauthorization of the
Higher Education Act, but it is not expected to be completed before the
108th Congress adjourns this fall. However, even if reauthorization is not
completed, current financial aid programs are expected to be extended as
they have been in the past. There is no assurance that federal funding
will be continued at its present level or in its present form. A reduction
in funding levels to financial aid programs could result in lower
enrollments or an increased amount of Company-provided financial aid to its
students.
Extensive and complex regulations in the United States and Canada govern
all of the government grant, loan and work study programs in which DeVry
University and its students participate. Regulations and standards that an
institution must satisfy in order for its students to participate in
38
federal financial assistance programs include, among others, maximum
student loan default rates; limits on the proportion of an institution's
revenue that can be derived from federal aid programs; prohibition of
certain types of incentive payments to student recruiters; standards of
financial responsibility and administrative capability requirements.
In 1998, the Department of Education introduced a new standard of financial
responsibility test. The standard is based upon a composite score of three
ratios which are designed to measure various aspects of an educational
institution's financial stability. These ratios include an equity ratio
which measures the institution's capital resources, a primary reserve ratio
which measures an institution's ability to fund its operations from current
resources and a net income ratio which measures an institution's ability to
operate profitably.
In June 2004, the Company received notice from the Department of Education
that the Equity, Primary Reserve and Net Income ratios ("financial
responsibility ratios") yielded a composite score of 1.4 for the year ended
June 30, 2003. A minimum score of 1.5 is necessary to fulfill the
requirements of the Department's financial standards. Effective with
receipt of this notice, the Department required DeVry University to make
financial aid disbursements under a Cash Monitoring mode. Under this Cash
Monitoring, DeVry University could not submit requests for financial aid
funds for its students in an amount greater than the amount of the actual
disbursements made to students included in the request. DeVry University
has historically requested financial aid reimbursements in a fashion
similar to that imposed by this restriction and, therefore, cash flow was
not significantly affected. In late July, DeVry University, in response to
its request, received notice from the Department of Education that the
restriction to operate under Cash Monitoring had been suspended pending
submission of audited financial statements for the year ending June 2004.
The Company's calculation of its composite score at June 2004 is above the
required minimum of 1.5.
The Company believes that it has demonstrated a high level of financial
stability and will be able to continue to do so. Failure to achieve these
financial responsibility standards or otherwise demonstrate, within the
regulations, its ability to continue to provide the educational services it
offers could result in the Company being required to post a letter of
credit to permit its students to continue to participate in federal
39
financial assistance programs. In addition to the regulations and
standards which must be met by the institution, student recipients of
financial aid must maintain satisfactory progress toward completion of
their program of study and an appropriate grade point average.
Institutions that participate in U.S. federal financial aid programs must
disclose information about undergraduate student completion rates to
current and prospective students. The federal Student-Right-To-Know Act
defines the cohort of students on which the institution must report as
"first-time, full-time degree-seeking" students. At DeVry University,
undergraduate admission requirements have been changed and student support
services have been added, both aimed at improving student completion rates.
For the fall 1996 freshman student cohort (the latest period for which
final completion statistics are available), the graduation rate for the
system of U.S. undergraduate campuses remained unchanged from the prior
year which increased slightly from the 1994 rate. The Company is currently
compiling its completion statistics for 1997. Preliminary results indicate
that the completion rate has increased somewhat from 1996. Completion
rates, as defined by the Student-Right-To-Know Act at each of the U.S.
undergraduate campuses, generally fall within the range of completion
rates, at selected four-year urban public colleges in the areas in which
these campuses are located. Many students who previously attended another
college are admitted to DeVry's undergraduate programs but are not included
in these completion rate statistics. Completion rates for the
undergraduate students entering with previous college experience are
generally higher than for first-time students.
DeVry University maintains a staff at its Oakbrook Terrace headquarters to
review, interpret and establish procedures for compliance with regulations
governing financial assistance programs and process financial aid
applications from its students. Because financial assistance programs are
required to be administered in accordance with the standard of care and
diligence of a fiduciary, any regulatory violation could be the basis for
disciplinary action, including the initiation of a suspension, limitation
or termination proceeding against DeVry University. Changes in or new
interpretations of applicable laws, rules or regulations could have an
adverse effect in the future.
40
In the United States, DeVry University has completed and submitted all
required audits of compliance with federal financial assistance programs
for fiscal 2003, and its independent auditors are currently conducting the
required audits of the one year period ending June 30, 2004. In
conjunction with previously filed audit reports on the processing of
financial aid on behalf of its student's participation in federal financial
aid programs, DeVry University has been required to post letters of credit,
generally of one year duration, in amounts totaling approximately $1.4
million. This compares to $2.5 million in letters of credit outstanding
last year.
