LINCOLN EDUCATIONAL SERVICES CORP (LINC) Business

BUSINESS

Overview

Business Activities— Lincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our”, and “us”, as applicable) provide diversified career-oriented postsecondary education to recent high school graduates and working adults. The Company, which currently operates 22 campuses in 12 states, has entered into leases for two new campuses: one in Hicksville, New York, where programs are expected to begin by the end of 2026, and one in Rowlett, Texas, a northern suburb of Dallas, where the lease commenced in the fourth quarter of 2025, and programs are expected to begin in the first quarter of 2027. The Company offers programs in skilled trades, automotive, health sciences and information technology. The schools operate under the brands Lincoln Technical Institute, Lincoln College of Technology and Nashville Auto Diesel College.

Most of the Company’s campuses serve major metropolitan markets and each typically offers courses in multiple areas of study. Five of our campuses are destination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attract students from their local communities and surrounding areas. All of our campuses are nationally accredited and are eligible to participate in federal financial aid programs administered by the U.S. Department of Education (the “DOE”) and applicable state education agencies and accrediting commissions which allow students to apply for and access federal student loans as well as other forms of financial aid. The Company was incorporated in New Jersey in 2003 as the successor-in-interest to various acquired schools including Lincoln Technical Institute, Inc. which opened its first campus in Newark, New Jersey in 1946.

As of December 31, 2025, we had 17,046 students enrolled at 22 campuses. Our average enrollment for the fiscal year ended December 31, 2025 was 16,622 students and our annual revenue was $518.2 million, which represented an increase of 17.8% over the prior fiscal year. For more information relating to our revenues, profits and financial condition, please refer to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

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We believe that we provide our students with the high quality career-oriented training available for our areas of study in our markets, thereby serving students, local employers and their communities. The skills gap continues to expand, as talent retires faster than new employees are hired and as the need for education and training increases in all careers with the accelerating pace of technological change.

We offer programs in areas of study that we believe are typically underserved by traditional providers of postsecondary education and for which we believe that there exists significant demand among students and employers. Furthermore, we believe our convenient class scheduling, career-focused curricula and emphasis on job placement offer our students valuable advantages that have been previously unaddressed by the traditional academic sector. By combining virtual training with traditional classroom-based training led by experienced instructors, we believe we offer our students a unique opportunity to develop practical job skills in many of the key areas of expected job demand. We believe that these job skills enable our students to compete effectively for employment opportunities and to pursue salary and career advancement.

In the last several years, we
have further implemented our plan of improving the student experience by adding
program offerings, enhancing existing program offerings and expanding
geographically with new state of the art campuses. See Part II. Item 8.
“Financial Statements and Supplementary Data - Notes to Consolidated Financial
Statements – Note 6 Leases and Note 8 Real Estate Transactions.”

The Company’s business is organized into two reportable business segments: Campus Operations and Transitional. The Company manages its business, evaluates performance and allocates resources based on these two reportable business segments.

Campus Operations - The Campus Operations segment includes campuses that are continuing in operation and contribute to the Company’s core operations and performance. All of our campuses continuing in operation are classified in this segment. All of our campuses offer programs across various areas of study.

Transitional – The Transitional segment refers to campuses that
are marked for closure and are currently being taught out, in addition to
campuses that are held-for-sale. As of December 31, 2025, the Company had
no campuses classified as Transitional. As of December 31, 2024, the net
assets for the Summerlin, Las Vegas campus were classified as held for sale,
with operating results classified within the Transitional
segment.  The sale of the Summerlin campus was consummated effective
January 1, 2025.  In addition, the Company closed the Somerville,
Massachusetts campus in 2023. The Somerville campus was fully taught out as of
December 31, 2023.  The Somerville campus was classified in the
Transitional segment in the Company's 2023 statement of operations.

Business Strategy

We strive to strengthen our position as a leading provider of career‑oriented postsecondary education by continuing to pursue the following strategy:

●

Expand Geographically. We plan to open new campuses and enter new markets using existing resources or acquisitions. We opened a new campus in Houston, Texas in August 2025, and have signed leases for new campuses in Hicksville, New York, where programs are expected to begin by the end of 2026, and Rowlett, Texas, which is expected to open in the first quarter of 2027. We continue to evaluate opportunities to expand our footprint in markets that support our long-term growth objectives.

●

Replicate Programs and Expand Existing Areas of Study.  We are expanding our program portfolio by introducing in-demand offerings at existing campuses and replicating proven, in-demand programs across locations. This approach allows us to serve local market needs while leveraging our existing curriculum, faculty expertise, and infrastructure.

●

Increase Operating Efficiency. We aim to improve margins and scalability by
centralizing operations, standardizing curricula, and leveraging technology
such as artificial intelligence to streamline campus functions. By continuing
to simplify and standardize our operating model, we believe we can enhance
efficiency and support sustainable growth across our organization.

●

Maximize Utilization of Existing Facilities.

We focus on increasing facility usage through enrollment growth, the introduction of new programs, and expanded industry partnerships. In addition, our hybrid teaching model provides increased flexibility to align our real estate footprint with evolving instructional needs.

●

Expand Teaching Platform.

We are transitioning to a hybrid teaching platform, Lincoln 10.0, the implementation of which has been substantially completed and is expected to be finalized by the end of 2026 for all planned programs except for our Licensed Practical Nurse program which should be completed by 2027. This platform is designed to provide greater flexibility, efficiency, and value to students, while supporting a more scalable and standardized academic delivery model.

Programs and Areas of Study

We structure our program offerings to provide our students with a practical, career-oriented education and position them for attractive entry-level job opportunities in their chosen fields. Our diploma/certificate programs typically take between 27 to 104 weeks to complete, with tuition ranging from $14,500 to $44,000. Our associate degree programs typically take between 77 to 94 weeks to complete, with tuition ranging from $34,000 to $43,000. As of December 31, 2025, all of our schools offer diploma and certificate programs and ten of our schools are currently approved to offer associate degree programs. In order to accommodate the schedules of our students and maximize classroom utilization at some of our campuses, we typically offer courses four to five days a week in three shifts per day and start new classes every month. We update and expand our programs frequently to reflect the latest technological advances in the field, providing our students with the specific skills and knowledge required in the current marketplace. Classroom instruction combines lectures and demonstrations by our experienced faculty with comprehensive hands-on laboratory exercises in simulated workplace environments.

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The following table lists the programs offered as of December 31, 2025:

Skilled Trades. For the year ended December 31, 2025, skilled trades
were our largest area of study, representing 52% of our total average student
enrollment. Our skilled trades programs are 32 to 88 weeks in length, with
tuition rates ranging from $21,000 to $36,000. Our skilled trades programs
include electrical, heating and air conditioning repair, welding, computerized
numerical control and electrical and electronic systems technology. Graduates
of our programs are qualified to obtain entry-level employment positions such
as electrician, CNC machinist, cable installer, welder, wiring technician,
heating, ventilating and air conditioning technician, or HVAC installer. Our
graduates are employed by a wide variety of employers, including residential
and commercial construction, telecommunications installation companies and
architectural firms. As of December 31, 2025, we offered skilled trades
programs at 20 campuses.

Automotive.  Automotive is
our second largest area of study, with 26% of our total average student
enrollment for the year ended December 31, 2025. Our automotive programs are 52
to 94 weeks in length, with tuition rates ranging from $27,000 to $44,000. We
believe we are a leading provider of automotive education in each of our local
markets. Graduates of our programs are qualified to obtain entry-level
employment ranging from positions as technicians and mechanics to
apprentice-level positions. Our graduates are employed by a wide variety of
companies, ranging from automotive and diesel dealers, to independent auto body
paint and repair shops to trucking and construction companies. As of December
31, 2025, we offered programs in automotive at 14 campuses.

Health Sciences & Information Technology.  For the year ended December 31, 2025, 22% of our total average student enrollment was in our health science programs. Our health science programs are 27 to 104 weeks in length, with tuition rates ranging from $15,000 to $34,000. Graduates of our programs are qualified to obtain positions such as licensed practical nurse, dental assistant, medical assistant, medical administrative assistant, and claims examiner. Our graduates are employed by a wide variety of employers, including hospitals, laboratories, insurance companies, and doctors' offices. As of December 31, 2025, we offered health science programs at 12 of our campuses.

Marketing and Student Recruitment

We utilize a variety of marketing and recruiting methods to attract students and increase enrollment. Our marketing and recruiting efforts are targeted at prospective students who are high school graduates entering the workforce, or who are currently underemployed or unemployed and require additional training to enter or re-enter the workforce.

Marketing and
Advertising. We utilize a fully
integrated, primarily digital marketing approach in our lead generation and
admissions process. Our digital marketing efforts—which currently drive the
majority of our new student leads and enrollments—include paid search, paid and
organic social media, search engine optimization, online video and display
advertising, and pay‑per‑lead channels. In addition to these digital
initiatives, we also employ traditional media such as television, radio,
billboards, direct mail, a variety of print media, and event marketing
campaigns, which are intended to support brand awareness and complement our
digital strategy. Our integrated marketing campaigns direct prospective
students to contact us directly or visit our website or other customized landing
pages on the internet where they will find details regarding our programs and
campuses and can request additional information regarding the programs that
interest them. Prospective students may also apply for admission online. Our
internal systems enable us to closely monitor the effectiveness of each
marketing execution on a daily or weekly basis and make adjustments accordingly
to enhance our efficiency and limit our student acquisition costs.

Referrals. Referrals from current students, high school counselors and
satisfied graduates and their employers have historically represented
approximately 11.0% of our new student starts. Our school administrators
actively work with our current students to encourage them to recommend our
programs to prospective students. We seek to build and retain strong
relationships with high school guidance counselors and instructors by offering
annual seminars at our training facilities to further familiarize these
individuals on the strengths of our programs.

Recruiting.  Our recruiting efforts are conducted by a group of approximately 286 campus-based and field representatives who meet directly with prospective students during presentations conducted at high schools, in the prospective students’ homes or during their visit to one of our campuses. We also recruit adult career-seekers or career-changers through our campus-based representatives.

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During the fiscal year ended December 31, 2025, we recruited approximately 23% of our students directly out of high school. Field sales continue to be a large part of our business and developing local community relationships is one of our most important recruiting functions.

Student Admissions, Enrollment and Retention

Admissions.  To
attend our schools, students must have either a high school diploma or a high
school equivalency certificate (or General Education Development Certificate,
GED). In addition, students must complete both an admissions interview and
learner assessment. We take admissions requirements very seriously as they are
the best indicators of our students’ likelihood for program success and
completion, leading to successful employment in their chosen industry. The
learner assessment is a questionnaire designed to discover challenges and help
us to address them prior to the student's enrollment. While each of our
programs has different admissions criteria, we screen all applications and
counsel prospective students on the most appropriate program to increase the
likelihood that they complete the requisite coursework and obtain and sustain
employment following graduation.

Enrollment.  We enroll students continuously throughout the year, with our largest classes enrolling in late summer or early fall following high school graduation. As of December 31, 2025, we had 17,046 students enrolled at 22 campuses and our average enrollment during the fiscal year ended December 31, 2025 was 16,622 students.

