IN THE MATTER OF ARISTOTLE COLLEGE
Docket No. 89-35-S
Student Financial Assistance Proceeding
Appearances: Peter S. Leyton and Richard A. Fulton, Esq. of
Washington, D.C., for the Respondent
Brian P. Siegel, Esq. of Washington, D.C.,
Office of the General Counsel, United States
Department of Education for the Office of Student Financial Assistance
Before: Judge Allan C. Lewis
This is an action instituted by the Office of Student Financial
Assistance (ED) after it was notified by the Higher Education
Assistance Foundation (HEAF) that HEAF had terminated Aristotle
College of Medical & Dental Technology (Aristotle) from
participating in its guaranteed student loan program. In this
action ED, pursuant to Section 432(h)(3) of the Higher Education
Act of 1965, as amended by Section 402(a) of the Higher Education
Amendments of 1986, Pub. L. No. 96-374, 100 Stat. 1263 (to be
codified at 20 U.S.C. § 1082(h)(3) (hereinafter Section
1082(h)(3)) seeks to disqualify Aristotle from participating with
all other guaranty agencies in their guaranteed student loan
programs established under Title IV of the Higher Education Act
of 1065, as amended (to be codified at 20 U.S.C. § 1071, et.
The initial dispute between the parties concerns the scope of
this proceeding, i.e. whether, as ED asserts, the
disqualification proceeding does not include an inquiry into the
factual and substantive bases of the termination determination by
HEAF. It is concluded that the nature of this proceeding
includes an inquiry into whether the facts and law require the
termination of the institution from its participation in the
guaranteed student loan program offered by HEAF. The parties
also differ as to whether, based on the facts and law, Aristotle
should be disqualified nationally from its participation in the
guaranteed student loan program. For the reasons stated below, Aristotle is not disqualified from participating in the guaranteed student loan program.
I. FINDINGS OF FACT
1. Aristotle is a proprietary vocational school and
proprietary institution of higher education with locations in
Indiana and Ohio.See footnote 1
It was established in 1977 and presently, has approximately 500 students enrolled. Since
has graduated about 3,500 students and placed about 89% of those
graduates in fields for which they were trained. Its retention
rate averages about 77%. Its cohort default rate for fiscal year
1988 was 20.8%. In addition, approximately 95% of its students
who take state or national exams for certification pass these
tests. Aristotle presently employs about 61 faculty and staff
and has historically experienced minimal staff turnover.
2. Since 1981, Aristotle has participated in the
Federal student financial aid programs under Title IV of the
Higher Education Act of 1965, as amended (HEA): the Guaranteed
Student Loan (GSL) program, the Pell Grant program, the
Supplemental Education Opportunity Grant program and National
Direct Student Loan (now Perkins Loan) program.
3. Aristotle participated in the GSL programs in
the Higher Education Assistance Foundation (HEAF) and in part
through other guaranty agencies.
4. On April 12 and 13, 1989, Matthew T.
Mikulski, a compliance
specialist for HEAF, conducted a program review of Aristotle's
administration of the GSL program. This was Aristotle's first
review by a guaranty agency.
5. Mr. Mikulski prepared a report of his findings.
was given to Wendie Doyle, Assistant Vice President and
Compliance Officer at HEAF. Ms. Doyle wrote to Aristotle on
April 24, 1989, informing it that Aristotle's participation in
HEAF's loan program was immediately suspended and that HEAF
intended to terminate Aristotle's participation in its program.
6. On April 24, 1989, Ms. Doyle, an Assistant Vice President of HEAF, wrote Aristotle as follows:
You are hereby notified that the Higher Education Assistance Foundation (Foundation) immediately suspends Aristotle . . . from participation in the Foundation's Stafford Student Loan Program . . . . This action is in accordance with the Foundation's Rules and Regulations and Section 5 of Foundation Bulletin L/S #61, dated January 26, 1988.
In addition to the immediate suspension, the Foundation
hereby notifies you of its intent to terminate
Aristotle . . . from the above programs. This action is in accordance with the Foundation's Rules and Regulations and Section 7 of Foundation Bulletin L/S #61, dated January 26, 1988.
These actions result from a number of serious and ongoing
problems at the school. The Foundation conducted a program
review of the school on April 12 and 13, 1989. The results
of the review are attached and made part of these actions.
That review indicated, among other violations of Federal
regulations, that the school has been improperly disbursing
loans to students no longer attending and has been failing
to pay tuition refunds when students withdraw from school.
As a result of the program review conducted by the
Foundation, the Foundation has determined that the
violations are of such magnitude and severity that there is
a likelihood of substantial loss to the students, the
Foundation and the Department of Education. Furthermore,
the Foundation has concluded that the school is either
unwilling or incapable of properly administering the loan
programs as required by the Foundation.
. . . If termination occurs, the school may not participate in the Foundation's program for an indefinite period of time and may not request reinstatement for a minimum of 18 months.
. . . .
Termination will be effective on May 24, 1989 unless a request for a hearing is submitted by May 9, 1989 or written material pertinent to the alleged violations is submitted by May 9, 1989. A request for a hearing or submission of written material will automatically delay the termination until final determination of this action, but will not remove the immediate suspension. If the school fails to request a hearing or submit written material by May 9, 1989, termination is final on May 24, 1989 and there is no further appeal. For your information a copy of HEAF Bulletin L/S #61 is enclosed.
7. Ms. Doyle's letter did not describe her
authority as a "HEAF
designated official" and did not inform Aristotle that HEAF was
required to refer its termination to ED for purposes of
consideration of national disqualification from participating in
the Title IV student loan programs.
8. Aristotle received Ms. Doyle's letter.
9. Before HEAF, Aristotle did not respond to Ms.
of April 24, 1989 and did not request a hearing or otherwise
appeal the proposed termination of its participation in HEAF's
guaranteed loan programs.
10. Aristotle did not appeal the proposed
termination of its
participation in HEAF's guaranteed loan programs before HEAF and
therefore its termination action became final on May 24, 1989.
HEAF's action in terminating Aristotle's participation in its GSL
program due to its failure to file an appeal before that
organization was in accordance with its rules of procedure.
11. HEAF referred its termination action to the
Education as required by § 432(h)(3) of the HEA (20 U.S.C. §
1082(h)(3)) on June 2, 1989.
12. Mr. Michael Walker, Aristotle's deciding
official, made the
decision not to challenge HEAF's proposed action for two reasons.
First, at the time of HEAF's proposed action, Aristotle was also
participating in the guaranteed student loan programs offered
through USA Funds, another guaranty agency. Aristotle was,
therefore, not dependent on HEAF's guarantees and, in fact, at
the time of the notice of intent to terminate, Aristotle was not
relying on HEAF to guarantee new loans. Second, at the time of
the notice from HEAF, the institution was being audited by the
ED's Office of Inspector General (OIG). In Mr. Walker's
ignorance, he failed to realize the distinction between HEAF and
the OIG and the fact that they represent two separate agencies
which, at times, review the same matters. Therefore, he thought
HEAF's proposed action would be delayed or held in abeyance by
the ongoing audit. In addition, Mr. Walker was unaware that ED
would institute a disqualification as a result of an adverse
determination by HEAF.
13. On June 14, 1989, Ms. Dunn, the Deputy
for Student Financial Assistance, sent the following letter to
This is to notify you that the United States Department of
Education (ED) will shortly be reviewing the May 24, 1989,
termination of the eligibility of Aristotle . . . to
participate in the loan guarantee programs administered by
the Higher Education Assistance Foundation (HEAF). The
purpose of this review is to determine whether Aristotle
should be disqualified from further participation in the
Stafford Loan Program . . . . See 20 U.S.C 1082(h)(3).