The Department of Education may periodically conduct site visits at any of
the Company's locations as a part of its program of periodic review of the
administration of student financial assistance programs. In April 2002,
the Company received notice from the Office of Postsecondary Education of
the United States Department of Education of a limited scope program review
of federally funded student financial assistance programs administered by
DeVry on behalf of its undergraduate students. This review was conducted
at the Company's headquarters office in late May. The final report on this
review was issued by the Office of Postsecondary Education in June. It
included recommendations for process improvements but did not impose any
monetary liability on the Company. Such program reviews may be conducted
at any educational institution at any time and have been conducted in the
past at several DeVry campuses. Previous Department of Education program
reviews at DeVry have not resulted in material findings or adjustments.
Although the Company has no reason to believe that any proceeding against
the Company is presently contemplated, if such a proceeding were initiated
against the Company and resulted in a substantial curtailment of DeVry
University's participation in government grant or loan programs, the
Company could be adversely affected.
In January 2003, the New York State Comptroller's Office began an audit of
DeVry New York's compliance with the New York State Tuition Assistance
Program Grant ("TAP") requirements for the three year period ending June
2002. Fieldwork was completed in June 2003 and a preliminary report was
issued in July. The Company responded to the preliminary report,
disagreeing with some of the findings in the report. Subsequently, the
Company received an amended report. Based upon this report, the Company
41
believes that the final determination of disallowance resulting in
financial liability to the Company will not be material in amount and has
been reserved for as of June 30, 2004.
In March 2004, the California Student Aid Commission ("CSAC") conducted a
review of the Cal Grant program for the Company's California undergraduate
campuses in the state. To-date, the Company has not received a final
report of this review and does not believe that there will be any
significant monetary liability.
In Canada, the Toronto-area campuses completed and submitted the required
annual review of Ontario Student Assistance Program administration for
fiscal 2002. In conjunction with the required annual review procedures
related to its administration of financial aid programs under the Ontario
Student Aid Program, the Toronto-area DeVry campuses engaged in discussions
with the Ontario Ministry of Education relating to certain additional
information requirements for the 2001 and 2002 financial aid years. These
additional information requirements could serve as the basis for a Ministry
claim for the return of some amounts of financial aid disbursed to students
attending these campuses. Although there are no current discussions
underway with the Ministry, based upon its previous discussions, the
Company believes that there will be no significant monetary liability. The
Company's Toronto-area campus does not accept new student admissions and is
being operated under an agreement with the RCC College of Technology as
previously discussed. Accordingly, the Company is no longer participating
in these financial aid programs.
In the spring of 2004, the Company received a complaint from a student at
its Alpharetta, Georgia, DeVry undergraduate campus that an admissions
advisor had entered incorrect financial information into the student's
application for financial aid. Upon review by the Company, it was
determined that financial information entered for this student and several
other students was incorrect. The Company promptly notified the U.S.
Department of Education of its review and findings as required by federal
regulation and terminated several employees for the violation of Company
policies. The Company's internal controls prevented any student from
receiving an incorrect disbursement. The Chicago office of the Inspector
General acknowledged that the Company should continue its internal review
and report any further findings within six months. The Company expects to
complete and submit this report as required.
42
The following is a description of the U.S. and Canadian financial aid
programs in which DeVry University students participate:
United States Government Financial Aid Programs: The following U.S.
Department of Education financial aid programs under Title IV of the Higher
Education Act are utilized by DeVry University students in the United
States: (1) Federal Pell Grant ("Pell"), (2) Federal Supplemental
Educational Opportunity Grant ("SEOG"), (3) Federal Family Education Loan
Program ("FFELP"), (4) William D. Ford Federal Direct Student Loan Program
("FDSL"), (5) Federal Perkins Direct Student Loan program ("Perkins") and
(6) Federal Work Study ("FWS").
Grants: These funds, made available by the government to all eligible
students who demonstrate financial need, do not have to be repaid.
Only undergraduate students are eligible to participate in the Pell
and SEOG Grant programs. Eligible students received a Pell grant
which ranged in amount from $400 to $4,150 for the 2003/2004 year.
For the 2004/2005 year, the maximum Pell grant remains unchanged.
Increases in Pell grant limits have historically lagged behind the
rate of tuition increases.