Retention.  To
maximize student retention, the staff at each school is trained to recognize
the early warning signs of a potential dropout and to assist and advise
students on academic, financial and employment matters. We monitor our
retention rates by instructor, course, program, and campus. When we become
aware that a particular instructor or program is experiencing a
higher-than-normal dropout rate, we quickly seek to determine the cause of the
problem and attempt to correct it. When we identify that a student is having
trouble academically, we offer tutoring. As we moved to online delivery of
instruction, we experienced a slight decline in our student retention rate, but
we believe this is temporary and will improve as our faculty becomes better
skilled at hybrid teaching. To ensure that this happens, we have developed
online teacher training for all faculty.

Job Placement

We believe that assisting our graduates in securing employment after completing their program of study is critical to our mission as a postsecondary educational institution as well as to our ability to attract high quality students and enhance our reputation in the industry. In addition, we believe that high job placement rates result in low student loan default rates, an important requirement for continued participation in Title IV of the Higher Education Act of 1965, as amended (“Title IV Programs”). See Part I, Item 1. “Business - Regulatory Environment—Regulation of Federal Student Financial Aid Programs.” Accordingly, we dedicate significant resources to maintaining an effective graduate placement program. Our non-destination schools work closely with local employers to ensure that we are training students with skills that local employers seek. Each school has an advisory council comprised of local employers who provide us with direct feedback on how well we are preparing our students to succeed in the workplace. This enables us to tailor our programs to the marketplace. The placement staff in each of our destination schools maintains databases of potential employers throughout the country, allowing us to more effectively assist our graduates in securing employment in their career fields upon graduation. Throughout each year, we hold numerous job fairs at our facilities where we provide the opportunity for our students to meet and interact with potential employers. We also assist students with resume writing, interviewing and other job search skills.

In addition, one
of our schools has an internship program that provides our students with
opportunities to work with potential employers prior to graduation. For
example, some of the students in our automotive programs have the opportunity
to complete a portion of their hands-on training in an actual work environment.
Also, some of our students in health sciences programs are required to
participate in an externship program in which they work in the field as part of
their career training. Further, we have formed industry relationships with
several Fortune 500 companies to assist them with their hiring needs. We
provide these companies with various services including providing graduating
student candidates for interviews and providing company-specific training to
selected individuals that accelerates their on-boarding. These industry
relationships not only provide our students with career opportunities which may
include signing bonuses and tuition assistance plans, but also benefit the
Company by sometimes providing equipment donations, scholarships and advice
that enables us to design our curricula to better meet industry needs.

Human Capital Management

Overview

We believe that each of our employees plays an important role in our enterprise. This is particularly true of our faculty. We are focused on attracting and retaining the highly qualified personnel needed to support our objectives of providing superior education in the programs that our schools provide.

As of December 31, 2025, we had approximately 2,590 employees, including approximately 650 full-time instructors and approximately 400 part-time instructors, and approximately 1,590 employees serving in various administrative and management positions. We had no seasonal workers. The number of individuals comprising our workforce increased by approximately 5.0% in the most recently completed fiscal year.

Staffing Our Schools

Our schools typically are staffed by a school president, a director of career services, a director of education, a director of administrative services, a director of admissions and a variety of instructors, all of whom are industry professionals with experience in the areas of study at that particular school.

Our average student to teacher ratio was approximately 17.7 to 1 during the fiscal year ended December 31, 2025.

Equal Opportunity

We strive to
create a culture of opportunity and excellence through our human capital
management practices. Our recruitment practices and outreach efforts are
designed to maximize the applicant pool and to ensure that we are able to hire
the most qualified individuals in the market. The varied perspectives and
experiences of our personnel enhance our work. In accordance with our
obligations to provide a discrimination-free and harassment-free workplace, we
work hard to ensure equal opportunity in hiring, promotions, training and
development, working conditions and compensation. In addition, the Company has
adopted a Human Rights Policy that reflects, among other things, our commitment
to anti-discrimination in hiring and otherwise.

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Development, Training and Retention

The Company employs staff to attract and engage talent and applies fully integrated recruiting software to track and manage hiring processes for our campuses and corporate functions. We hire our faculty in accordance with established criteria, including relevant work experience, educational background and accreditation and state regulatory standards. We require meaningful industry experience of our teaching staff to maintain the high quality of instruction in all of our programs that we expect and to address current and industry-specific issues in our course content. In addition, we provide intensive instructional training and continuing education, including quarterly instructional development seminars, annual reviews, technical upgrade training, faculty development plans and weekly staff meetings.

The Company acknowledges the importance of managing productivity and efficiency of its workforce. The Company uses current technology resources for sales and student services tasks, education support, graduate placement services, and internal talent management. Through the application of these technology tools, productivity data is obtained for key positions and used for process improvement, training, and evaluative purposes.

The Company recognizes the value to both the Company and our students of employee knowledge and skill development throughout their careers and of preparing current employees for succession opportunities. Therefore, employees receive position-based training, as well as online access to a multitude of programs designed to support their effectiveness and growth potential. The Company identifies high-performing employee participants for acceleration training programs to develop internal candidates for succession opportunities in key functions.

Labor Relations

We believe that we have good relationships with all of our employees. At seven of our 22 campuses, the teaching professionals are represented by various unions. Approximately 270 employees are now covered by collective bargaining agreements that expire between 2026 and 2030. Those agreements expiring in the short term will be renegotiated in 2026. We believe that we have good relationships with these unions and with the employees covered by these collective bargaining agreements and do not foresee issues with entering into satisfactory new agreements.

Our Management

We believe that our management team has the experience necessary to effectively implement our growth strategy and continue to drive positive educational and employment outcomes for our students. For a discussion of the risks relating to the attraction and retention of management and executive management employees, see Item 1A. “Risk Factors.”

Competition

The for-profit, postsecondary education industry is highly competitive and highly fragmented with no one provider controlling significant market share. Direct competition between career-oriented schools like ours and traditional four-year colleges or universities is limited. Thus, our main competitors are other for-profit, career-oriented schools, not-for-profit public schools and private schools, and public and private two-year junior and community colleges, most of which are eligible to receive funding under the federal programs of student financial aid authorized by Title IV Programs. Competition is generally based on location, the type of programs offered, the quality of instruction, placement rates, reputation, recruiting and tuition rates; therefore, our competition is different in each market depending on, among other things, the availability of other options. Public institutions are generally able to charge lower tuition than our schools, due in part to government subsidies and other financial sources not available to for-profit schools. In addition, some of our other competitors have a more extensive network of schools and campuses, which enables them to recruit students more efficiently from a wider geographic area. Nevertheless, we believe that we are able to compete effectively in our local markets because of the diversity of our program offerings, quality of instruction, the strength of our brands, our reputation and our graduates’ success in securing employment after completing their programs of study.

Our competition
differs in each market depending on the curriculum that we offer. For example,
a school offering automotive programs, healthcare services and skilled trades
programs will have a different group of competitors than a school offering
healthcare services and IT programs. Also, because schools can add new programs
within six to 12 months, competition can emerge relatively quickly. Moreover,
with online education becoming more prevalent, the number of competitors in
each market has increased because students can now attend classes from an
online institution. On average, each of our schools has at least three direct
competitors and at least a dozen indirect competitors.

Environmental Matters

We use limited amounts of hazardous materials at our training facilities and campuses, and generate small quantities of regulated waste such as used oil, antifreeze, paint and car batteries. As a result, our facilities and operations are subject to a variety of environmental laws and regulations governing, among other things, the use, storage and disposal of solid and hazardous substances and waste, and the clean-up of contamination at our facilities or off-site locations to which we send or have sent waste for disposal. We are also required to obtain permits for our air emissions and to meet operational and maintenance requirements at certain of our campuses. In the event we do not maintain compliance with any of these laws and regulations, or are responsible for a spill or release of hazardous materials, we could incur significant costs for cleanup or damages and fines or penalties.

We are committed
to sustainability, conserving energy and limiting waste and regularly review
our impact on the environment with a view towards improvement. In addition, we
have adopted an Environmental Policy reflecting our commitment in this regard.

Regulatory Environment

The education industry is highly regulated by a wide range of federal and state agencies as well as institutional and programmatic accrediting agencies including the U.S. Department of Education (“DOE”). The vast regulatory schemes to which our industry is subject cover a significant portion of our operations such as our educational programs, instructional staff, administrative procedures, marketing and recruiting efforts, financial stability, administration of financial aid programs, third-party servicers, private loan programs, and facilities, among other things. The various regulatory bodies with oversight over our business periodically issue new requirements, revise existing requirements, and modify their interpretations of existing requirements.

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We also are subject to
oversight by other federal agencies including the Consumer Financial Protection
Bureau (“CFPB”), the Federal Trade Commission (“FTC”), the Departments of
Veterans Affairs (“VA”) and the Department of Defense (“DOD”). We cannot predict
how any of the regulatory requirements to which we are subject will be applied
or whether each of our schools will be able to comply with such requirements in
the future.

The various approvals granted by the regulatory entities to which we are subject are what collectively allow our schools to operate and to participate in a variety of government-sponsored financial aid programs that assist students in paying for their education, the most significant of which are the federal student aid programs administered by the DOE under the Higher Education Act of 1965, as amended (the “HEA”). See Part I, Item 1. “Business - Regulatory Environment – State Authorization,” “Regulatory Environment – Accreditation,” “Regulatory Environment – Regulation of Federal Student Financial Aid Programs,” and “Regulatory Environment – Other Financial Assistance Programs.” The HEA and the regulations of the DOE specify extensive criteria and numerous standards that we must satisfy in order to participate in federal financial aid programs under Title IV of the HEA (“Title IV Programs”). Generally, to participate in Title IV Programs, an institution must be licensed or otherwise legally authorized to operate in the state where it is physically located, be accredited by an accreditor recognized by the DOE, be certified as an eligible institution by the DOE, offer at least one eligible program of education, and comply with other statutory and regulatory requirements. Students seeking financial aid under Title IV Programs obtain access to federal student financial aid through a DOE-prescribed application and eligibility certification. Each of our schools currently participates in Title IV Programs. For the fiscal year ended December 31, 2025, approximately 84.7% (calculated based on cash receipts) of our revenues were derived from Title IV Programs. Congress periodically revises the HEA and other laws governing Title IV Programs and annually determines the funding level for each Title IV Program. Further, the President could issue executive orders or take other actions and the DOE could establish new regulations that could make it more difficult for our schools to operate and comply with applicable regulations.

Also, all of our schools are currently offering both online and in-person learning. Accrediting agencies and some state bodies require schools to obtain approval and meet certain requirements in order to offer programs via distance education in states where the school does not have a campus. The DOE also generally requires that such schools meet the requirements of the state in order to offer programs by distance education in the state. All of our schools are currently approved to offer both distance and in-person learning by the DOE, the Accrediting Commission of Career Schools and Colleges (the "ACCSC"), and the states in which they are physically located. In addition, our Indianapolis school is an institutional participant in the National Council for State Authorization Reciprocity Agreement (“NC-SARA”), which is a voluntary agreement among member states which enables participating schools who are authorized by the state in which they are physically located to offer distance education in other participating states without obtaining additional authorization in those states.