On April 24, 1989, HEAF sent you a notice of its intent to
terminate Aristotle from further eligibility to participate
in the loan programs that it administers. As you know,
HEAF's action was a result of a program review that it
conducted at the school on April 12 and 13, 1989. That
review indicated, among other violations of Federal
regulations, that Aristotle has been improperly disbursing
loans to students no longer attending school and has been
failing to pay tuition refunds when students withdraw from
school. HEAF concluded that Aristotle is either unwilling
or incapable of properly administering the loan programs.
Aristotle failed to respond to HEAF's notice of intent to
terminate, and HEAF therefore terminated Aristotle's
eligibility effective May 24, 1989.
Aristotle is entitled to a hearing conducted in accordance
with 5 U.S.C. 556-557, as to whether HEAF's termination
action was taken in compliance with 20 U.S.C. 1078(b)(1)(T).
A guarantee agency's termination action against a school is
taken in compliance with Section 1078 (b)(1)(T) if--
1) it involves procedures that are substantially the same as
those set forth in 34 C.F.R. Part 668, Subpart G, for ED's
termination of a school's eligibility to participate in the
Federal Insured Student Loan Program (FISLP);
2) it is based in factual conclusions that are not clearly
erroneous based on the information the guarantee agency
possessed when it reached those conclusions;
3) it is based on the correct application of the law; and
4) it is based on an application of a standard for
termination that is substantially the same as ED's standard
for termination of a school's FISLP eligibility, applied in
a manner that does not constitute an abuse of discretion
given the information that the agency possessed when it made
its final decision. In this case, the applicable FISLP
standard would require that termination be (a) based on a
school's violation of an applicable statute, regulation,
agreement, or limitation, and (b) otherwise warranted. See 34 C.F.R. 668.81(b); .90 (a)(2).
14. ED's letter of June 14, 1989, was the first
Aristotle learned that, as a consequence of HEAF's action, other
possible actions against the school would occur.
15. Almost immediately upon receipt of Ms.
Aristotle acted to seek a resolution of the proposed serious
consequences by contacting and speaking with Howard Fenton and
responding in writing to Mr. Lipton, both of OSFA's Program
Compliance Branch. It was Mr. Walker's hope and intent that his
written report would result in ED's withdrawal of its proposed
review and if not, it reflected his intent to contest the
16. On July 31, 1989, Ms. Duby of ED wrote
HEAF as follows:
Enclosed are two letters received from Aristotle . . . .
After HEAF reviews Mr. Walker's submission of July 27, 1989,
please inform the Program Compliance Branch if HEAF wants to
continue to have the school disqualified or wants to
reconsider its decision.
17. On August 25, 1989, Ms. Doyle wrote ED as
HEAF has reviewed the material submitted by the school in
response to HEAF's program review and subsequent termination
action. This review was undertaken even though the response
from Aristotle was untimely and HEAF's termination action
As noted in the review report, substantial liabilities were
identified resulting from improper disbursements and unpaid
refunds. The school's response to these findings shows over
$20,000 was paid to lenders in reaction to HEAF's report.
The liabilities paid by the school are significant
considering that the sample size consisted of only 29 files.
However, the school has made no effort to comply with the
file review requirements in order to determine the full
extent of the liabilities. HEAF finds the school's response
to be inadequate as we believe that significant liabilities
The balance of the school's response is also inadequate.
Insufficient explanation and documentation (e.g., proof of
borrower loan eligibility) was provided by the school.
There is also a likelihood of significant liabilities
existing in many of these cases.
The school was given every opportunity under HEAF's rules
and regulations to respond to the report in a timely
fashion, to submit written material regarding the
termination action and to request a hearing on the matter.
The school failed to respond in any way to HEAF's
communications. The decision to terminate Aristotle College
of Medical and Dental Technology's participation in HEAF's
guaranty program is reaffirmed.
18. HEAF's rules of procedures for limitation,
termination of a participant's eligibility in its program are set
forth in HEAF Bulletin L/S No. 61, dated January 26, 1988.
Aristotle received a copy of these rules with Ms. Doyle's letter
of April 24, 1989.
19. HEAF Bulletin L/S #61, which was sent to
1. Purpose and Scope. These provisions establish rules and
procedures for the limitation, suspension or termination of
the eligibility of an otherwise eligible lender to obtain
guarantees from HEAF for GSL, SLS and PLUS loans or schools
to participate in the program . . . . They do not apply to a
determination that an organization fails to meet the
definition of a lender or school, nor to a school's loss of
lending eligibility due to its default experience, nor to
administrative action taken by the U.S. Department of
2. Definitions. For purposes of this section, the following are the
definitions of major terms used herein:
A. "Participant" means an
otherwise eligible lender or school.
B. "Designated HEAF
Official" means an individual specifically named or designated by title or position
to whom the responsibility for initiating and pursuing
limitation, suspension, and termination procedures has
. . . .
D. "Presiding Officer"
means an impartial person who has no prior involvement with the facts giving rise to a
limitation, suspension or termination proceeding and
who is selected by the President of HEAF to conduct the
. . . .
F. "Termination" means
the removal of a participant's eligibility for an indefinite period of time...
. . . .
7. Limitation or Termination. A termination removes the eligibility
of the lender or school to participate in the
GSL, SLS and PLUS programs for an indefinite period of time.
. . . Procedures for limitation or termination are as
A. The designated HEAF official
notifies the school or lender by certified mail, with return receipt
requested, of HEAF's intent to impose limitations or
terminate participation in the GSL, SLS and PLUS
programs, citing the particulars and consequences of
the intended action and identifying the alleged
violations on which the proposed action is based. The
initially designated beginning date of limitation or
termination shall not be less than 20 days from the
date the letter of intent is mailed.
B. The participant, subject to the
limitation or termination notice, may request a hearing before a
presiding officer and/or submit written material for
consideration by the designated HEAF official or
voluntarily agree to correct alleged violations. In
the instance of voluntary correction, the process may
be adjudged as completed by the designated HEAF
official until and unless additional complaints or
other information reinitiates the action. If the
participant submits written materials and/or requests a
hearing within 15 days of the limitation or termination
notice being mailed, the designated limitation or
termination date will automatically be delayed until
after a final determination is made through the
provided due process.
. . . .
D. If, under any of the cited conditions
as set forth herein, the lender or school requests a hearing, the
date of the hearing will be at least 15 days after the
request is received.
presiding officer will conduct the hearing and a written record will be made.
presiding officer will consider any written material presented before the hearing and all
evidence presented at the hearing.
presiding officer will make an initial decision to either uphold the limitation or
termination or overturn it. He may also make an
initial decision to modify the nature of the
initial finding, or place limitations on the
participant, rather than terminating entirely from
will review the initial decision and issue a final decision, as supported by the presiding
officer's recommendations and the evidence
5. If the final decision is to limit or terminate a school or lender, a notice of such is promptly
mailed by HEAF to the affected participant and the
limitation or termination takes effect on the date
that was originally set by the designated HEAF
official or immediately upon the date of mailing
of the final decision notice, whichever is later.
. . . .
8. Appeal and Corrective Actions. Lenders and schools receiving a
final decision of limitation or termination may
appeal the final decision to the President of HEAF, but the
final decision deadlines will stand pending the outcome of
any such appeal. Corrective action may include required
payment to HEAF or to any designated recipients of any funds
that the lender or school improperly received, withheld,
disbursed, or caused to be disbursed. If a final decision
requires reimbursement or payment by the participant to
HEAF, HEAF may offset these claims against any benefits due
9. Reinstatement After Termination. A terminated lender or school
may file a request for reinstatement of eligibility
only after 18 months have elapsed from the date of
termination. Within 60 days of receiving the request, HEAF
will act on the request. If HEAF denies or grants the
request, subject to limitations, the lender or school will
be granted an opportunity through a meeting, to show why all
limitations should be removed.