SEOG is a supplement to the Pell grant, available to only the neediest
undergraduate students because SEOG funds are limited in amount at
each institution based upon a federally-determined formula. The
maximum SEOG award is $4,000 per academic year. In addition to these
federal assistance funds, DeVry University is required to make a 25%
institutional matching contribution of all federal SEOG funds. The
institutional matching contribution may be satisfied, in whole or in
part, by DeVry scholarship funds, discussed separately in this
section, or by externally provided scholarship grants.
Loans: Students at DeVry University participate in the Stafford and
PLUS programs within the FFELP and FDSL program and in the Perkins
loan program. Under the FDSL program, students or parents borrow
directly from the Department of Education, rather than from commercial
lenders, under terms that are generally the same as for loans under
the FFELP.
STAFFORD LOANS: A subsidized Stafford loan, awarded on the basis
of student financial need, is a low interest loan with interest
43
charges and principal repayment not scheduled to begin until six
months after a student no longer attends school on at least a
half-time basis. Loan limits per academic year range from $2,625
for students in their first academic year to $5,500 for students
in their third or higher academic year, increasing to $8,500 per
academic year for graduate students. An unsubsidized Stafford
loan may be awarded to students who do not meet the needs test
and incurs interest charges from the time the loan is disbursed;
however, the interest payment may be deferred until the principal
payments begin. Unsubsidized loan limits per academic year range
from $4,000 for students in their first academic year to $5,000
or $6,000 in higher academic years, depending upon the student's
financial status determination as dependent or independent,
increasing to $10,000 per academic year for graduate and
professional program students. Both the subsidized and
unsubsidized loans are available to undergraduate and graduate
students.
PLUS LOANS: A PLUS loan enables parents of a dependant student to
borrow for the cost of their children's education. These loans
are not based on financial need, they are not subsidized and
interest charges and repayment begin following receipt of the
loan.
PERKINS LOANS: A Perkins loan is a low interest loan available to
only those undergraduate students who demonstrate exceptional
financial need. Perkins loans are available up to a maximum of
$4,000 per academic year. Funding for this program is provided,
in part, by the Department of Education and, in part, by the
participating institution. As loans are repaid, the principal
and interest from these repayments is returned to the pool of
funds available for future loans to students at that institution.
New funding from the Department of Education is limited in amount
based upon federally determined rules.
Approximately 80% or more of the financial aid received by DeVry
University undergraduate students and 100% of the federal financial
aid received by its graduate students has been provided by federal
student loans.
44
Work Study: Work opportunities, both on or off-campus, under FWS are
offered on a part-time basis to undergraduate students who demonstrate
financial need. Work Study wages are paid partly from federal funds
and partly from qualified employer funds.
State Financial Aid Programs: In addition to the various federal loan and
grant programs, state grant and loan assistance may be received by eligible
students attending DeVry University undergraduate campuses in Arizona,
California, Colorado, Florida, Georgia, Illinois, Missouri, New Jersey, New
York, Ohio and Pennsylvania.
"90/10 Rule": This U.S. Department of Education regulation affects only for-
profit postsecondary institutions, such as DeVry University. Under this
regulation, students attending a for-profit institution that derives more
than 90% of its revenues from federal financial assistance programs in any
year are not able to participate in these programs for the following year.
This regulation is commonly referred to as the "90/10 rule." Prior to
1999, the rule permitted only 85% of revenues to be collected from federal
financial assistance programs. When the limit was increased to 90%, the
definition of revenues was modified to exclude revenue funded by
institutional scholarships. Final data for fiscal 2004 are not yet
complete but, in fiscal 2003, the U.S. undergraduate campus system derived
approximately 64% of its revenues from these programs. Approximately 40%
of revenues from students enrolled in graduate programs was derived from
these defined financial aid programs.
In fiscal 2002 and preceding years, each of the DeVry undergraduate
campuses (except for those that operated as an additional location of an
established campus), and the graduate teaching centers as a group were
established as separate institutions under the Higher Education Act ("HEA")
provisions and must separately have met the criteria for the "90/10 rule"
and loan default rates. Beginning with fiscal 2003, all of the DeVry
undergraduate operations were combined into a single reporting rate.
In addition to the various financial aid programs described above, there
are a number of tax favored programs aimed at promoting savings for future
college expenses. These include state sponsored "529" college savings
plans, state sponsored prepaid tuition plans, education savings accounts
(formerly known as education IRAs), custodial accounts for minors, Hope and
Lifetime Learning credits and student loan interest tax deductions.