State Authorization

To operate and offer postsecondary educational programs and to be certified to participate in Title IV Programs, each of our schools must be authorized and maintain authorization from the state in which it is physically located. Further, in order for a school to engage in educational or recruiting activities outside of its state of physical location, the school also may be required to obtain and maintain authorization from the states in which it is recruiting students or in which its students are receiving online instruction. The level of regulatory oversight varies substantially from state to state and is extensive in some states. State laws may establish standards for instruction, qualifications of faculty, location and nature of facilities and equipment, administrative procedures, marketing, recruiting, student outcomes requirements and reporting, disclosure obligations to students, limitations on mandatory arbitration clauses in enrollment agreements, requirements for distance learning including online and blended courses, financial operations, and other operational matters. Some states prescribe standards of financial responsibility and mandate that institutions post surety bonds. We have posted surety bonds on behalf of our schools and education representatives with multiple states in an aggregate amount of approximately $20.0 million. Currently, each of our schools is authorized by the applicable state education agencies to offer distance and in-person learning in the states in which the school is physically located and is authorized to recruit students in the states in which it recruits students. Our Indianapolis school also is an institutional participant in NC-SARA which enables it to offer distance learning to students located in certain other states. Our other schools have entered into a consortium agreement with our Indianapolis school that has been approved by ACCSC and applicable state education agencies and that enables students enrolled in one of the other schools to take courses online through the Indianapolis school.

Some of our educational programs prepare students for occupations that require professional licensure in order to work in the occupation. These programs are subject to the requirements of state occupational agencies that require our schools that offer the programs to obtain agency approval of the programs and to comply with the applicable requirements of these boards. For example, each of our schools that offers a nursing program is required to obtain and periodically renew approvals from the applicable occupational agencies that regulate these programs in the state in which the schools are physically located. If we fail to maintain our approvals or comply with applicable requirements, we could lose our authority to offer the impacted programs and could be subject to other sanctions.

The practical nursing program offered at three of our campuses in New Jersey is also subject to the requirements of the New Jersey Board of Nursing (“NJBON”), a state occupational agency. Among the various requirements applicable to the practical nursing program is the requirement that at least 75% of the program’s graduates pass the state licensure examination on their first attempt. In 2024, the NJBON placed our Paramus, New Jersey campus (the “Paramus campus”) practical nursing program on probation because, for three consecutive calendar years, less than 75% of the program’s graduates passed the state licensure examination on their first attempt. From the date of being placed on probation, , the NJBON did not allow the Paramus campus to enroll any new students or accept any transfer students in its practical nursing program. However, after reviewing correspondence from the Paramus campus to enroll new practical nursing students at its October 2025 meeting, the NJBON acted to permit the Paramus campus to start enrolling new students starting in January 2026. While the Paramus campus practical nursing program remains on probation, the program achieved the required licensure pass rate established by the NJBON in the 2025 calendar year and is eligible for restoration to accredited status at a future NJBON meeting in 2026.

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In general, if any of our
schools fail to comply with state licensing requirements, they may be subject
to the loss of state licensure or authorization. If any of our schools lost its
authorization from the education agency of the state in which the school is
located or failed to comply with the DOE’s state authorization requirements,
that school would lose its eligibility to participate in Title IV Programs, the
Title IV Program eligibility of its related additional locations could be
affected, the impacted schools would be unable to offer their programs, and we
could be forced to close the school(s). If one of our schools lost its state
authorization from a state other than the state in which the school is located,
the school would not be able to recruit students or to operate in that state.

Accreditation

Accreditation is a non-governmental process through which a school submits to ongoing qualitative and quantitative review by an organization of peer institutions. Accrediting agencies primarily examine the academic quality of the school’s instructional programs, and a grant of accreditation is generally viewed as confirmation that the school’s programs meet generally accepted academic standards. Accrediting agencies also review the administrative and financial operations of the schools they accredit to ensure that each school has the resources necessary to perform its educational mission.

Accreditation by an accrediting agency recognized by the DOE is required for an institution to be certified to participate in Title IV Programs. In order to be recognized by the DOE, accrediting agencies must adopt specific standards for their review of educational institutions. As of December 31, 2025, 22 of our campuses are institutionally accredited by the Accrediting Commission of Career Schools and Colleges (the “ACCSC”) which is recognized by the DOE.

If the DOE withdraws the recognition of an accrediting agency, the HEA indicates that the DOE may continue the eligibility of qualified institutions accredited by the accrediting agency for a period of up to 18 months from the date of the withdrawal of the DOE’s recognition of the accrediting agency. If provided, this period would allow time for institutions to apply for accreditation from another DOE-recognized accrediting body. The DOE could impose provisional certification status and other conditions and restrictions on such institutions during this time period. If the DOE declines to continue its recognition of ACCSC and if the subsequent period for obtaining accreditation from another DOE-recognized accrediting agency lapses before we obtain accreditation from another DOE-recognized accrediting agency (or if the DOE does not provide such a period for institutions to obtain other accreditation), our schools could lose Title IV eligibility. On May 25, 2023, the DOE notified ACCSC that it would continue the DOE’s recognition of the agency as a nationally recognized accreditor for three years. On January 27, 2026, the DOE announced its intention to initiate a negotiated rulemaking process to prepare new regulations related to accreditation. See “Regulatory Environment – Negotiated Rulemaking.”

The following is a list of the dates on which each campus was accredited by its accrediting commission and the date by which its accreditation must be renewed.

Accrediting Commission of Career Schools and Colleges Reaccreditation Dates

1    Branch campus of main campus in Indianapolis, IN

2    Branch campus of main campus in New Britain, CT

3    Branch campus of main campus in Iselin, NJ

4    Campus going through reaccreditation

If one of our schools fails
to comply with accrediting commission requirements, the institution and its
main and/or branch campuses are subject to the loss of accreditation or may be
placed on probation or a special monitoring or reporting status which, if the
noncompliance is not resolved, could result in loss of accreditation or
restrictions on the addition of new locations, new programs, or other
substantive changes. If any of our schools loses its accreditation, students
attending that school would no longer be eligible to receive Title IV Program
funding.

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Programmatic accreditation is yet another approval necessary in certain circumstances. Specifically, it is the process through which specific programs are reviewed and approved by industry and program-specific accrediting entities. Although programmatic accreditation is not generally necessary for Title IV Program eligibility, such accreditation may be required to operate the program in the state, to allow students to sit for certain licensure exams, or to work in a particular profession or career or to meet other requirements.

Nature of Federal and State Support for Postsecondary Education

As noted above, the federal
government provides a substantial part of the financial support for
postsecondary education through Title IV Programs, in the form of grants and
loans to students who can use those funds at any institution that has been
certified as eligible by the DOE. Most aid under Title IV Programs is awarded
on the basis of financial need, which is generally defined as the difference
between the cost of attending the institution and the expected amount a student
and his or her family can reasonably contribute to that cost. A recipient of
Title IV Program funds must maintain a satisfactory grade point average and
progress in a timely manner toward completion of his or her program of study
and must meet other applicable eligibility requirements for the receipt of
Title IV Program funds. In addition, each school must ensure that Title IV
Program funds are properly accounted for and disbursed in the correct amounts
to eligible students and provide reports on recipient data.

Other Financial Assistance Programs

Some of our students receive financial aid from federal sources other than Title IV Programs, such as programs administered by the VA or states. The eligibility requirements for state financial aid and these other federal aid programs vary among the funding agencies and by program. States that provide financial aid to our students are facing significant budgetary constraints and some of them have reduced the level of state financial aid available to our students. Federal budgetary shortfalls and constraints, or decisions by federal lawmakers to limit or prohibit access by our institutions or their students to federal financial aid, could result in a decrease in the level of federal financial aid for our students.

In the fiscal year ended
December 31, 2025, we derived approximately 4.8% of our revenues, on a cash basis, from
veterans’ benefits programs, which include the Post-9/11 GI Bill and Veteran
Readiness and Employment services. To continue participation in veterans’
benefits programs, an institution must comply with certain requirements
established by the VA, including that the institution must, among other things,
report on the enrollment status of eligible students, maintain student records
and make such records available for inspection, follow rules applicable to the
individual benefits programs, comply with rules applicable to distance
education and hybrid programs, and comply with applicable limits on the
percentage of students having a portion of their tuition or other institutional
charges paid by the school or with certain veterans’ benefits. If we fail to
comply with these or other applicable requirements, we could be subject to
liabilities or sanctions including the loss of eligibility to participate in
the programs.

The VA shares responsibility for VA benefit approval and oversight with designated State Approving Agencies (“SAAs”). SAAs play a critical role in evaluating institutions and their programs to determine if they meet VA benefit eligibility requirements. Processes and approval criteria, as well as interpretation of applicable requirements, can vary from state to state. Therefore, approval in one state does not necessarily result in approval in all states. Changes in the applicable statutes, regulations, or appropriations applicable to the programs could impact our eligibility or funding under the programs.

The VA imposes limitations on the percentage of students per program who have a portion of their tuition or other institutional charges paid by the school or with certain veterans’ benefits, unless the program qualifies for certain waivers. On January 16, 2024, the VA published new regulations that, among other things, eliminate certain exceptions from these limitations and changed the criteria for obtaining a waiver of these rules. The VA simultaneously issued a bulletin delaying the applicability date to one year after the publication of the regulation to allow institutions to implement any necessary changes in their policies to comply with the new regulations. These new rules could make it more difficult for our programs to comply with these limitations. If the VA determines that a program is out of compliance with these limitations, the VA will continue to provide benefits to current students, but new students will not be eligible to use their veterans’ benefits for an affected program until we demonstrate compliance. Additionally, the VA requires a campus be in operation for two years in certain cases before it can apply to participate in VA benefit programs. All of our campuses that are currently in operation are eligible to participate in VA education benefit programs.

During 2012, President Obama signed an Executive Order directing the U.S. Department of Defense (“DOD”), the VA and DOE to establish “Principles of Excellence” (the “Principles”), based on certain guidelines set forth in the Executive Order, to apply to educational institutions receiving federal funding for service members, veterans and family members. As requested, we provided written confirmation of our intent to comply with the Principles to the VA in June 2012. We are required to comply with the Principles to continue recruitment activities at military installations. Additionally, there is a requirement to execute a memorandum of understanding (“MOU”) with the DOD as well as with certain individual installations. Each of our institutions has an MOU with the DOD. If our campuses fail to comply with VA, DOD, SAA, and other requirements applicable to financial aid programs for veterans or active military members, our schools and students could lose access to this funding or could be subject to restrictions or conditions on ability to receive such funding.