20. HEAF's rules of procedure and its
Aristotle did not advise Aristotle that ED would institute a
disqualification action in the event HEAF terminated the school
from participating in its GSL program.
21. Finding 1.See footnote 2
J.B. attended class on June 7th. Between June 8 and July 17, there was an initial period of
5 days with no
classes, several days of absences by J.B. interspersed with days
of no classes, and a period of vacation. J.B. withdrew on July
19, 1989, and the withdrawal was approved on the same day.
J.B.'s refund was paid in early September 1989.
Regarding T.B., HEAF's conclusion that T.B. should have been
terminated by March 31, 1988 was erroneous. Jt. Stip. Para. 4.
T.B. attended class from February 16 through March 24, 1988. On
April 18, Aristotle made a loan disbursement to her. On April
18, she was granted a leave of absence which extended to April
25, 1988. T.B. did not attend class after March 24, 1988, and
did not withdraw until June 17, 1988. Jt. Stip. Para. 4. During
this period, Aristotle, pursuant to its policy to do all that it
could to keep a student in school, repeatedly kept in touch with
her about her enrollment and, as late as June 15, 1988, was told
by her that she intended to continue her education. T.B.'s
refund was paid in late July 1989.
R.K. began class on December 15, 1987. She attended school
during January 1988 and withdrew on January 11, 1988. Aristotle
disbursed loan funds to her on February, 24, 1988. Aristotle
concedes that the disbursal was improper since it was made after
she had withdrawn. Subsequently, Aristotle replaced the
financial aid officer responsible for the error. R.K.'s refund
was paid in November 1988.
E.L. had a last date of attendance of August 4, 1988. Aristotle
disbursed loan funds some five days later on August 9, 1988.
Aristotle concedes that the disbursal was improper. E.L.'s
refund was paid in early September 1989.
Regarding B.T., it is not possible to ascertain from the HEAF
report (Ex. R-22, at 5) the nature of the purported violation.
ED's submission does not clarify the matter. B.T.'s refund was
paid in early August 1989.
C.W. attended school for only one day on September 1, 1987.
C.W.'s loan proceeds were disbursed on September 11, 1987 and she
was not scheduled to return to class again until September 14,
1987. She did not return to class and subsequently withdrew on
November 23, 1987. C.W.'s refund was paid in September 1988.
The total amount of loan funds disbursed to T.B., R.K., and E.L.
was less than $8,000.
The financial aid officer who committed the error in the
disbursement of the loan funds to R.K. was replaced and Aristotle
has installed a computer system to monitor disbursements and
prevent erroneous or late disbursement of loan funds in the
22. Finding 2.
Name Amount Refund Date Date Paid Months Late
J.B. $2,154 8/19/88 early 9/89 12
T.B. 2,069 5/18/88 late 7/89 14
R.K. 2,141 2/24/88 early 11/88 9
E.L. 1,660 8/9/88 early 9/89 13
B.T. 2,625 2/88 early 8/89 18
C.W. 2,154 12/23/87 mid 9/88 10
Name Amount Refund Date Date Paid Months Late
H.G. $2,100 10/22/88 early 9/89 11
A.H. 1,988 3/3/88 early 12/89 18
A.O. 2,117 10/22/88 late 5/89 7
D.S. 1,703 6/11/88 ? early 11/89 17
C.T. 1,072 7/30/88 late 8/89 13
F.T. 882 9/24/87 12/23/87 3
786 9/24/87See footnote 3 3/ late 8/89 23
J.W. 1,412 4/8/88 late 7/89 15
L.H. 1,544 11/15/86 -- --
23. Finding 3. Aristotle's policy on satisfactory
provided in pertinent part--
Just as there are certain requirements for eligibility for
Title IV fund there are also requirements that must be met
in order to maintain these funds.
I. REQUIREMENTS TO MAINTAIN
TITLE IV ASSISTANCE
1) SATISFACTORY PROGRESS
Aristotle College defines satisfactory progress by the following criteria:
a. A minimum grade or average of 70%.
b. An average monthly attendance of 75% Satisfactory progress will be evaluated monthly.
2) MAXIMUM COMPLETION TIME
To remain eligible for federal funds, aid students must complete their scholastic program within a specified time frame of eight months, excluding a leave of absence.
II. RESULTS OF FAILURE TO
MAINTAIN SATISFACTORY PROGRESS
1) If a
student fails two modules or has an absentee record higher than 15%, a consultation with a
school official will be scheduled with that
2) At that time, the student will be placed on a one month probation during which financial assistance checks will still be disbursed.
3) At the end of the probationary period, if the student has not satisfied the specified requirements, financial assistance checks will then be withheld.
III. REINSTATEMENT OF
FINANCIAL AID ELIGIBILITY
Students who have lost eligibility for financial aid can be
reinstated by improving either their academic average, or
their attendance average, or both, to the designated
standards of the satisfactory progress definition. In cases
of extenuating circumstances, special arrangements may be
made with school officials. These will be handled on an
individual basis through the appeal process.
Aristotle's policy on satisfactory progress parroted the language of an example proffered by its accrediting agency, ABHES, regarding the maximum time frame standard. This illustration was drafted by ABHES with the knowledge that the Federal government required that the policy must define a maximum time frame to complete the educational objective as opposed to simply setting a time limit on eligibility for Title IV financial aid.
Aristotle's catalog and the contract with each student provided,
that the course of study is for a fixed period of time, i.e. 28
weeks including the externship. This period may be extended at
no cost should the student's rate of learning necessitate
additional time and attention and provided the student maintains
a receptive attitude and makes an honest effort.
Aristotle's policy on satisfactory progress adopted the proposed
model developed by ABHES and provided for monthly reviews of each
student's progress. Aristotle's minimum acceptable criteria was
a grade average of 70% and an average monthly attendance of 75%
of the classes. Where a student fails two modules or has an
absentee record higher than 15%, the student is placed on a one
month probation during which financial assistance will continue
to be disbursed. However, at the end of the probationary period,
financial assistance was withheld where the student had not
satisfied the specified requirement.
Aristotle has corrected the deficiencies in its policy of
satisfactory progress as determined by HEAF.
24. Finding 3. R.B. was placed on probation,
readmitted due to reasons of satisfactory progress.
25. Finding 4. Aristotle maintained attendance
conducted follow up on cases of excessive absences during the
period of the HEAF review.
In the cases of students T.B. and J.W., Aristotle should have
contacted each student earlier regarding her excessive absences
and required each student to show cause why she should not be
suspended from the program. In addition, Aristotle should have
terminated each student earlier than when it did.
26. Finding 6. Student Y.D. was admitted on
that she was a high school graduate and documentary evidence was
subsequently obtained before she graduated.
27. Finding 7. Students H.B. and T.R. were
Aristotle as independent students and they were, in fact,
Aristotle had documentary material regarding Federal income tax
information for the student K.F. for 1987 and evidence of income
for the student R.H. for 1986 and 1987, but these documents were
either not in the files reviewed by the HEAF investigator or were
in the files but not seen by the investigator.
28. Finding 8. Regarding T.S., Aristotle was
obligation to secure a transcript in her case since the previous
school attended by T.S., Central Nine Vocational School, was an
institution that did not participate in Title IV student aid
29. Finding 9. The HEAF report does not
indicate the source of
the purported default rate of 32% or the manner in which the
default rate was calculated. Aristotle's cohort rate for fiscal
year 1988 was 20.8%, the most recent completed fiscal year at the
time of the HEAF review. HEAF did not pursue the second stage
required by Reg. § 668.15, namely an examination of Aristotle's
latest financial statement.
Student, L.E., received an exit interview.
