Career
Education Corporation (the “Company”) received notification on January 18, 2008
from SLM Corporation, commonly known as Sallie Mae, that Sallie Mae
is
terminating its Recourse Loan Program with the Company, and more broadly
within
all of the post-secondary education market, which allows qualifying
students to
receive private recourse loans to fund their tuition. Sallie Mae also
notified the Company that while it intends to continue their non-recourse
programs with the Company, Sallie Mae is also reviewing various aspects
of such
programs, including underwriting criteria.
The
recourse loan agreement with Sallie Mae was entered into on March 1,
2007, with
an expiration date of June 30, 2009. Sallie Mae exercised a
termination right within the recourse loan agreement with a prescribed
30 day
notice period. The Company is working with Sallie Mae to arrange
continued funding for active students that currently utilize Sallie
Mae recourse
loans, as well as an interim solution for a period beyond the next
30 days for
new students while the Company implements funding alternatives. Students
attending CEC schools and universities retain the option to work with
Sallie Mae
to secure FFELP and non-recourse loans.
The
Company is taking steps to reduce the impact that this decision will
have on
students with the need for this financing. Given the unrest in the
student lending market, the Company has been evaluating alternatives
to its
recourse loan programs over the past several months to replace or suspend
these
programs.
Over
the
next 30 to 45 days, the Company expects to finalize alternatives it
has been
considering to the Sallie Mae recourse loan program including:
(1) Blending
the source of funds for the recourse loan program using a combination
of
alternate lenders and funds provided by the Company.
(2) Funding
recourse loans solely from cash flow from operations and cash and cash
equivalents.
(3) Discontinuing
the recourse loan program.
Additionally,
the Company is examining other options with alternative lenders for
the
non-recourse products that may be impacted after discussions with Sallie
Mae and
is reviewing the ability to increase grants, scholarships and other
funding
sources to help students impacted by the Sallie Mae decision.
The
Company has preliminarily estimated that up to $60 million of 2007
annual
revenue was related to programs provided to new students who are impacted
by the
Sallie Mae decision to terminate its recourse loan program. The Company
believes
it has the financial ability with its balance sheet and credit line
to meet the
obligations of any of the alternatives being considered.
The
Company is in the process of evaluating the impact to 2008 earnings
based on
alternatives described above and other changes the Company may make
in relation
to the change in the student lending environment. The Company will
provide an update of its discussions and alternate programs in its
regularly
scheduled earnings call on February 21, 2008.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except
for the historical and present factual information contained herein,
the matters
set forth in this release, including statements identified by words
such as
"anticipate," "believe," "plan," "expect," "intend," "project," "will,"
and
similar expressions, are forward-looking statements as defined in Section
21E of
the Securities Exchange Act of 1934, as amended. These statements are
based on
information currently available to us and are subject to various risks,
uncertainties, and other factors that could cause our actual growth,
results of
operations, performance and business prospects, and opportunities to
differ
materially from those expressed in, or implied by, these statements.
Except as
expressly required by federal securities laws, we undertake no obligation
to
update such factors or to publicly announce the results of any of the
forward-looking statements contained herein to reflect future events,
developments, or changed circumstances or for any other reason. Such
forward
looking statements include, but are not limited to, those pertaining
to our
expectations regarding (i) Sallie Mae honoring its loans to current
students;
(ii) Sallie Mae continuing its non-recourse programs; (iii) Sallie
Mae
continuing to provide loans within the federal Title IV program; (iv)
current
students continuing to have the financing they need through existing
or revised
arrangements; (v) our ability to arrange financing for incoming students
through
Title IV and other resources; (vi) the ability or willingness of lenders
to
provide alternative loans to credit worthy students; (vii) our plans
to explore student funding alternatives; (viii) the adequacy of our
balance
sheet and access to credit facilities to fund increased lending to
our students;
and (ix) our ability to develop and employ alternatives to increase
grants,
scholarships and other funding sources. Many factors may cause the
Company's actual results to differ materially from those discussed
in any such
forward-looking statements, including: risks associated with unfavorable
changes
in the cost or availability of alternative loans for our students;
potential
higher bad debt expense or reduced revenue associated with requiring
students to
pay more of their educational expenses while in school; increased competition;
the Company's effectiveness in its regulatory compliance efforts; future
financial and operational results, including the impact of the impairment
of
goodwill and other intangible assets; risks related to our ability
to comply
with accrediting agency requirements or obtain accrediting agency approvals;
risks related to our ability to comply with, and the impact of changes
in,
legislation and regulations that affect our ability to participate
in student
financial aid programs; costs, risks, and effects of legal and administrative
proceedings and investigations and governmental regulations, and class
action
and other lawsuits; costs and difficulties related to the integration
of
acquired businesses; risks related to our ability to manage and continue
growth;
risks related to the sale of any campuses; risks related to competition,
general
economic conditions (including, credit market conditions), and other
risk
factors relating to our industry and business and the factors discussed
in our
Annual Report on Form 10-K for the year ended December 31, 2006, and
from time
to time in our other reports filed with the Securities and Exchange
Commission.