Regulation of Federal Student Financial Aid Programs

As noted above, in order to participate in Title IV Programs, an institution must be authorized to offer its programs by the state education agencies in the state in which it is physically located, be accredited by an accrediting commission recognized by the DOE and be certified as eligible by the DOE. The DOE will certify an institution to participate in Title IV Programs only after reviewing and approving the institution’s application to participate in Title IV Programs. The DOE defines an institution to consist of both a main campus and its additional locations, if any. Under this definition, for DOE purposes as of December 31, 2025 we had the following three institutions, collectively consisting of three main campuses and 19 additional locations:

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Each of our institutions must
periodically apply to the DOE for continued certification to participate in
Title IV Programs. The institution also must apply for recertification when it
undergoes a change in ownership resulting in a change of control and may come
under DOE review when it undergoes a substantive change that requires the
submission of an application, such as opening an additional location or raising
the highest academic credential it offers. All institutions are recertified on
various dates for various periods of time. The following table sets forth the
expiration dates for each of our institutions’ current Title IV program
participation agreements:

The DOE recently issued a new program participation agreement to each of our institutions for continued certification to participate in Title IV Programs. The DOE provided each of our institutions with a program participation agreement without subjecting the institution to “provisional” certification as it had in the prior program participation agreement for each institution. The DOE typically provides provisional certification status to an institution following a change in ownership resulting in a change of control and also may provisionally certify an institution for other reasons, including, but not limited to, noncompliance with certain standards of administrative capability and financial responsibility. An institution that is provisionally certified receives fewer due process rights than those received by other institutions in the event the DOE takes certain adverse actions against the institution, is required to obtain prior DOE approvals of new campuses and educational programs, and may be subject to heightened scrutiny by the DOE. Provisional certification status makes it easier for the DOE to revoke or decline to renew our Title IV eligibility if the DOE chooses to take such an action against us and other provisionally certified for-profit schools without undergoing a formal administrative appeal process.

In 2023, the DOE published final regulations on a variety of topics, including but not limited to, regulations to authorize additional conditions and restrictions on provisionally certified institutions. See Part I, Item 1. “Business - Regulatory Environment – Negotiated Rulemaking.” The regulations had a general effective date of July 1, 2024 and expanded the grounds for placing institutions on provisional certification status, expanded the types of conditions the DOE may impose on provisionally certified institutions, and expanded the number of requirements contained in the institution’s program participation agreement with the DOE (including, among other requirements, an obligation to comply with all state laws related to closure).

The final regulations allow the DOE to place institutions on provisional certification status if, among other reasons, the institution does not meet financial responsibility factors or administrative capability standards, if the institution is required by the DOE to submit a letter of credit as a result of a mandatory or discretionary triggering event, or if the DOE deems the institution to be at risk of closure. The final regulations also allow the DOE to determine whether to certify or impose conditions on an institution based on consideration of factors including, for example, the institution’s withdrawal rate, the amounts the institution spent on recruiting activities, advertising, and other pre-enrollment activities, and the passage rate for licensure exams for programs that are designed to meet the educational requirements for a professional license required for employment in an occupation.

The final regulations also expand the types of conditions that the DOE can impose on provisionally certified institutions including, for example, restrictions on the addition of new programs or locations, restrictions on the rate of growth or new enrollment of students or of Title IV volume, restrictions on the institution providing a teach-out on behalf of another institution, restrictions on the acquisition of another participating institution (including financial protection requirements), additional reporting requirements, limitations on entering into certain written arrangements with institutions or entities for providing part of an educational program, requirements to submit marketing and recruiting materials to DOE for approval (if the institution is alleged or found to have engaged in substantial misrepresentations to students, engaged in aggressive recruiting practices, or violated incentive compensation rules), reporting requirements for institutions that received a government formal inquiry such as a subpoena related to its marketing or recruitment or its federal financial aid, and other potential conditions imposed by the DOE.

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The new regulations increase the possibility that our schools could be placed in the future on provisional certification status, be subject to additional reporting requirements and other conditions and sanctions such as letter of credit requirements and be subject to a potential loss of Title IV eligibility if our efforts to comply with the new regulations are unsuccessful.

As noted above, the DOE is responsible for overseeing compliance with Title IV Program requirements. As a result, each of our schools is subject to detailed oversight and review, and must comply with a complex framework of laws and regulations. Additionally, the DOE periodically revises its regulations and changes its interpretation of existing laws and regulations.

Significant factors relating to Title IV Programs that could adversely affect us include the following:

Congressional and
Presidential Action. Political
and budgetary concerns significantly affect Title IV Programs. Congress
periodically revises the HEA and other laws governing Title IV Programs. Congress
can also make changes in the laws affecting Title IV Programs in the annual
appropriations bills and in other laws it enacts between the HEA
reauthorizations. It is not known if or when Congress will pass final
legislation that comprehensively reauthorizes and amends the HEA or other laws
affecting U.S. federal student aid.

However, Congress also
reviews and determines federal appropriations for Title IV Programs on an
annual basis and can make changes in the laws affecting Title IV Programs in
the annual appropriations bills and in other laws it enacts between the HEA
reauthorizations such as the recently enacted “One Big Beautiful Bill Act”
(“the OBBB Act”), or its recent amendment to the 90/10 Rule in the HEA. See
Part I, Item 1. “Business - Regulatory Environment – 90/10 Rule.” Similarly,
the President can issue executive orders or take other actions, and the DOE
could establish new regulations or publish new guidance, that could make it
more difficult for our schools to operate and comply with applicable
regulations. Therefore, the requirements for Title IV Programs are subject to
change at any time.

Moreover, Congress or the President could take action to downsize or eliminate the DOE or transfer some or all of the authority and responsibilities of the DOE to another agency. For example, on March 20, 2025, the President signed an Executive Order (an "EO") to take all necessary steps to facilitate the closure of the DOE. The EO did not specify the precise steps or schedule that would be followed for closing the DOE or how the federal student aid programs would be administered or potentially transferred to another agency. The DOE was created in 1979 through Congressional action and similar Congressional action would be required to dissolve the DOE. Accordingly, we cannot predict whether, when, and to what extent the DOE will be downsized, eliminated or replaced and whether Congressional action and/or judicial action in response to lawsuits could impede efforts by the President and DOE to make such changes.

Last year, the DOE announced
a reduction in force (a "RIF") impacting nearly 50% of the DOE’s
workforce and placing the impacted DOE staff on administrative leave beginning
March 21, 2025. The DOE noted that all divisions within the DOE were impacted
by the RIF with some divisions requiring significant reorganization. However,
notwithstanding these actions and assurances by the DOE, it is possible that
the RIF and other recent and future changes at DOE could result in delays and
disruptions to Title IV funding at our schools or to other actions by the DOE
related to our participation in the Title IV Programs such as, but not limited
to, granting approvals for school acquisitions, adding new programs to existing
schools, or adding new school locations.

If Congress fails to pass
appropriations or other funding bills on a timely basis, it could result in a
government shutdown until new appropriations or funding are approved and
enacted. Although agencies like the DOE have taken steps during past government
shutdowns to maintain essential operations and reduce impact on affected
parties, a future government shutdown could result in adverse impacts for us,
our schools, and our students. For example, if the shutdown disrupts
our ability to draw down Title IV federal student aid or other federal aid for
our students; disrupts the operations of federal student aid processors,
contact centers and websites; or delays our ability to obtain DOE approval of
changes at one or more of our institutions or to obtain other needed services
from the DOE.

Because a significant
percentage of our revenues are derived from Title IV Programs, any action by
Congress, the President or the DOE that significantly reduces or disrupts Title
IV Program funding, that limits or restricts the ability of our schools,
programs, or students to receive funding through the Title IV Programs or that
imposes new restrictions or constraints upon our business or operations could
reduce our student enrollment and our revenues, and could increase our
administrative costs and require us to arrange for alternative sources of
financial aid for our students and require us to modify our practices in order
for our schools to comply fully with Title IV Program requirements.

We cannot predict the scope, timing or likelihood of future actions and changes by Congress, the President or the DOE with respect to the operations and existence of the DOE or the laws and regulations applicable to and the funding for the Title IV Programs. Moreover, we cannot predict the duration of any future government shutdowns or whether they could lead to disruptions in Title IV Programs or other federal student aid programs that could adversely impact us, our schools, and our students.

Further, current requirements
for student or school participation in Title IV Programs may change or one or
more of the present Title IV Programs could be replaced by other programs with
materially different student or school eligibility requirements. The potential
for changes related to the DOE or Title IV Programs that may be adverse to us
and other for-profit schools like ours may increase as a result of changes in
political leadership. If we cannot comply with the provisions of the HEA and
the regulations of the DOE as they may be revised or with the terms of an
executive order or other Presidential action or if the cost of such compliance
is excessive or if funding is materially reduced or disrupted by changes in
Title IV Programs or DOE, our revenues or profit margin could be materially
adversely affected.

Last year Congress passed the OBBB Act which enacts several changes to the HEA that will impact us and our schools including, but not limited to, new limits on the amount of Title IV loans that students and parents can borrow in some circumstances, new accountability metrics on undergraduate and graduate degree programs that must be met in order for an educational program to avoid losing Direct Loan eligibility, and new laws restoring prior regulations related to borrower defense to repayment and closed school loan discharges and delaying the effective date of previously published new regulations on these topics until July 1, 2035. The DOE is engaged in a rulemaking process to establish new regulations that, among other things, help implement provisions of the OBBB Act. See “Regulatory Environment – Negotiated Rulemaking.” The OBBB Act has a general effective date of July 1, 2026 with certain exceptions and grandfathering provisions. We cannot predict the timing and content of any rules or guidance the DOE may issue to implement or interpret the OBBB Act, nor can we predict with certainty the extent to which our schools and our educational programs will be able to comply with the revised requirements or the extent to which the revisions and reduced aid eligibility will impact our enrollments.

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Gainful Employment and Accountability Metrics. In 2023, the DOE published final new gainful employment and financial value transparency regulations which had a general effective date of July 1, 2024.

These new regulations established rules for annually evaluating each of our educational programs based on the calculation of debt-to-earnings rates (an annual debt-to-earnings rate and a discretionary debt-to-earnings rate) and an earnings premium measure based on an evaluation of median annual earnings. The regulations outlined complex regulatory formulas for calculating these rates and measures using data such as student debt (including not only Title IV loans but also certain private loans and extensions of credit), student earnings data, and comparative median earnings data for young working adults with only a high school diploma or GED (including state-by-state annual earnings thresholds for 2024 published by the DOE on December 31, 2024). Under these regulations, if one or more of our educational programs were to yield debt-to-earnings rates or an earnings premium measure that did not comply with regulatory benchmarks for two of three consecutive years, we would lose Title IV eligibility for each of the impacted educational programs. The regulations also require us to provide warnings to current and prospective students for programs in danger of losing of Title IV eligibility (which could deter prospective students from enrolling and current students from continuing their respective programs). The regulations also include provisions for providing certifications and reporting data to the DOE and providing required student disclosures related to gainful employment.

Lawsuits were filed in 2023, and 2024, against the DOE to challenging the gainful employment and financial value transparency regulations. The U.S. District Court for the Northern District of Texas granted the DOE’s motion for summary judgment, leaving in place the 2023 gainful employment and financial value transparency rule. The plaintiffs appealed the decision to the Fifth Circuit Court of Appeals and the DOE subsequently published additional guidance regarding deadlines for reporting data to the DOE and steps the DOE intended to take toward preparing data for review by schools before its use in calculating official outcome rates.