30. Finding 10. Regarding the use of the
methodology to compute
the family contribution figure for B.S., Aristotle used the
methodology applicable for the loan period immediately prior to
July 1, 1988, for a loan commencing in August 1988 rather than
the newly revised method. This error was caused by the fact that
it did not have the newly revised Congressional methodology on a
computer disc. Aristotle did recalculate the need of B.S. using
the correct methodology.
31. Finding 14. Student A.H. was enrolled on December 4, 1987, and attended classes during that month.
32. Finding 15. Student M.R. completed her
30 days after her written examination and student D.H. completed
her externship program within 80 days after her written
examination. Aristotle has revised its student information
record system to reflect properly the student's graduation date.
33. In Aristotle's view, it will cease operating
and go out of
business if it is disqualified.
A. The Scope of the Controversy. The initial controversy
concerns the nature and scope of the disqualification proceeding.
Both parties agree that one issue before the tribunal under
Sections 1078(b)(1)(T) and 1082(h)(3)(A) is whether HEAF's
procedures and standards applied in its termination proceeding
were substantially the same, i.e. not more onerous, as ED's
procedures and standards under the Federal Insured Student Loan
program. Beyond this, the parties disagree regarding the scope
of this proceeding. Under ED's current view, the tribunal's task
is completed and nothing remains for it to resolve once it has
passed on the above issue.See footnote 4
Under Aristotle's view, Sections 1078(b)(1)(T) and 1082(h)(3)(A) require a full evidentiary
hearing by the tribunal after which it then weighs the evidence
as to whether Aristotle violated HEAF's restrictions and, if so,
whether these violations were sufficiently severe in nature to
warrant termination of its participation in HEAF's program. In
the event these violations are sufficiently severe to warrant
termination, then the tribunal may disqualify the institution
from participating in the guaranteed student loan program with
all other guaranty agencies.
A disqualification action is based upon Sections 1078(b)(1)(T)
and 1082(h)(3)(A). Section 1082(h)(3)(A) provides that--
(A) The Secretary shall, in accordance with sections
556 and 557 of Title 5, United States Code [the
Administrative Procedure Act], review each . . .
termination imposed by any guaranty agency pursuant to
section 1078(b)(1)(T) . . . . The Secretary shall
disqualify such institution from participation in the
student loan program of . . . [other] guaranty agencies
. . . unless the Secretary determines that the . . .
termination was not imposed in accordance with the
requirements of . . . section [1078(b)(1)(T)].
Section 1078(b)(1)(T) provides that the student loan insurance
program of a guaranty agency such as HEAF may not have--
restrictions . . . which are more onerous than [the]
eligibility requirements for institutions under the
Federal student loan insurance program as in effect on
January 1, 1985 unless--
(i) that institution . . . is ineligible pursuant to criteria issued under the student loan insurance program which are substantially the same as regulations with respect to such eligibility issued under the Federal student loan insurance program;
Aristotle's position is consistent with the statutory language
and its legislative history. Under Section 1082(h)(3)(A), the
Secretary determines factually and substantively whether
Aristotle violated HEAF's restrictions in resolving whether the
termination imposed by HEAF was "in accordance with the
requirements of Section 1078(b)(1)(T)."
In addition, the plain language of Section 1082(h)(3)--"in
accordance with sections 556 and 557 of Title 5, United States
Code [the Administrative Procedure Act]" which mandates a full
evidentiary hearing process--also clearly indicates that factual
and substantive determinations are made by the tribunal in the
disqualification proceeding. Sections 556 and 557 set forth the
ground rules with respect to hearings and decisions issued under
the Administrative Procedure Act. The exercise of the powers,
duties, and responsibilities set forth in these provisions may
only be accomplished in a trial type setting.See
Moreover, under Section 556(e), the "exclusive record for a decision in
accordance with section 557" is "[t]he transcript of testimony
and exhibits" received in the proceeding before the
administrative law judge. Therefore, the language of Sections
1078(b)(1)(T) and 1082(h)(3)(A) clearly support Aristotle's
The legislative history of Section 1082(h)(3) also supports this
conclusion. Section 1082(h)(3) was proposed by a floor amendment
to Section 432 of the Higher Education Act of 1965 in 1985. The
floor debate reflects that it represented a fine compromise
between competing factions and was clearly intended to allow a
full evidentiary administrative law hearing on whether the
factual and substantive merits warranted a disqualification--
My [Congressman Goodling's] amendment . . . would do the
following: The Secretary will conduct a hearing under the
provisions of the Administrative Procedure Act for any
lender or institution which has received a limitation,
suspension or termination (LS&T) by any guarantee agency
under the provisions of section 428(b)(1)(T) and (b)(1)(U).
Such a hearing shall occur within 60 days and unless the Secretary determines that the
LS&T was not imposed in
accordance with requirements of those sections, the Secretary shall disqualify such lender or
participation in the Student Loan Insurance Program of each
of the guarantee agencies . . . .
. . . .
at the time the gentleman offered his amendment in committee, I [Congressman Ford] was torn between people that we heard at the hearings. The State agencies wanted more or less autonomous power to cut off banks and cut off colleges of their choice for whatever reason they set up in that particular State, for whatever standards they established.
On the other hand, there were people who were giving us legitimate concerns about the failure of the Department of Education heretofore to respond when a State called bad practices of an institution or a school, to the attention of the Department.
Now what the gentleman has done is to find a fine compromise between those concerns. He makes it necessary for the Secretary to take action when a State triggers a complaint, but at the same time he insulates the lenders and the institutions against arbitrary action by requiring that they cannot be suspended [disqualified] until they have first been given an administrative law hearing with all that that entails under the statute. I compliment the gentleman for finding this nice balance. The gentleman has satisfied what we perceived to be legitimate concerns on both sides of the argument. For a schoolteacher, the gentleman makes an awfully good lawyer. (emphasis added)
131 Cong. Rec. 34177 (1985).
Thus, the statute and its legislative history support Aristotle's
In ED's view, the only issue before this tribunal is whether the
substantive rules and procedure applied by the agency were not
more onerous than ED's regulations in effect on January 1, 1985.
ED argues that the factual merits of the purported HEAF
violations or the substantive merits of the purported HEAF
violations are not matters properly before and considered by the
tribunal.See footnote 6
The basis of ED's position is that the Secretary indicated, on November 20, 1990, in the
preamble to the proposed
regulations to revise 34 C.F.R. Part 682 that, where a school is
terminated by a guaranty agency, the factual and substantive
merits of the controversy were "conclusively determined against
the school" and therefore "the school . . . is thereafter
precluded from disputing those findings [before the Secretary]
under traditional principles of collateral estoppel." 55 Fed.
Reg. 48,335 (1990).