45
Canadian Government Financial Aid Programs: Canadian undergraduate
students, other than students from Quebec, are eligible for loans under the
Canada Student Loan Plan, which is financed by the Canadian government but
administered at the provincial level. Canadian Student Loans are available
to DeVry students who are Canadian citizens or permanent residents of
Canada. Students who meet residency requirements within the Province of
Ontario and attend an approved postsecondary institution, are eligible to
participate in the Ontario Student Loan Program. Students from Quebec are
eligible for loans under the Quebec Student Loan Plan. The loans are
interest-free while the student is in school, and repayment begins six
months after the student leaves school. Canada Study Grants for students
whose financial needs and special circumstances cannot otherwise be met,
tax-free withdrawals from retirement savings plans, tax-free education
savings plans, loan repayment extensions and interest relief on loans are
also available to qualified applicants to help finance their education.
Company-Provided Financial Assistance: The Company's EDUCARD Plan is
available to undergraduate students attending U.S. campuses. Similar
installment payment options are available at the Calgary, Canada campus.
The EDUCARD Plan is an installment loan program designed to assist students
unable to completely cover educational costs with student and family
contributions, federal and state grants and loans. The installment loan
feature of the EDUCARD Plan is available to a student only after other
student financial assistance has been applied toward the payment of
tuition, books and fees and is available only for those purposes.
Repayment of EDUCARD Plan balances is negotiated in accordance with the
financial circumstances of the particular student, but most typically is a
monthly repayment plan with all balances required to be paid within 12-24
months following a student's graduation or termination of study. The
receivable balance related to DeVry University's EDUCARD Plan for its U.S.
undergraduate students at June 30, 2004, was approximately $28.0 million,
compared to approximately $21.2 million last year. The Company believes
that higher tuition rates with no corresponding increase in financial aid
availability and a weaker job market for students seeking part-time
employment have contributed to the increased receivables. Amounts owed by
students under the EDUCARD Plan are subject to a monthly interest charge of
1% of the average outstanding balance.
In September 2000, several undergraduate campuses began offering a
supplementary loan program with funding from private lenders. This new
46
program was aimed at students whose eligibility for federal and state
funded financial aid is not sufficient to cover all their costs of
education. This program, with a limited DeVry University risk sharing for
loan defaults, has longer repayment periods, lower monthly payments and
generally lower interest rates on borrowings than offered by the EDUCARD
Plan, and is intended as an alternative to the current EDUCARD program.
This program has been expanded to additional campuses since its
introduction.
In addition to the student financial assistance provided by the EDUCARD
Plan, numerous scholarships are offered to DeVry University undergraduate
students. Scholarship programs have been offered in previous years and are
expected to be offered in the future. The most recent addition to the
DeVry University scholarship offerings are the Community College
Scholarship and the Community College Scholars Award. These partial
tuition scholarships that are offered exclusively to community college
graduates, are valued at $1,500 and $1,000 per semester, respectively. The
DeVry campuses have also provided funds in the form of institutional grants
which help those students most in need of financial assistance.
Keller Graduate students who wish to defer tuition payment may choose from
several deferred payment plans and students eligible for tuition
reimbursement plans may be able to have their tuition billed directly to
their employer.
The U.S. Congress has, from time to time, provided various tax benefits
related to educational expenses incurred by graduate and undergraduate
students. Educational expenses paid by an employer on behalf of an
employee generally are excludable from the employee's income if provided
under a qualified educational assistance plan. At present, the maximum
annual exclusion is $5,250.
Ross University
---------------
Eligible students attending the Ross University School of Medicine and the
School of Veterinary Medicine can receive federal financial aid in the form
of student loans. Loan limits are $18,500 per academic year with a
$138,000 aggregate borrowing limit. In addition to student loans under
Title IV regulations, many Ross students borrow additional amounts under
private loan programs to pay the portion of their tuition that exceeds
47
federal loan limits and also to help pay for living expenses while they are
in school. Ross University offers a limited number of full tuition
scholarships to students who meet the necessary qualifications.
Professional and Training
-------------------------
Students attending the Becker CPA, CMA or CFA review courses are not
eligible for federal or state financial aid, but many of them receive
partial or full tuition reimbursement from their employers.