The DOE established a
negotiated rulemaking committee that reached a consensus on January 9, 2026, on
proposed regulations that the DOE stated were intended to harmonize the
accountability metrics in the OBBB Act with the aforementioned financial value
transparency and gainful employment regulations by proposing uniform
accountability requirements applicable to all educational programs across all
educational sectors. The DOE noted that the proposed regulations eliminate the
“debt-to-earnings” measures under the gainful employment regulations.  Instead, the proposed regulations establish
and describe an earnings premium framework for undergraduate certificate and
degree programs that would compare graduate earnings to those of holders of
high school diplomas and for graduate programs that would compare graduate
earnings to those of bachelor’s degree holders. Under the proposed framework,
an educational program would lose access to the Direct Loan program if it fails
to achieve a positive earnings premium for two out of three consecutive years. Moreover,
if half of an institution’s Title IV recipients or half of the institution’s
Title IV Program funds come from educational programs that fail the earnings
thresholds, the programs would also lose Pell Grant eligibility.

The proposed regulations outlining
the new accountability framework (which is now called the Student Tuition and
Transparency Systems) address several other topics including, for example, the
complex rules for the earnings calculations and premiums, data and calculation
appeals, warning and disclosure requirements for programs that fail the
earnings test, sanctions for programs that fail the earnings tests,
informational reporting requirements, requirements for DOE to publicly disclose
certain institutional data, requirements for institutions to certify program
compliance, and provisional certification requirements for institutions with
failing programs exceeding new administrative capability thresholds.  The
regulations are expected to take effect July 1, 2026.  The first earnings
test calculations are expected to occur in early 2027, with July 1, 2028,
expected to be the first date a program could fail the earnings test for two
consecutive years, although these timelines are subject to change.

The DOE is expected to proceed with preparing and publishing proposed regulations for public notice and comment before publishing final regulations, so the proposed regulations are subject to further change before they are published in final. We cannot predict the timing, scope, and content of the final regulations that are expected to emerge from this process or how our programs will perform under the final metrics. We also cannot predict whether the DOE could publish amended regulations in the future under current or future leadership that make the accountability regulations stricter or seek to reinstitute the old gainful employment requirements. We also cannot predict the outcome or impact of any litigation that might seek to challenge the legality and enforceability of the final version of the proposed regulations.

Borrower Defense to Repayment Regulations. The DOE’s Borrower Defense to Repayment (“BDR”) regulations establish processes for borrowers to receive from the DOE a discharge of the obligation to repay certain Title IV Program loans based on certain acts or omissions by the institution or a covered party. The regulations also establish processes for the DOE to seek recovery from the institution of the amount of discharged loans.

In 2022, the DOE published
new final BDR regulations with a general effective date of July 1, 2023 that
also addressed other topics. The final regulations were extensive and generally
made it easier for borrowers to obtain discharges of student loans and for the
DOE to assess liabilities and other sanctions on institutions based on the loan
discharges. The final regulations were challenged in court and enjoined by the
Fifth Circuit Court of Appeals. However, the passage of the OBBB Act delayed
the effective date of the new BDR regulations until July 1, 2035. For loans
originated prior to July 1, 2035, the OBBB Act restores and revives the prior
BDR regulations. Therefore, the challenged amendments to the BDR regulations
that were to take effect on July 1, 2023 are not in effect, but the previous
BDR regulations generally remain in effect at this time and apply different
substantive standards and procedures based on when a BDR claimant’s loans were
disbursed.

Between April 2021 and February 2024, the Company received three separate notifications from the DOE that the DOE was in receipt of borrower defense claims containing allegations concerning our schools and requiring that the DOE undertake a fact-finding process pursuant to DOE regulations. The three separate notifications contained a total of approximately 3,000 borrower defense claims. We have completed the process of thoroughly reviewing and responding to each borrower application as well as providing information in response to the DOE’s requests.

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In January 2025, the DOE published a
press release announcing the discharge of a large number of loans at a large
number of schools which included loans totaling approximately $1.4 million for
280 borrowers who attended our Massachusetts schools between 2010 and 2013. The
notice did not acknowledge or evaluate our prior responses to those
applications. The DOE may attempt to impose liability on the Company for
reimbursement for the discharged loans. If the DOE seeks reimbursement from us
for the discharged loan amounts, we would evaluate our options for challenging
the legal and factual bases for such actions.

As previously reported, on June 22, 2022, the DOE
and the plaintiff student loan borrowers in a class action against the DOE
initiated on June 25, 2019 in the U.S. District Court for the Northern District
of California (Sweet v. Cardona, No. 3:19-cv-3674 (N.D. Cal.)) announced
a proposed settlement agreement to resolve claims that the DOE had failed to
timely decide Borrower Defense to Repayment applications submitted to the DOE. The
proposed settlement included three categories of relief for student loan
borrowers. First, the DOE would agree to discharge loans and refund prior loan
payments to the class members with loan debt associated with an institution on
the list included in the proposed settlement (which includes our institutions).
The class action plaintiffs and the DOE stated that the DOE had determined that
attendance at one of the listed institutions justifies presumptive relief
allegedly based on strong indicia regarding substantial misconduct by the
institutions, whether credibly alleged or in some instances proven, and the
purportedly high rate of class members with applications related to the listed
schools. Second, the proposed settlement included new procedures for the DOE to
resolve pending borrower defense claims associated with other schools not on
the list. Third, for any student loan borrower who submitted a borrower defense
application after June 22, 2022 and before the final approval of the
settlement, the proposed settlement would require the DOE to review the
applications under the DOE’s 2016 regulatory standards and issue decisions
within 36 months, or else the applications would be discharged in full.

The settlement provided automatic debt forgiveness
and refunds, or a streamlined review process, for former students of over 150
schools, including our institutions, who had submitted borrower defense claims
or before June 22, 2022. Based upon publicly available information,
approximately 264,000 borrower defense claims associated with all schools were
eligible for automatic relief or a streamlined review process as of June 22,
2022. The settlement also provides a 36-month deadline for the DOE to decide
borrower defense claims submitted between June 23, 2022 and November 16, 2022,
the date of the court’s final approval of the settlement, under the DOE’s 2016
regulatory standards. If the DOE did not decide those claims within 36 months,
the applicants would receive automatic debt forgiveness and refunds without
considering the merits of the claims. As a result of publicity about the
opportunity afforded by the settlement, approximately 206,000 additional
student borrowers submitted 250,000 applications prior to November 16, 2022.

It is not possible at this time to predict whether
the settlement will continue to be upheld on appeal, what additional actions
the DOE might take as the settlement continues to be upheld on appeal, or
whether the DOE or other agencies might take actions against our institutions. Such
actions could have a material adverse effect on our business and results of
operations.

If the DOE disagrees with our legal and factual
grounds for contesting the applications, or if the DOE fails to adjudicate the
claims within 36 months, the DOE could discharge the loans associated with the
applications and award refunds to student borrowers. We believe that the DOE
already may have discharged loans associated with some of the pending
applications, but the DOE has not furnished definitive data to us necessary to
determine the extent to which applications have been granted. It also remains
unclear what loan discharge applications the DOE may receive and grant in the
future and whether the DOE will assert repayment claims against us. As a
result, we are not able to predict the ultimate outcome of the DOE’s review of
these applications at this time. The DOE may attempt to seek recoupment from
applicable schools relating to loan discharges. If the DOE seeks reimbursement
from us for the discharged loan amounts in any or all approved applications, we
would evaluate our legal options for challenging the legal and factual bases
for such actions. We cannot predict the outcome of any challenges we might make
to such actions. In the event that the DOE were to prevail in any efforts
seeking reimbursement for the discharged loans, it could have a material
adverse effect on our business and results of operations.

The "90/10 Rule." Under the HEA, a proprietary institution that derives more than 90% of its total revenue from Title IV Programs and other “federal funds that are disbursed or delivered to or on behalf of a student to be used attend the institution” (its “90/10 Rule percentage”) for two consecutive fiscal years becomes immediately ineligible to participate in Title IV Programs and may not reapply for eligibility until the end of at least two fiscal years. An institution with such revenues that exceed 90% of total revenue for a single fiscal year will be placed in provisional certification status and may be subject to other enforcement measures, including a potential requirement to submit a letter of credit. See Part I, Item 1. “Business - Regulatory Environment – Financial Responsibility Standards.”

If an institution violated the 90/10 Rule and became ineligible to participate in Title IV Programs but continued to disburse Title IV Program funds, the DOE would require the institution to repay all Title IV Program funds received by the institution after the effective date of the loss of eligibility. A loss of eligibility to participate in Title IV Programs for any of our institutions would have a significant impact on the rate at which our students enroll in our programs and on our business and results of operations.

The 90/10 Rule previously
considered whether an institution derived more than 90% of its total revenue
only from Title IV Programs rather than in combination with certain other
federal funding. Under the current 90/10 Rule, our institutions are now
required to limit the combined amount of Title IV Program funds and applicable
“federal funds” revenue (as defined by the DOE) in a fiscal year to no more
than 90% in a fiscal year as calculated under the rule. Consequently, the
current 90/10 Rule has increased and may continue to increase the 90/10 Rule
calculations at our institutions. The sources of applicable “federal funds”
include, for example, funding from federal student aid programs such as the
veterans’ benefits programs, which include the Post-9/11 GI Bill and Veterans
Readiness and Employment services, from which we derived approximately 4.8% of
our revenues on a cash basis in 2025.

The current 90/10 Rule added several
new and amended provisions on a variety of topics effective for fiscal years
ending on or after January 1, 2023, including requirements that institutions
disburse funds that students are eligible to receive for a fiscal year before
the end of the fiscal year rather than delaying disbursements until a
subsequent fiscal year; updated requirements for counting revenues generated
from certain educational activities associated with institutional programs,
from certain non-Title IV eligible educational programs, and from institutional
aid programs such as institutional loans, scholarships, and income share
agreements; updated technical rules for the 90/10 Rule calculation; and rules
for sanctions for noncompliance with the 90/10 Rule and for required
notifications to students and the DOE by the institution of noncompliance with
the 90/10 Rule.

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We have calculated that for the fiscal year ended December 31, 2025, our institutions’ 90/10 Rule percentages ranged from approximately 82.9% to 88.0%. Our calculations are subject to review by the DOE.

We continue to evaluate the impact of the new 90/10 Rule regulations on our business. We continue to make changes to our operations in order to address the provisions in the 90/10 Rule and in order to maintain the 90/10 Rule percentages at our institutions below the 90% threshold as calculated under DOE regulations. However, we do not have significant control over the amount of Title IV Program funds that our students may receive and borrow. Our institutions’ 90/10 Rule percentages can be increased by increases in Title IV Programs aid availability (including, for example, increases in Pell Grant funds) and increases in military and veteran education assistance used by eligible students at our institutions (which increase our 90/10 percentage under prior amendments to the 90/10 Rule) and can be adversely impacted by decreases in the availability of state grant program funding and other sources of student aid that do not count as Title IV Programs funds in the 90/10 Rule calculation. We cannot be certain that the changes we continue to make to comply with the amended 90/10 Rule will succeed in maintaining our institutions’ 90/10 Rule percentages below the required levels or that the changes will not materially impact our business operations, revenues, and operating costs. It also is possible that Congress or the DOE could amend the 90/10 Rule in the future to lower the 90% threshold, change the calculation methodology, or make other changes to the 90/10 Rule that could make it more difficult for our institutions to comply with the 90/10 Rule.