ED relies on this statement not as a means of interpreting the
proposed regulation, if and when it is adopted; rather, the
preamble constitutes a new forum, apparently, for rule making
since it announces the Secretary's current interpretation of
Section 1082(h)(3). Thus, in ED's view, there is now no need for
the proposed regulation because this position has been adopted by
the Secretary when the preamble was published. Therefore, in
view of this action, ED found no need to analyze whether ED's
current position is consistent with the statute and its
The function of the preamble is to provide the reasoned analysis
of the regulation to assist a court in its construction. Wiggins Bros., Inc. v. DOE, 667 F.2d 77,
88 (Tem.Emer.Ct.App. 1981), cert. denied 456 U.S. 905 (1982) and thus ED would employ it for
an unintended use. "Within traditional agencies--that is,
agencies possessing a unitary structure--adjudication operates as an appropriate mechanism not
only for factfinding, but also for
the exercise of delegated lawmaking powers, including lawmaking
by interpretation." Martin v. OSHRC, 111 S.Ct. 1171, 1177 (1991). Thus, the tribunal is
part of the lawmaking process as
The tribunal will defer to the Secretary's regulations and his
Secretarial decisions issued in response to appeals of ALJ
decisions. These are accepted means of expressing policy and
interpretations. But where, as here, ED relies upon a passing
comment in the preamble to proposed regulations which have no
effect themselves, this tribunal believes it inappropriate to
give it binding effect. This is especially so in light of the
fact that ED's position appears clearly inconsistent with
Congressional intent and abdicates, in favor of private or state
guaranty agency organizations, the responsibility of the
Department to oversee the guaranteed student financial assistance
program and to disqualify those schools which, by virtue of their
actions, should not be allowed to continue to participate in the
program.See footnote 7
In addition, the comment in the preamble does not, in fact, interpret the proposed
regulation. Rather, it suggests an
independent legal ground outside the proposed regulation, i.e.
the doctrine of collateral estoppel, under which the tribunal
should adopt the facts and law as determined by the guaranty
agency in the termination action. In this context, it is
appropriate, in the tribunal's view, for the Secretary to
consider the views of his tribunal concerning the interpretation
accorded a statute governing the nature of the adjudicative
process within the Department. Thereafter, the Secretary may
reverse, affirm, or modify the tribunal's decision in a manner
which appropriately reflects his considered opinion.
In addition, it should be noted that ED's current position
embraces an interpretation of Sections 1078(b)(1)(T) and
1082(h)(3)(A) which is, in part, consistent with the tribunal's
view, namely, that the Secretary and the tribunal have the
authority or power to determine facts and substantive law in the
disqualification proceedings. It is only, but for the possible
application of the doctrine of collateral estoppel, that ED
believes that the tribunal and the Secretary will not decide to
inquire into these matters. Collateral estoppel is a doctrine of
judicial and administrative law which the second forum invokes to
"enforce repose" by virtue of the resolution of disputed facts in
the first action. University of Tennessee v. Elliott, 478 U.S. 788, 798 (1986). Thus, actual
litigation in the first action is
a prerequisite to the application of collateral estoppel.
Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979) (offensive collateral estoppel occurs
"when the plaintiff seeks to foreclose
the defendant from litigating an issue the defendant has
previously litigated unsuccessfully in an action with another
party" (at 326 n.4) and its application is a matter of broad
discretion by the trial court); Commissioner v. Sunnen, 333 U.S. 591 (1948). Here, Aristotle did
not appear before the guaranty
agency HEAF and therefore there was no litigation or disputed
contest before HEAF which was resolved by that organization.
Accordingly, even if collateral estoppel may be generally applied
in this type of proceeding (which the tribunal believes it does
notSee footnote 8
), it cannot be applied in Aristotle's situation by virtue of the nature of the application of the
doctrine itself. Thus,
it is appropriate for the tribunal and the Secretary, if the
tribunal's decision is appealed, to resolve this matter based on
the facts and substantive law.
B. The Substantive and Factual Merits of the Controversy. In its
notice of immediate suspension and notice of intent to terminate
Aristotle, HEAF made 16 findings relating to purported violations
by Aristotle and concluded that "the violations are of such a
magnitude and severity that there is a likelihood of substantial
loss to the students, the Foundation and the Department of
Education." The table below summarizes the tribunal's analysis
of the evidence vis-a-vis the charges. Fifty percent or 8 of the
16 charges are not supported by the record in whole or in part.
Regarding the remaining charges, the minimal number of students
allegedly affected was overstated by HEAF. When the nominal
number of students affected by the nature of the violations is
factored into this analysis, the tribunal concludes that
termination was clearly not warranted under HEAF's rules.
Rather, the appropriate sanctions under HEAF's rules was 1) to
require corrective action regarding the deficiencies in its
satisfactory progress policy (Finding 3), 2) to order repayment
regarding the 11 unpaid refunds in the total amount of $23,000
(Finding 2), and 3) to limit Aristotle to no new loans with HEAF
until the latter of--three months or the repayment of these
refunds and the institution of actions necessary to correct the
minor deficiencies in its program. Thus, in this circumstance,
disqualification by ED is clearly not appropriate.
The detailed analysis will follow the summary of the tribunal's
findings and conclusions below.
Finding RatingSee footnote 9
Students Descrip. of Purported Violation
1. 4 3 of 6 --improper loan disbursements
2. 5 11 of 13 --failure to make refunds
3. 2/3 unknown --deficiencies in satisfactory progress policy
4. 3 2 of 2 --failure to timely terminate students for lack of attendance
5. no viol. 0 of 3 --absence of available documentation
6. no viol. 0 of 1 --no documentary evidence re ability to benefit
7. 3 3 of 5 --necessary documentation re dependency status
8. no viol. 0 of 2 --failure to obtain financial aid transcripts
9. no viol. n/a --unacceptable default rate
10. 1 1 of 3 --calculation of need by wrong methodology
11. no viol. unknown --absence of written policies on verification
12. no viol. 0 of 1 --absence of Pell Grant calculation
13. 1 1 of 2 --lack of certified information re income
14. no viol. 0 of 1 --mismatching of loan period and academic period
15. 3 2 of 2 --inaccurate enrollment information
16. no viol. n/a --failure to respond to HEAF inquires
Finding 1. According to HEAF, there were six instances in which
Aristotle improperly disbursed loan funds to students or retained
loan funds which should have been returned to lenders. These six
instances constituted, in HEAF's view, "serious problems" in the
school's handling of loan funds. HEAF's determination was based
in part on its view that Aristotle's accrediting agency, ABHES,
requires that students be terminated no later than seven calendar
days after the last day of attendance.
Initially, the parties stipulated that ABHES' refund policy does
not specifically state an absolute requirement of termination on
the part of the institution after seven calendar days of a
student's unexcused absences. Jt. Stip. Para. 3. Therefore,
without further development by ED on this point, it cannot be
concluded that, as a matter of fact, Aristotle should have
terminated these six students no later than seven days after
their last day of attendance.
Of the six purported violations, Aristotle made three errors.
Regarding student J.B., HEAF determined that J.B. attended only
one day of class--June 7, 1988--and under ABHES's standard,
Aristotle should have terminated J.B. on June 14, 1989. Hence,
the loan disbursement of July 1, 1989, should not have been made
and the amount of the disbursement should have been returned to
Based on the evidence, Aristotle properly disbursed the loan
proceeds to J.B. in the latter part of June 1989. J.B. attended
class on June 7th. Between June 8 and July 17, there was an
initial period of 5 days with no classes, several days of
absences by J.B., and a period of vacation. Since ABHES' refund
policy does not specifically state an absolute requirement of
termination on the part of the institution after seven calendar
days of a student's unexcused absences, it is, based on this
record, concluded that Aristotle did not have to terminate her
enrollment as of June 14th or before she notified the school of
her request to withdraw on July 19.See footnote 10
Accordingly, the disbursement was proper.
Regarding T.B., HEAF determined that she attended school from
February 16 through March 24, 1988, and that she was granted a
leave of absence from April 18 to April 25, 1988. Based on these
determinations, HEAF concluded that her enrollment should have
been terminated by March 31, 1988, and therefore, the loan
disbursement of April 18, 1988, should not have been made. In
addition, HEAF determined that even if the leave of absence had
been properly granted, Aristotle still erred as it disbursed the
loan funds to a student on a leave of absence which is contrary
to the Federal regulations.
Based on the evidence, it is concluded that the loan disbursement
to T.B. was improper. Initially, the parties stipulated that
HEAF's conclusion that T.B. should have been terminated by March
31, 1988, was erroneous. Hence, the dispute narrows as to
whether the leave of absence precluded the disbursement.