Student Loan Defaults
- ---------------------
DeVry University
----------------
DeVry University believes that, historically, federal student loans
represented more than 80% of the federal aid received by its U.S.
undergraduate students and 100% of the federal aid received by its graduate
students. For a variety of reasons, high student loan default rates on
federal student loans are most often found in proprietary institutions,
institutions having large minority student populations and community
colleges, all of which tend to have a higher percentage of low income
students enrolled than do four-year publicly supported and independent
colleges and universities. In 1989, the U.S. Department of Education
instituted strict regulations that penalize educational institutions whose
students have high loan default rates. These regulations were further
tightened by the 1992 Higher Education Reauthorization Act. Any individual
institution with a FFELP or FDSL cohort default rate exceeding 20% for the
year is required to develop a default management plan in order to reduce
defaults, although the institution's operations and its students' ability
to utilize student loans are not restricted. Any individual institution
with a FFELP or FDSL cohort default rate of 25% or more for three
consecutive years is ineligible for participation in these loan programs
and cannot offer student loans administered by the U.S. Department of
Education for the fiscal year in which the ineligibility determination is
made and for the two succeeding fiscal years. In addition, students
attending an institution whose cohort default rate has exceeded 25% for
three consecutive years will be ineligible for Pell grants. Any
institution with a FFELP or FDSL cohort default rate of 40% or more in any
year is subject to immediate limitation, suspension or termination
proceedings from all federal aid programs. No DeVry campus has ever had a
FFELP cohort default rate of 25% or more for three consecutive years nor a
cohort default rate of 40% or more in any one year.
48
DeVry University carefully monitors its students' loan default rate. To
help reduce student loan default rates, the Department of Education
requires that all educational institutions wait 30 days before disbursing
funds to first-time, first-year undergraduates to prevent potential early-
term dropouts from defaulting on their loans. Students who leave school in
the early part of their educational program typically default on their
loans at a higher rate than do students who remain and complete the
program. Another significant factor in controlling student loan default
rates is the servicing and collection efforts by lenders and guaranty
agencies. DeVry University assists the efforts of these lenders and
agencies by contacting its students who are delinquent in their loan
repayments and advising them of their responsibilities and rights to
deferments or collection forbearance if they are eligible.
According to the U.S. Department of Education, the final default rate for
2001 (the latest year for which data is available) for all colleges and
universities eligible for federal financial aid was 5.4% compared to 5.9%
in the previous year. DeVry University had a FFELP U.S. student loan
cohort default rate for 2001 of approximately 7.5%. This compares to a
weighted system average of 8.7% for 2000. The reported rates for 2001
reflect the proportion of former students who were due to begin repaying
their loans during that year but who were in default by the end of 2002.
DeVry University is not subject to any restriction or termination under any
student loan program.
Undergraduate students who attend the U.S. DeVry campuses also participate
in the Federal Perkins loan program. The program, including the
responsibility for collection of outstanding loans, is administered by the
institution. Any institution with a Perkins loan cohort default rate
exceeding 15% must establish a default reduction plan. Any institution
with a Perkins loan cohort default rate between 20% and 30% will receive a
reduced annual federal contribution to the program. If the Perkins loan
cohort default rate exceeds 30%, the institution will not receive any new
federal contribution to the program. However, new loans to eligible
students may continue to be made from the pool of funds created by monthly
repayments on previous loans.
For fiscal 2002, the DeVry University Perkins loan cohort default rate was
approximately 13.8%. For fiscal 2003, (the latest year for which data is
available), the DeVry University Perkins loan cohort default rate was
49
approximately 11.7%. Student counseling and additional collection efforts,
including the assistance of outside loan service agencies, have been
implemented and have, in part, contributed to the reduction in the default
rate. Because of the relatively small amounts of new funding available for
this program relative to other available financial aid programs, even with
the addition of funds available for new loans from the repayment of
outstanding loans, this program is not a material source of financial aid
to DeVry University undergraduate students.
Ross University
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Default rates under Title IV loans for 2001 were 0.0% and 1.1% for the
medical school and veterinary school, respectively. Although final default
rates for 2002 have not yet been released, the Company believes that
default rates at either school will not exceed 1.5%.
Career Services
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DeVry University believes that the employment of its graduates is essential
to its ability to attract and retain students. Career services
professionals located at the DeVry undergraduate campuses work with
students in the areas of career choice activity, resume preparation and job
interviewing. The staff also maintains contact with local and national
employers to determine job opportunities and arrange interviews. In many
cases, company hiring representatives conduct interviews at a campus.
The need for skilled employees has placed an increased premium on educated
workers in our economy as evidenced by the widening gap in wages of college
vs. high-school graduates. In 2000, the mean income of U.S. employees with
a bachelor's degree was $43,782, nearly double the mean income for those
with only a high school education. It is estimated that 85% of the jobs in
the United States currently require education or training beyond high
school, up from only 65% as recently as 1991.
DeVry University attempts to gather accurate data on the number of its
undergraduates employed in education-related positions within six months
following graduation. To a large extent, the reliability of such data is