As noted above, if any of our
institutions lose their eligibility to participate in Title IV Programs, that
loss would also adversely affect our students’ access to various
government-sponsored student financial aid programs, and would have a
significant impact on the rate at which our students enroll in our programs and
on our business and results of operations.

Student Loan Defaults. The HEA limits participation in Title IV Programs by institutions whose former students defaulted on the repayment of federally guaranteed or funded student loans above a prescribed rate (the “cohort default rate”). The DOE calculates these rates based on the number of students who have defaulted, not the dollar amount of such defaults. The cohort default rate is calculated on a federal fiscal year basis and measures the percentage of students who enter repayment of a loan during the federal fiscal year and default on the loan on or before the end of the federal fiscal year or the subsequent two federal fiscal years.

Under the HEA, an institution whose Federal Family Education Loan, or FFEL, and Federal Direct Loan, or FDL, cohort default rate is 30% or greater for three consecutive federal fiscal years loses eligibility to participate in the FFEL, FDL, and Pell programs for the remainder of the federal fiscal year in which the DOE determines that such institution has lost its eligibility and for the two subsequent federal fiscal years. An institution whose FFEL and FDL cohort default rate for any single federal fiscal year exceeds 40% loses its eligibility to participate in the FFEL and FDL programs for the remainder of the federal fiscal year in which the DOE determines that such institution has lost its eligibility and for the two subsequent federal fiscal years. If an institution’s three-year cohort default rate equals or exceeds 30% in two of the three most recent federal fiscal years for which the DOE has issued cohort default rates, the institution may be placed on provisional certification status and could be required to submit a letter of credit to the DOE. See Part I, Item 1. “Business - Regulatory Environment – Financial Responsibility Standards.”

In September 2025, the DOE released the final cohort default rates for the 2022 federal fiscal year. These are the most recent final rates published by the DOE. The rates for our existing institutions for the 2022 federal fiscal year were zero. None of our institutions had a cohort default rate equal to or greater than 30% for either the 2020 or 2021 federal fiscal years. The DOE implemented a temporary suspension of repayment obligations and interest accruals on federal student loans during the COVID-19 pandemic for a period of over three years which contributed to a substantial reduction in our cohort default rates. We expect borrower defaults to increase substantially during periods after the expiration of the temporary suspension which we expect will result in higher cohort default rates in the future particularly if borrowers do not successfully resume timely repayment of their federal student loans. While our cohort default rates immediately prior to the temporary suspension were well below the 30% and 40% thresholds discussed above, we cannot predict how high our cohort default rates will increase in the future as a result of the expiration of the temporary suspension, particularly if our students experience job losses, decreases in income, or increases in interest rates. We are engaged in default prevention efforts to assist our students and manage our default rates, but we cannot predict or guarantee that these efforts will be successful.

Financial Responsibility Standards.

All institutions participating in Title IV Programs must satisfy specific standards of financial responsibility. The DOE evaluates institutions for compliance with these standards each year, based on the institution's annual audited financial statements, as well as following a change in ownership resulting in a change of control of the institution.

The most significant financial responsibility measurement is the institution's composite score, which is calculated by the DOE based on three ratios:

●

the equity ratio, which measures the institution's capital resources, ability to borrow and financial viability;

●

the primary reserve ratio, which measures the institution's ability to support current operations from expendable resources; and

●

the net income ratio, which measures the institution's ability to operate at a profit.

The DOE assigns a strength factor to the results of each of these ratios on a scale from negative 1.0 to positive 3.0, with negative 1.0 reflecting financial weakness and positive 3.0 reflecting financial strength. The DOE then assigns a weighting percentage to each ratio and adds the weighted scores for the three ratios together to produce a composite score for the institution. The composite score must be at least 1.5 for the institution to be deemed financially responsible without the need for further oversight.

15

Index

If an institution's composite score is below 1.5, but is at least 1.0, it is in a category denominated by the DOE as "the zone." Under the DOE regulations, institutions that are in the zone typically may be permitted by the DOE to continue to participate in the Title IV Programs by choosing one of two alternatives: 1) the “Zone Alternative” under which an institution is required to make disbursements to students under the Heightened Cash Monitoring 1 (“HCM1”) payment method, or a different payment method other than the advance payment method, and to notify the DOE within 10 days after the occurrence of certain oversight and financial events or 2) submit a letter of credit to the DOE equal to 50 percent of the Title IV Program funds received by the institution during its most recent fiscal year. The DOE permits an institution to participate under the “Zone Alternative” for a period of up to three consecutive fiscal years. Under the HCM1 payment method, the institution is required to make Title IV Program disbursements to eligible students and parents before it requests or receives funds for the amount of those disbursements from the DOE. As long as the student accounts are credited before the funding requests are initiated, an institution is permitted to draw down funds through the DOE’s electronic system for grants management and payments for the amount of disbursements made to eligible students. Unlike the Heightened Cash Monitoring 2 (“HCM2”) and the reimbursement payment methods, the HCM1 payment method typically does not require schools to submit documentation to the DOE and wait for DOE approval before drawing down Title IV Program funds. A school under HCM1, HCM2 or reimbursement payment methods must also pay any credit balances due to a student before drawing down funds for the amount of those disbursements from the DOE, even if the student or parent provides written authorization for the school to hold the credit balance.

If an institution's composite score is below 1.0, the institution is considered by the DOE to lack financial responsibility. If the DOE determines that an institution does not satisfy the DOE's financial responsibility standards, depending on its composite score and other factors, that institution may establish its eligibility to participate in the Title IV Programs on an alternative basis by, among other things:

●

posting a letter of credit in an amount equal to at least 50% of the total Title IV Program funds received by the institution during the institution's most recently completed fiscal year; or

●

posting a letter of credit in an amount equal to at least 10% of the Title IV Program funds received by the institution during its most recently completed fiscal year accepting provisional certification status; complying with additional DOE monitoring requirements and agreeing to receive Title IV Program funds under an arrangement other than the DOE's standard advance funding arrangement.

For the 2025 fiscal year, we calculated our composite score to be 2.0. Composite scores are subject to determination by the DOE based on its review of our consolidated audited financial statements, but we believe it is likely that the DOE will determine that our institutions comply with the composite score requirement.

On October 31, 2023, the DOE published final regulations with a general effective date of July 1, 2024, that, among other things, modify and substantially expand the existing list in the regulations of triggering events that could result in the DOE determining that an institution lacks financial responsibility and must submit to the DOE a letter of credit or other form of acceptable financial protection and accept other conditions on the institution’s Title IV Program eligibility. The regulations create lists of mandatory triggering events and discretionary triggering events.

Examples of mandatory
triggering events under the final rules include a lawsuit by a federal or state
authority or a qui tam lawsuit in which the federal government has
intervened, where the suit has been pending for 120 days as measured under the
regulation; an action where the DOE seeks to recover the cost of adjudicated
claims in favor of borrowers under the Borrower Defense to Repayment
regulations and the claims would lower the institution’s composite score below
1.0; certain judgments, awards, or settlements in certain lawsuits, mediations,
or administrative or arbitration proceedings; certain withdrawals of owner’s
equity including by dividend; gainful employment issues; accreditor
requirements to submit a teach-out plan for reasons related to financial
concerns; certain actions taken against a publicly-traded company or failure to
timely file certain annual or quarterly reports; 90/10 Rule issues; cohort
default rate issues; contributions and distributions occurring near the fiscal
year end that materially impact the composite score; certain defaults or other
adverse events under a financing arrangement; or certain financial exigencies
or receiverships.

Examples of discretionary
triggering events under the final regulations include certain accrediting
agency actions, certain accreditor events, fluctuations in Title IV volume,
high annual dropout rates, indicators of significant change in the financial condition
of the institution, the formation by the DOE of a group process to consider
borrower defense claims against the institution, the institution’s
discontinuation of education programs affecting at least 25 percent of enrolled
students receiving Title IV funds, the institution’s closure of locations that
enroll more than 25 percent of its students who receive Title IV funds, certain
state licensing agency actions, the loss of institutional or program
eligibility in another federal educational assistance program, a requirement to
disclose in a public filing that the company is under investigation for
possible violations of law, or if the institution is cited and faces loss of
education assistance funds from another federal agency if it does not comply with
agency requirements. The final regulations also establish new rules for
evaluating financial responsibility during a change in ownership.

The final regulations
increase the likelihood that the DOE could impose a financial protection
requirement and other conditions on the Company and our institutions. The final
rules require an institution to notify the DOE of a triggering event and provide
information demonstrating why the event does not warrant the submission of a
letter of credit or imposition of other requirements. The final rules state
that, if the DOE requires financial protection as a result of more than one
mandatory or discretionary trigger, the DOE will require separate financial
protection for each individual trigger, which could substantially increase the
amount of financial protection that the Company and other institutions could be
required to provide to the DOE.

The expanded financial responsibility regulations could result in the DOE recalculating and reducing our composite score to account for DOE estimates of potential losses under one or more of the extensive list of triggering circumstances and also could result in the imposition of conditions and requirements, including a requirement to provide one or more letters of credit or other forms of financial protection.

Return of Title IV Program Funds. An institution participating in Title IV Programs must calculate the amount of unearned Title IV Program funds that have been disbursed to students who withdraw from their educational programs before completing them, and must return those unearned funds to the DOE or the applicable lending institution in a timely manner, which is generally within 45 days from the date the institution determines that the student has withdrawn.

16

Index

If an institution is cited in
an audit or program review for returning Title IV Program funds late for five
percent or more of the students in the audit or program review sample, or if
the regulatory auditor identifies a material weakness in the institution’s
report on internal controls relating to the return of unearned Title IV Program
funds, the institution may be required to post a letter of credit in favor of
the DOE in an amount equal to 25% of the total amount of Title IV Program funds
that should have been returned for students who withdrew in the institution's
prior fiscal year.

More recently, the DOE
commenced a negotiated rulemaking process and conducted meetings from January
through March 2024 to discuss proposed regulations on a number of topics
including plans to amend the regulations on the requirements for institutions
to return unearned Title IV funds to students who withdraw from their
educational programs before completing them. The DOE published final
regulations on January 3, 2025 with a general effective date of July 1, 2026 on
topics including, among others, refunds for students who do not begin
attendance at the school or who withdraw from the school, the requirement to
determine the date a student withdrew from school, the refund calculations for
clock hour programs, and the calculation of withdrawal dates and refunds for
programs provided in modules The DOE did not include a proposal regarding
attendance requirements for distance education programs. See Part I, Item 1.
“Business - Regulatory Environment – Negotiated Rulemaking.”