Aristotle argues that a leave of absence is not a withdrawal
under 34 C.F.R. § 682.605(c) and therefore T.B. was an enrolled
student and, as an eligible student at that time, the
disbursement was proper. ED disagrees and raises Reg. §
682.605(b)(2) which provides--
(2) If the student has not returned to school at the
expiration of a leave of absence approved under
paragraph (c) of this section, the student's withdrawal
date is the date of the first day of the leave of
Here, the disbursement was made on the first day of the leave of
absence and T.B. did not subsequently return to school. Thus,
there has been a technical violation by Aristotle in this
instance. However, the tribunal recognizes the problem inherent
in the administrative application of this section where the two
events--disbursal and application for leave--occur on the same
day and, more than likely, concern different offices or employees
of the school. In addition, it is equally likely that the
disbursal occurred prior to the application for the leave and
hence there was nothing the school could do, in any event, to
prevent the violation. Hence, the tribunal views this particular
violation as having nominal adverse effect on Aristotle in
resolving the ultimate question regarding disqualification.
Regarding R.K., HEAF determined that she attended for one day--
December 15, 1987--and that Aristotle disbursed her loan funds on
February 24, 1988, long after she should have been terminated.
Based on the evidence, the parties agree that HEAF erred in
determining the length of R.K.'s attendance. R.K. attended
during January 1988 and withdrew on January 11, 1988. However,
Aristotle concedes, and correctly so, that the loan funds were
improperly disbursed since they were disbursed after she had
withdrawn. In an apparent effort for mitigation, Aristotle notes
that the financial aid officer responsible for the error was
Regarding E.L., HEAF determined that Aristotle disbursed loan
proceeds to her on August 9, 1988, some 5 days after her last day
of attendance on August 4, 1988. Aristotle concedes that the
disbursal was improper.
Regarding B.T., it is not possible to ascertain from the HEAF
report the nature of the purported violation. ED's submission
does not clarify the matter. Aristotle suggests that HEAF's
concern was that its records did not show that the loan funds had
been applied to her account. However, the parties stipulated
that B.T.'s account was credited with the GSL proceeds.
Accordingly, there is no apparent violation concerning B.T.
regarding the disbursement of funds.
Regarding C.W., HEAF determined that C.W. attended school for one
day only on September 1, 1987, and that Aristotle completed a
notice of termination on September 12, 1987. Subsequently,
Aristotle credited the student's loan proceeds to her account on
September 14, 1987. Since she was no longer enrolled, according
to HEAF, Aristotle should have returned the check to the lender
and not credited her account.
Based on the evidence, it is concluded that the loan funds were
properly disbursed to C.W. The parties stipulated that C.W.'s
first and last day of attendance was September 1, 1987. The
dispute between the parties is whether C.W. withdrew from school
before Aristotle disbursed the funds. ED asserts that Aristotle
had knowledge of this fact before the funds were disbursed and
relies upon the statement by the HEAF reviewer that Aristotle
completed a notice of termination on September 12, 1987. ED has
not proffered the purported notice of termination. Moreover, the
statement by the HEAF reviewer is unsworn and unsigned. Based
upon other apparent errors made by this reviewer-investigator,
infra, these errors adversely affect his credibility. On the other hand, Aristotle asserts, via sworn
testimony and testimony
that otherwise appears credible, that her loan proceeds were
disbursed on September 11, 1987, before her termination notice,
that she was not scheduled to attend class again after the
disbursement until September 14, 1987, and that she did not
withdraw until November 23, 1987. Based on this evidence, it is
concluded that C.W.'s loan proceeds were disbursed on September
11, 1987, that she was not scheduled to return to class again
until September 14, 1987, and that she did not withdraw until
November 23, 1987. Accordingly, the loan funds were properly
In summary regarding Finding 1, Aristotle disbursed loan funds to
three students (T.B., R.K., and E.L.) in violation of ED's
regulations of which T.B.'s disbursement represented a technical
violation. The total amount of loan funds disbursed to these
three students was less than $8,000. In all other respects,
there is no evidence that Aristotle disbursed loan funds to other
students improperly. Under these circumstances, there is no
evidence which supports a conclusion that "serious problems"
exist in the school's handling of the disbursement of loan funds.
Moreover, the financial aid officer who committed the errors was
replaced and Aristotle has installed a computer system to monitor
disbursements and prevent erroneous or late disbursement of loan
funds in the future.
Finding 2. According to HEAF, there were 13 instances in which
Aristotle failed to make refund payments to lenders on behalf of
its students. Six instances were set forth in Finding 1 and
seven instances were set forth in Finding 2.
Based on the evidence, there were only 11 outstanding refunds
totalling approximately $23,000 as of April 1989. The period of
nonpayment ranged between six and 14 months. These refunds were
ultimately paid by Aristotle and the period of outstanding
nonpayment for these refunds ranged generally between 7 and 18
Aristotle argues that its nonpayment as of April 1989 and the
subsequent late payment of these refunds was caused by a
depletion of its cash reserves due to an unusual and unexpectedly
heavy refund demand. This heavy refund demand was due to refund
requests by many of its students who withdrew from the school
because the State of Indiana would not allow Aristotle's students
to take a test to obtain a license to operate a diagnostic
machine immediately upon their graduation.
While it may be unfortunate for an institution to experience
financial difficulties which are not of its own making, it must
nevertheless still maintain a sufficiently strong financial
condition to execute properly its obligations under the student
financial assistance programs. The number of unpaid refunds in
this instance is, however, relatively small and the magnitude of
the unpaid amount, while meaningful, is not significant. E.g. In re Southern Institute of Business
and Technology, Dkt No. 90-62- ST, U.S. Dep't of Education (Final Dec. 1991) (terminated due
in part, $148,000 of unpaid refunds); In re Deloux Schools of Cosmetology, Dkt No. 89-59-S,
U.S. Dep't of Education (Final Dec. 1990) (termination action due to, in part, to $500,000 of
Finding 3. According to HEAF, it had several concerns regarding
Aristotle's policy on satisfactory progress. The overall effect
of the school's academic progress policy should be to ensure that
students are enrolled and progressing satisfactorily at the time
loan applications are certified and funds disbursed. HEAF
determined that Aristotle's policy was deficient in several
respects. It failed to identify a maximum time frame for
completion of the student's course of study although it limited a
student's eligibility period for Title IV aid to eight months.
The policy standard lacked a schedule identifying the minimum
percentage of work which must be completed during each of the
school's evaluation periods. The policy failed to address the
effect of a withdrawal, incomplete, and course repetition on the
student's progress and his or her continued eligibility for
financial aid. In addition, according to HEAF, the policy did
not deal with the effect on progress of noncredit or remedial
Initially, Aristotle argues that the Federal standards under Reg.
§ 668.14(e) are not applicable where, as here, the school has a
policy of satisfactory progress which conforms to the suggested
policy of its accrediting agency and has been approved by the
accrediting agency. ED's response is a somewhat disjointed
Under Reg. § 668.14(e), the school must publish and apply
reasonable standards for measuring whether a student is
maintaining satisfactory progress in his or her course of study.
The Secretary considers an institution's standards to be
reasonable under Reg. § 668.14(e)--
if the standards--
(1) Conform with the standards of satisfactory progress of the nationally recognized accrediting agency that accredits the institution, if the institution is accredited by such an agency, and if the agency has those standards;
. . . .
(3) Include the following elements:
. . . .
(ii) A maximum time frame in which the student must complete his or her educational objective, degree, or certificate. The time frame must be--
(A) Determined by the institution;
(B) Based on the student's enrollment status; and
(C) Divided into increments, not to exceed one academic year.
Thus, while an institution's policy may conform to the standards
of its accrediting agency, it may still, nevertheless, be
insufficient to satisfy the regulation unless it includes all of
the elements set forth in subparagraph (3). Accordingly,
Aristotle's position is rejected in this regard.
Turning to Aristotle's policy on satisfactory progress, it
provided in pertinent part--
I. REQUIREMENTS TO MAINTAIN TITLE IV
. . . .
2) MAXIMUM COMPLETION TIME
To remain eligible for federal funds, aid students must complete their scholastic program within a specified time frame of eight months, excluding a leave of absence.
Based on this, HEAF determined that, though Aristotle's policy
limited a student's eligibility period for Title IV aid to a
fixed period of 32 weeks, it failed to identify a maximum time
frame for completion of the student's course of study as required
by Reg. § 668.14(e)(3)(ii) above.
Based on the evidence, it is apparent that Aristotle's policy on
satisfactory progress parroted the language of an example
proffered by its accrediting agency, ABHES, regarding the maximum
time frame standard. It is also evident that ABHES's
illustration for its members was drafted with the knowledge that
the Federal government required that the policy must define a
maximum time frame to complete the educational objective as
opposed to simply set a time limit on eligibility for Title IV
ED's position overlooks, however, the statements in Aristotle's
catalog and the contract with each student which provided, in
effect, that the course of study is for a fixed period of time,
i.e. 28 weeks including the externship.See footnote
Thus, Aristotle did, in fact, have an identified maximum time frame for completion of
the student's course of study. In any event, ED has not
proffered the rational behind this specific regulation and none
is readily apparent which would justify treating a deficiency
such as this, even if it existed, as a significant matter in a
disqualification or termination proceeding.
HEAF also determined that Aristotle's policy standard lacked a
schedule identifying the minimum percentage of work which must be
completed during each of the school's evaluation periods. Under
Reg. § 668.14(e)(3)(iii), the standard for satisfactory progress
includes the element of--
(iii) A schedule established by the institution
designating the minimum percentage or amount of work
that a student must successfully complete at the end of
each increment in order to complete the educational
objective, degree, or certificate within the maximum
Again, Aristotle's policy adopted the proposed model developed by
its accrediting agency and provided for monthly reviews with
minimum criteria of a grade average of 70% and an average monthly
attendance of 75% of the classes. It appears that ABHES's model
assumes that ED's authorization of increments "not to exceed one
academic year" within Reg. § 668.14(e)(3)(ii) permitted an
institution whose program was less than one year to have only one
increment. While such a construction is a possible
interpretation, it would defeat one of the purposes served by
dividing the maximum time frame into more than one increment,
namely, it encourages students to complete their program for
which student aid has been provided and eliminates this aid where
the students do not progress in an acceptable pace. Thus, in
this regard, Aristotle's policy was deficient. However, at the
same time, Aristotle had monthly reviews, established minimum
criteria regarding grades and attendance which, if not satisfied,
lead to probationary status and ultimately the withholding of
financial aid. Thus, in all likelihood, these criteria
eliminated most of the students who were not progressing at an
Lastly, HEAF determined that Aristotle's policy failed to address
the effect of a withdrawal, incomplete, and course repetition on
the student's progress and his or her continued eligibility for
financial aid. In addition, Aristotle's policy did not deal with
the effect on progress of noncredit or remedial courses. Under
Reg. § 668.14(e)(3)(vi), the standard for satisfactory progress
includes the element of--
(vi) Specific policies defining the effect of course
incompletes, withdrawals, repetitions, and noncredit
remedial courses on satisfactory progress.
Here, these elements were omitted from Aristotle's policy of
satisfactory progress. There is no evidence regarding the impact
of this omission on the student financial aid program.
In summary, HEAF's determination regarding the deficiencies of
Aristotle's policy of satisfactory progress is incorrect
regarding the existence of an identified maximum time frame for
completion of a student's course of study. HEAF's other
determinations were correct, i.e. Aristotle's policy omitted a
schedule identifying the maximum percentage of work which must be
completed during each of the school's evaluation periods and
failed to address the effect on a student's continued eligibility
for financial aid of a withdrawal or incomplete in a specific
course. The deficiency with regard to the absence of the
schedule identifying the maximum percentage of work had, in all
likelihood, little impact. The absence of a policy dealing with
the effect of withdrawals or incompletes in courses is more
serious. However, absent other and more significant violations,
this factor clearly does not warrant a disqualification on the
ground that Aristotle lacked the administrative capability to
administer the student financial assistance programs. Moreover,
Aristotle has corrected these deficiencies and therefore this
problem will not occur in the future.
HEAF determined that, with respect to student H.B., Aristotle had
not followed its satisfactory progress policy. In this instance,
HEAF found that H.B. had a below satisfactory average of 61%
during her first month and had raised her cumulative average to
65% by the end of her second month which was still below the
satisfactory level of 70%. In HEAF's view, H.B. should have been
placed on probation after the first month and suspended from
further participation in the financial aid program after the
second month. HEAF determined that Aristotle did not suspend her
from participation in the financial aid program as required.
While she subsequently attended and failed two more modules and
did not receive any more financial aid, HEAF's concern was that
nothing in the school's records would have prevented her from
receiving aid had she applied and otherwise been eligible.
The parties stipulated that R.B. was placed on probation,
suspended, and readmitted due to reasons of satisfactory
progress. Thus, HEAF's determination was in error.
Finding 4. HEAF determined that Aristotle responded inadequately
to the lack of attendance by students, that is, it should have
terminated the enrollment of students much earlier. In its view,
a slow response to excessive student absences can lead to
improper disbursements, unpaid and late refunds and results in
the late notification of lenders and HEAF of the withdrawal of
students. HEAF cited two instances involving students T.B. and
J.W. in which it concluded that Aristotle should have followed up
on the lack of attendance earlier.
Initially, the factual dispute between the parties is whether
this purported lack of attendance extends to the two situations
referred to in the reviewer's report or extends to include other
situations. Aristotle argues that the finding is limited to the
two situations and ED refuses to agree asserting "[t]he HEAF
report does not state that its conclusion that the finding was
based solely on the two students." As is evident from this
finding as well as the other findings, the HEAF investigator-
reviewer developed broad generalities based on a few, limited
situations. There is nothing in the HEAF determination which
indicates that the basis for this finding was more than the two
instances cited. Accordingly, ED's argument is without merit and
it is concluded that the determination was limited to the two
Next, ED refuses to agree that Aristotle maintained attendance
records and conducted follow up on cases of excessive absences
during the period in issue. The basis for ED's refusal is that
the stipulation entered into between the parties "is in the
present tense and . . . does not suggest that it [Aristotle]
maintained attendance records or conducted appropriate follow up
at the time covered by the HEAF review. Thus, the HEAF program
review finding remains uncontradicted." ED's semantical dance is
rejected. Stipulations will be construed in a reasonable manner
taking into consideration the nature of the conflict.See footnote 12
Here, the potential controversy centers on Aristotle's actions where
students had excessive absences. Thus, it is concluded that
Aristotle maintained attendance records and conducted follow up
on cases of excessive absences during the period of the HEAF
Regarding T.B. and J.W., Aristotle admits that the two students
should have been terminated earlier and the record reflects that
they should have been contacted earlier by Aristotle to show
cause why they should not be suspended from the program.
Aristotle explains that its efforts were aimed at keeping the
students enrolled rather than terminating them. While these
views may be admirable, it is also incumbent upon the schools to
police their programs in an appropriate manner. Where a student
is not participating in the school's programs as required by its
policy and suspension or termination is warranted, the school
owes an obligation to respond in the proper manner. Two
instances do not establish a pattern of conduct and, in this
light, these violations are in and of themselves insufficient to
Finding 5. According to HEAF, there were 3 cases in which "the
school did not have the [various] documentation readily available
during the program review." In its view, "missing documentation
is a serious problem and indicative of administrative
weaknesses." In its view, this constituted a violation of Reg.
§§ 668.14 and 682.610. The former provision requires an
institution to allow ED access to the records required by the
programs and the latter provision requires the institution to
maintain various records.