Negotiated Rulemaking. In 2025,
the DOE announced its intention to establish two negotiated rulemaking
committees. The Reimagining and Improving Student Education (the “RISE
Committee”) would consider changes to the federal student loan programs and
Accountability in Higher Education and Access through Demand-driven Workforce
Pell (the “AHEAD Committee”) would consider changes to institutional and
programmatic accountability, the Pell Grant Program, and other changes to the
Title IV Programs. This rulemaking is necessary to implement recent statutory
changes to the Title IV and HEA programs included in the OBBB Act as well as to
proposed other changes.

The RISE Committee reached a
consensus on proposed regulations which the DOE subsequently published in
updated form in a corresponding Notice of Proposed Rulemaking (“NPRM”), that
would implement new limits established in the OBBB Act on the amount of Title
IV loans that students and parents can borrow in some circumstances.

Among other topics, the proposed regulations would place a $20,000 annual limit and a $65,000 aggregate limit on PLUS loans that parents may borrow for undergraduate programs but generally do not change the existing annual and aggregate limits on loans that students may borrow for undergraduate programs. We are continuing to evaluate these new limits and cannot currently predict the extent to which these new limits may impact our schools and programs, but the reduction in availability of funding could impact the ability of some of our prospective students to enroll and finance their education without access to loans in excess of the new loan limits.

The proposed regulations also
establish a lifetime loan limit of $257,500 for all borrowers (but excluding
Federal Direct PLUS loans) and also impose a requirement to prorate loans to
students attending on a less than full-time basis. We are evaluating these
limitations to determine the extent to which they could have an impact on our
enrollment and revenues. The proposed regulations also contain grandfathering
provisions that exempt certain currently enrolled borrowers as of June 30, 2026
from new limits on Direct Loans and Grad and Parent PLUS loans for a limited
period of time if they received a loan for their program prior to July 1, 2026.
The proposed regulations also grant institutions the authority to set their own
internal loan limits, below the maximum in the HEA, so long as they are applied
consistently to students in the same program of study. The proposed regulations
are subject to a public notice and comment period before the DOE publishes the
final version of the regulations with an anticipated effective date of July 1,
2026. We cannot predict the ultimate timing, content, or impact of the final
regulations.

The AHEAD Committee reached a
consensus on two sets of proposed regulations on December 12, 2025, and January
9, 2026, respectively. The first set of proposed regulations would implement
the new Workforce Pell program authorized by the OBBB Act. Under these
regulations, short-term workforce programs (as defined in the regulations)
would be eligible to disburse Pell grants if they meet various requirements
such as applicable program length requirements, prohibitions on outsourcing 25%
or more of instruction to ineligible providers, and obtaining requisite DOE and
state approval in the state in which the institution is located. The state
approval certifies that the programs prepare students for occupations that meet
the workforce needs of the state. The DOE will consider whether the program
meets or exceeds certain completion and job placement rate thresholds. After
receiving approval to disburse Pell grants, programs are required to comply
with a value-added-earnings accountability metric aimed at measuring a
program’s return-on-investment for students. These proposed regulations are
expected to take effect on July 1, 2026, but the proposed regulations remain
subject to public notice and comment and publication in final form by the DOE.

The second set of proposed regulations would establish new uniform accountability requirements applicable to all educational programs across all education sectors. See “Regulatory Environment – Gainful Employment and Accountability.”

The DOE could issue new regulations and guidance in the future. For example, on January 27, 2026, the DOE published a notice of its intent to initiate a negotiated rulemaking process with the goal of preparing proposed regulations to amend existing regulations for the DOE’s recognition of accrediting agencies and related institutional eligibility regulations. The DOE stated that the topics of the proposed regulations include, for example, DOE review and recognition of accrediting agencies, procedures for institutions to change accrediting agencies, requirements for accrediting agency standards, and the process for recognizing and reviewing accrediting agencies.

We cannot predict the timing
and scope of any regulations or guidance the DOE might issue on these or other
topics (or whether the DOE under the new administration will issue such
regulations or guidance), but new regulations or guidance on these or other
topics could increase the possibility that our schools could be subject to
additional reporting requirements, to potential liabilities and sanctions such
as letter of credit requirements, and potential loss of Title IV eligibility if
our efforts to modify our operations to comply with any new requirements are
unsuccessful which could have a significant impact on our business and results
of operations.

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Index

Substantial Misrepresentation. The DOE’s regulations prohibit an institution that participates in Title IV Programs from engaging in substantial misrepresentation of the nature of its educational programs, financial charges, graduate employability or its relationship with the DOE. A “misrepresentation” includes any false, erroneous, or misleading statement (whether made in writing, visually, orally, or through other means) that is made by an eligible institution, by one of its representatives, or by a third party that provides to the institution educational programs, marketing, advertising, recruiting, or admissions services and that is made to a student, prospective student, any member of the public, an accrediting or state agency, or to DOE. The DOE defines a “substantial misrepresentation” to include any misrepresentation on which the person to whom it was made could reasonably be expected to rely, or has reasonably relied, to that person’s detriment. The definition of “substantial misrepresentation” is broad and, therefore, it is possible that a statement made by the institution or one of its service providers or representatives could be construed by the DOE to constitute a substantial misrepresentation. On January 16, 2025, the DOE published guidance reinforcing that the misrepresentation rules apply equally to various types of statements made by a third-party entity engaged by the institution and their respective employees, contractors, and representatives and that institutions may be responsible for the consequences of misrepresentation committed by any external service provider that they engage. If the DOE determines that one of our institutions has engaged in substantial misrepresentation, the DOE may impose sanctions or other conditions upon the institution including, but not limited to, initiating an action to fine the institution or limit, suspend, or terminate its eligibility to participate in the Title IV Programs and may seek to discharge students’ loans and impose liabilities upon the institution. The DOE published final regulations on November 1, 2022 on a variety of topics including amended and expanded regulations on substantial misrepresentations. Specifically, the new regulations expand the types of conduct that could result in a discharge of student loans including: 1) an expanded list of substantial misrepresentations; 2) a new section regarding substantial omissions of fact; 3) breaches of contract; 4) a new section regarding aggressive and deceptive recruitment; and 5) state or federal judgments or final DOE actions that could result in a borrower defense claim. Some of these forms of conduct also could result in further scrutiny of marketing and recruiting practices by institutions like our schools and could increase the chances of the DOE finding practices to be noncompliant and imposing sanctions based on the alleged noncompliance up to and including fines and potential loss of Title IV eligibility. See Part I, Item 1. “Business - Regulatory Environment – Borrower Defense to Repayment Regulations.”

School Acquisitions/Change of Control. When a company acquires a school that is eligible to participate in Title IV Programs, that school undergoes a change of ownership resulting in a “change of control” as defined by the DOE. Upon such a change of control, a school's eligibility to participate in Title IV Programs is generally suspended until it has applied for recertification by the DOE as an eligible school under its new ownership, which requires that the school also re-establish its state authorization and accreditation. Thus, any plans to expand our business through acquisition of additional schools and have them certified by the DOE to participate in Title IV Programs must take into account the approval requirements of the DOE and the relevant state education agencies and accrediting commissions. On October 30, 2022, the DOE published final regulations with a general effective date of July 1, 2023 concerning change of control which, among other things, expand the requirements applicable to school acquisitions in ways that could make it more difficult to acquire additional schools.

In addition to school acquisitions, other types of transactions can also cause a change of control. The DOE, most state education agencies and our accrediting commissions have standards pertaining to the change of control of schools, but these standards are not uniform. DOE regulations describe some transactions that constitute a change of control, including the transfer of a controlling interest in the voting stock of an institution or the institution's parent corporation. For a publicly traded corporation, DOE regulations provide that a change of control occurs in one of two ways: (a) if a person acquires ownership and control of the corporation so that the corporation is required to file a Current Report on Form 8-K with the Securities and Exchange Commission disclosing the change of control or (b) if the corporation has a shareholder that owns at least 25% of the total outstanding voting stock of the corporation and is the largest shareholder of the corporation, and that shareholder ceases to own at least 25% of such stock or ceases to be the largest shareholder. These standards are subject to interpretation by the DOE. A significant purchase or disposition of our Common Stock could be determined by the DOE to be a change of control under this standard.

Most of the states and our accrediting commissions include the sale of a controlling interest of Common Stock in the definition of a change of control although some agencies could determine that the sale or disposition of a smaller interest would result in a change of control. A change of control under the definition of one of these agencies would require the affected school to reaffirm its state authorization or accreditation. Some agencies would require approval prior to a sale or disposition that would result in a change of control in order to maintain authorization or accreditation. The requirements to obtain such reaffirmation from the states and our accrediting commissions vary widely.

A change of control could occur as a result of future transactions in which the Company or our schools are involved. Some corporate reorganizations and some changes in the Board of Directors of the Company are examples of such transactions. Moreover, the potential adverse effects of a change of control could influence future decisions by us and our shareholders regarding the sale, purchase, transfer, issuance or redemption of our stock. In addition, the adverse regulatory effect of a change of control also could discourage bids for shares of our Common Stock and could have an adverse effect on the market price of our shares.

School Acquisitions/Change of Control. When a company acquires a school that is eligible to participate in Title IV Programs, that school undergoes a change of ownership resulting in a “change of control” as defined by the DOE. Upon such a change of control, a school's eligibility to participate in Title IV Programs is generally suspended until it has applied for recertification by the DOE as an eligible school under its new ownership, which requires that the school also re-establish its state authorization and accreditation. Thus, any plans to expand our business through acquisition of additional schools and have them certified by the DOE to participate in Title IV Programs must take into account the approval requirements of the DOE and the relevant state education agencies and accrediting commissions. In 2022, the DOE published final regulations with a general effective date of July 1, 2023 concerning change of control which, among other things, expand the requirements applicable to school acquisitions in ways that could make it more difficult to acquire additional schools.

In addition to school acquisitions, other types of transactions can also cause a change of control. The DOE, most state education agencies and our accrediting commissions have standards pertaining to the change of control of schools, but these standards are not uniform. DOE regulations describe some transactions that constitute a change of control, including the transfer of a controlling interest in the voting stock of an institution or the institution's parent corporation. For a publicly traded corporation, DOE regulations provide that a change of control occurs in one of two ways: (1) if a person acquires ownership and control of the corporation so that the corporation is required to file a Current Report on Form 8-K with the Securities and Exchange Commission disclosing the change of control or (2) if the corporation has a shareholder that owns at least 25% of the total outstanding voting stock of the corporation and is the largest shareholder of the corporation, and that shareholder ceases to own at least 25% of such stock or ceases to be the largest shareholder. These standards are subject to interpretation by the DOE. A significant purchase or disposition of our Common Stock could be determined by the DOE to be a change of control under this standard.

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Index

Most of the states and our accrediting commissions include the sale of a controlling interest of Common Stock in the definition of a change of control although some agencies could determine that the sale or disposition of a smaller interest would result in a change of control. A change of control under the definition of one of these agencies would require the affected school to reaffirm its state authorization or accreditation. Some agencies would require approval prior to a sale or disposition that would result in a change of control in order to maintain authorization or accreditation. The requirements to obtain such reaffirmation from the states and our accrediting commissions vary widely.

A change of control could occur as a result of future transactions in which the Company or our schools are involved. Some corporate reorganizations and some changes in the Board of Directors of the Company are examples of such transactions. Moreover, the potential adverse effects of a change of control could influence future decisions by us and our shareholders regarding the sale, purchase, transfer, issuance or redemption of our stock. In addition, the adverse regulatory effect of a change of control also could discourage bids for shares of our Common Stock and could have an adverse effect on the market price of our shares.

Opening Additional
Schools and Adding Educational Programs.  For-profit educational
institutions must be authorized by their state education agencies and fully
operational for two years before applying to the DOE to participate in Title IV
Programs. However, an institution that is certified to participate in Title IV
Programs may establish an additional location and apply to participate in Title
IV Programs at that location without reference to the two-year requirement, if
such additional location satisfies all other applicable DOE eligibility
requirements. Our strategic plans for future expansion are based, in part, on
our ability to open new schools as additional locations of our existing
institutions and take into account the applicable approval requirements of the
DOE and our other regulatory agencies.

A student may use Title IV Program funds only to pay the costs associated with enrollment in an eligible educational program offered by an institution participating in Title IV Programs. Generally, unless otherwise required by the DOE or by DOE regulations, an institution that is eligible to participate in Title IV Programs may add a new educational program without DOE approval. Institutions that are provisionally certified may be required to obtain approval of new educational programs. If an institution erroneously determines that a new location or educational program is eligible for purposes of Title IV Programs, the institution would likely be liable for repayment of Title IV Program funds provided to students in that educational program. Our expansion plans are based, in part, on our ability to add new educational programs at our existing schools.

Some of the state education agencies and our accrediting commission also have requirements that may affect our schools' ability to open a new campus, establish an additional location of an existing institution or begin offering a new educational program. The DOE has published final regulations that further restrict the ability of some schools – such as schools that are provisionally certified – to add new locations or educational programs, which could impact our ability to make such changes if we are provisionally certified in the future or subject to other criteria in the regulations.

Closed School Loan
Discharges. The DOE may grant
closed school loan discharges of federal student loans based upon applications
by qualified students. The DOE also may initiate discharges on
its own for students who have not reenrolled in another Title IV Program
eligible school within three years after the closure and who attended campuses
that closed on or after November 1, 2013, as did some of our former campuses.
If the DOE discharges some or all of these loans, the DOE may seek to recover
the cost of the loan discharges from us. As noted above, the DOE published
final regulations on November 1, 2022 with a general effective date of July 1,
2023 on a variety of topics, including closed school loan discharges (and,
among other things, the reintroduction of automatic closed school loan
discharges), which would make it easier for borrowers to obtain discharges of
their loans and for the DOE to recover liabilities from institutions. As also
noted above, certain borrower defense and closed school loan discharge
provisions of the new regulations are currently under an injunction ordered by
the Fifth Circuit Court of Appeals and currently under appeal to the U.S.
Supreme Court. Therefore, the challenged amendments to the BDR and closed
school discharge regulations that were to take effect on July 1, 2023 are not
in effect, but the previous BDR and closed school discharge regulations in
effect prior to July 1, 2023, generally remain in effect at this time. See Part
I, Item I. “Business – Regulatory Environment – Borrower Defense to Repayment.”
Moreover, the OBBB Act restores and revives the prior closed school loan
discharge regulations for loans originated prior to July 1, 2035. We cannot
predict with certainty any additional closed school loan discharges that the
DOE may approve or the liabilities that the DOE may seek from us for campuses
that have closed in the past or any possible school closures in the future.

Administrative Capability. The DOE assesses the administrative capability of each institution that participates in Title IV Programs under a series of separate standards. Failure to satisfy any of the standards may lead the DOE to find the institution ineligible to participate in Title IV Programs or place the institution in provisional certification status as a condition of its participation. These criteria require, among other things, that the institution:

●

comply with all applicable federal student financial aid requirements;

●

have capable and sufficient personnel to administer the federal student Title IV Programs;

●

administer Title IV Programs with adequate checks and balances in its system of internal controls over financial reporting;

●

divide the function of authorizing and disbursing or delivering Title IV Program funds so that no office has the responsibility for both functions;

●

establish and maintain records required under the Title IV Program regulations;

●

develop and apply an adequate system to identify and resolve discrepancies in information from sources regarding a student’s application for financial aid under the Title IV Program;

●

have acceptable methods of defining and measuring the satisfactory academic progress of its students;

●

refer to the Office of the Inspector General any credible information indicating that any applicant, student, employee, third party servicer or other agent of the school has been engaged in any fraud or other illegal conduct involving Title IV Programs;

●

not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in activity that is cause for debarment or suspension;

●

provide adequate financial aid counseling to its students;

●

submit in a timely manner all reports and financial statements required by the Title IV Program regulations; and

●

not otherwise appear to lack administrative capability.

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Index

The DOE published final regulations in 2023 that, among other issues, expand the scope of the administrative capability regulations to include other requirements (such as, for example, providing adequate financial aid counseling and career services, ensuring the availability of clinical and externship opportunities, the disbursement of Title IV funds in a timely manner, compliance with high school diploma requirements, preventing substantial misrepresentations, complying with gainful employment requirements, and avoiding significant negative actions with a federal, state, or accrediting agency). The regulations had a general effective date of July 1, 2024.

Failure by us to satisfy any of these or other administrative capability criteria could cause our institutions to be subject to sanctions or other actions by the DOE including the loss of eligibility to participate in Title IV Programs, which would have a significant impact on our business and results of operations.

Restrictions on Payment
of Commissions, Bonuses and Other Incentive Payments. An institution participating in Title IV Programs may
not provide any commission, bonus or other incentive payment based directly or
indirectly on success in securing enrollments or financial aid to any person or
entity engaged in any student recruiting or admission activities or in making
decisions regarding the awarding of Title IV Program funds. The DOE’s
regulations established 12 “safe harbors” identifying types of compensation
that may be paid without violating the incentive compensation rule. In 2010,
the DOE adopted final rules that amended the incentive compensation rule by,
among other things, eliminating the 12 safe harbors (thereby reducing the scope
of permissible compensatory payments under the rule) and expanding the scope of
compensatory payments and employees subject to the rule. We cannot predict how
the DOE will interpret and enforce the revised incentive compensation rule and
the limited published guidance that the DOE has provided, nor how it will apply
the rule and guidance to our past, present, and future compensation practices,
or whether the DOE will issue new regulations or guidance on the subject. The
implementation of the final regulations have required us to change our
compensation practices and has had and will continue to have a significant
impact on the productivity of our employees, on the retention of our employees
and our business and results of operations.

Compliance with Regulatory Standards and Effect of Regulatory Violations. Our schools are subject to audits, program reviews, site visits, and other reviews by various federal and state regulatory agencies, including but not limited to, the DOE, the DOE’s Office of Inspector General (“OIG”), state education agencies and other state regulators, the VA and other federal agencies (such as, for example, the FTC or the CFPB), and by our institutional and programmatic accrediting commissions. In addition, each of our institutions must retain an independent certified public accountant to conduct an annual compliance audit of the institution’s administration of Title IV Program funds. The institution must submit the resulting annual compliance audit report to the DOE for review. The annual compliance audit reports for our institutions contain findings on topics that were the subject of findings in prior audits although the amount of questioned funds in the reports are immaterial. The reoccurrence of findings in our compliance audit reports could result in the DOE initiating an adverse action against one or more of our institutions.

If we or any of our schools fail to comply with applicable federal, state, or accrediting agency requirements, our regulators could take a variety of adverse actions against us, and our schools could be subject to, among other things: a) the loss of, or placement of material restrictions or conditions on (i) state licensure or accreditation, (ii) eligibility to participate in and receive funds under the Title IV Programs or other federal or state financial assistance programs, or (iii) capacity to grant degrees, diplomas and certificates or b) the imposition of liabilities or monetary penalties, or a requirement to provide a letter of credit or other financial protection. Unresolved investigations, claims, and actions, or adverse resolutions or settlements thereof, could also result in additional inquiries, administrative actions or lawsuits, increased scrutiny, the loss or withholding of accreditation, state licensure, or eligibility to participate in the Title IV Programs or other financial assistance programs, and/or the imposition of other sanctions by federal, state, or accrediting agencies which, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.

Significant violations of
Title IV Program requirements by any of our institutions could also become the
basis for the DOE to impose liabilities on us or initiate an adverse action to
limit, suspend, terminate, revoke, or decline to renew the participation of the
affected institution in Title IV Programs or to seek civil or criminal
penalties. Generally, a termination of Title IV Program eligibility extends for
18 months before the institution may apply for reinstatement of its
participation.

If one of our schools fails to comply with accrediting or state licensing requirements, such school and its main and/or branch campuses could be subject to the loss of state licensure or accreditation, which in turn could result in a loss of eligibility to participate in Title IV Programs. If the DOE or another agency determined that one of our institutions improperly disbursed Title IV Program funds or violated a provision of the HEA or DOE regulations, the institution could be required to repay such funds and related costs to the DOE and lenders, and could be assessed an administrative fine. The DOE could also place the institution in provisional certification status and/or transfer the institution to the reimbursement or cash monitoring system of receiving Title IV Program funds, under which an institution must disburse its own funds to students and document the students' eligibility for Title IV Program funds before receiving such funds from the DOE. See Part I, Item 1. “Business - Regulatory Environment – Financial Responsibility Standards.”

Consumer Protection
Laws and Scrutiny of the For-Profit Postsecondary Education Sector. As a
postsecondary educational institution, we are subject to a broad range of
consumer protection and other laws, relating to recruiting, marketing, the
protection of personal information, student financing and payment servicing,
which are enforced by federal agencies such as the FTC and CFPB and various
state agencies and state attorneys general. We devote significant effort to
complying with state and federal consumer protection laws. In recent years,
Congress, the DOE, state legislatures and regulatory agencies, accrediting
agencies, the CFPB, the FTC, the SEC, the Department of Justice, state
attorneys general and the media have scrutinized the for-profit postsecondary
education sector. Congressional hearings and other inquiries have occurred
regarding various aspects of the education industry, including issues
surrounding student debt as well as publicly reported student outcomes that may
be used as part of an institution’s recruiting and admissions practices, and
reports have been issued that are highly critical of for-profit colleges and
universities.

In addition to Title IV Programs and other government-administered programs, all of our schools offer extended financing programs to their students. This extension of credit helps fill the gap between what the student receives from all financial aid sources and what the student may need to cover the full cost of his or her education. Students or their parents can apply to a number of different unaffiliated lenders for this funding at current market interest rates. In such regard, we are required to comply with applicable federal and state laws related to certain consumer and educational loans and credit extensions, which may be subject to the supervisory authority of the CFPB and other federal and state agencies.

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Index

Available Information.

The Company’s website is www.lincolntech.edu. The Company makes available free of charge on its website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC. Information contained on the Company’s website is not a part of this Annual Report on Form 10-K and is not incorporated herein by reference.