The parties stipulated that "Aristotle did have copies of certain
documents which HEAF indicated were missing but those documents
were either not in the files reviewed by the reviewer or were in
the files but were not seen by the reviewer." This reflects
that, at best, there was apparently a lack of inquiry by the
reviewer questioning the absence of the various documents and, at
worst, a failure on the part of the reviewer to thoroughly
examine the files. Thus, ED's position is not supported by the
Finding 6. According to HEAF, Aristotle improperly disbursed
student loan funds to student Y.D. since there was no documentary
evidence that she had demonstrated an ability to benefit from the
school's program. In her situation, she received a failing mark
on two occasions on the standardized entrance test. She was then
scheduled to begin attending the school's academic assistance
program in order to fulfill certain remediation requirements.
However, there was no evidence in the file that she began the
remediation courses. As explained by Aristotle to the HEAF
investigator, the absence of documentation indicated that the
instructor determined that it was not necessary for the student
to actually participate in the academic remediation.
Based on the absence of documentation to show that a
determination was made that she was not required to participate
in the remediation program and the two failed attempts on the
standardized entrance test, HEAF apparently concluded that Y.D.
had not demonstrated an ability to benefit under Reg. § 668.7.
The ability to benefit requirement is applicable where a student
does not have a high school diploma. Reg. § 668.7(a)(3). The
parties stipulated that student Y.D. was admitted on her
certification that she was a high school graduate and documentary
evidence to this effect was subsequently obtained before she
graduated. Accordingly, Y.D. was an eligible student under Reg.
§ 668.7. Thus, the finding by HEAF and ED's position are without
Finding 7. According to HEAF, there were five instances in which
Aristotle did not obtain the necessary documentation to verify
the student's dependency status. HEAF determined that each of
the five students was classified as independent without
sufficient information to verify that he or she was not claimed
as a dependent on their parents' federal income tax returns.
A student is considered a dependent student unless he or she is
an independent student under the criteria in Reg. § 668.1a. Reg.
§ 682.301(d). Under Reg. § 668.1a, a student is considered an
independent student if he or she qualifies under Section 480(d)
of the Higher Education Act, as amended. Section 480(d)(2) provides that an independent student--
(F) is a single undergraduate student with no
dependents who was not claimed as a dependent by his or
her parents (or guardian) for income tax purposes for
the 2 calendar years preceding the award year . . . or
(G) is a student for whom a financial aid administrator makes a documented determination of independence by reason of other unusual circumstances.
The parties stipulated that Aristotle had documentary material
regarding federal income tax information for the student K.F. for
1987 and evidence of income for the student R.H. for 1986 and
1987, but that these documents were either not in the files
reviewed by the HEAF investigator or were in the files but not
seen by the investigator. Since the governing statute requires
that the parents of the student not claim her as a dependent for
the two preceding years, the documentary information for K.F. is
insufficient for K.F. to claim independent status. With respect
to student R.H., a similar result is in order. Here, the record
does not reflect that there was documentary material in her file
which indicated that she was not claimed by her parents in their
federal income tax returns as a dependent. Therefore, it was not
appropriate to process R.H. as an independent student. Aristotle
concedes also that T.B. was classified as an independent student
With respect to students T.B. and C.T., Aristotle treated these
students as independent due to special conditions and filed
special condition forms for each student. In these cases, as
noted above in Section 480(d)(2)(G), the dependency matter is not
a relevant factor. Thus, Aristotle's treatment was proper and
HEAF's finding and ED's position is in this regard in error.
Therefore, ED's position is sustained in three of the five
Finding 8. According to HEAF, Aristotle failed to obtain
financial aid transcripts for two students (K.F. and T.S.) in
violation of Reg. § 668.19. Before disbursing proceeds under a
GSL loan, Aristotle is required, under Reg. § 668.19(a), to
obtain a transcript from each "eligible institution" attended by
the student, i.e. each postsecondary school.
Regarding T.S., the parties stipulated that Aristotle was under
no obligation to secure a transcript in her case since the
previous school attended by T.S., Central Nine Vocational School,
was an institution that did not participate in Title IV student
aid programs and therefore was not an eligible institution.
Regarding student K.F., HEAF's finding was that the school "did
not obtain" the transcript. The parties stipulated that
Aristotle obtained a financial aid transcript from the eligible
institution. ED now argues that the stipulation "does not
contradict the finding that Aristotle did not have the required
transcript at the time of the review." As noted previously,
stipulations will be interpreted in an reasonable manner by this
tribunal. The fair and reasonable inference in this case is that
the school had the transcript at the time of the investigation.
Accordingly, it is concluded that Finding 8 by HEAF had no merit
and therefore ED's position is rejected.
Finding 9. According to HEAF, Aristotle had "an unacceptably
high 32%" default rate as of March 31, 1989, which was an
indicator of a school's impaired capability of properly
administering Title IV loan programs. HEAF admitted that
Aristotle required its students to view a video on loan repayment
in the exit counseling and this video met the Department of
Education's minimum requirement for loan exit counseling. Yet,
HEAF's determination inferred that additional, but undesignated
measures were warranted in order to reduce Aristotle's default
HEAF's determination involved Reg. § 668.15. It provides that
where an institution has a default rate above 20 percent, the
Secretary may require the institution to submit a profit and loss
statement, balance sheet, or audit for its latest complete fiscal
year and, after an examination thereof, may require the
institution to take reasonable and appropriate measures to
alleviate any condition which impairs its capability to
administer the financial aid programs.
Initially, HEAF misconstrued the applicable regulation. Reg. §
668.15 addresses, by virtue of its focus on the financial
statements, whether the high default rate has adversely affected
the financial condition of the institution and therefore impaired
its ability to administer the programs. Thus, in this context,
the mere existence of a high default rate, without more, does not
constitute a violation. HEAF should have, but failed, to move on
to the next phase required by the regulation, namely an
examination of Aristotle's latest financial statement. Thus,
HEAF's determination lacks any support for its termination
decision and it offers no support in this disqualification
In addition, Aristotle disputes factually HEAF's determination of
a 32% default rate. The HEAF report does not indicate the source
of the default rate or manner in which the default rate was
calculated. The parties stipulated that Aristotle's cohort rate
for fiscal year 1988 was 20.8%. This was the most recent fiscal
year at the time of the HEAF review. While this unexplained
discrepancy bears on the overall credibility of the HEAF
investigator as does the other findings which are not supported
by the record, it does not dismiss the applicability of Reg. §
668.15, since it applies to any institution whose default rate is
in excess of 20%. However, as noted above, HEAF failed to pursue
the second stage required by the regulation. It is appropriate
to disregard this determination as it is incomplete and,
HEAF also asserted in Finding 9 that one student, L.E., was not
provided loan exit counseling. The parties stipulated that this
student received an exit interview. Thus, Finding 9 proffers no
support to justify a disqualification of Aristotle's eligibility
to participate in the student financial assistance programs.
Finding 10. According to HEAF, Aristotle failed to retain, in
its student's file, the need analysis document reflecting the
school's determination of the family contribution figure for two
students (J.B. and P. Grubb.). In addition, Aristotle failed, in
one instance (B.S.), to use the correct methodology for the need
analysis calculation as it used the prior year's method rather
than the newly revised method.
The parties stipulated that Aristotle had the need analysis
documentation for the above two students in the student file with
the award package and that these documents were either not in the
files reviewed by the reviewer or were in the files but not seen
by the reviewer. This reflects that, at best, there was
apparently a lack of inquiry by the reviewer questioning the
absence of the need analysis documents or at worst, a failure on
the part of the reviewer-investigator to thoroughly examine the
files. Thus, ED's position is in error in this regard.
Regarding the use of the methodology to compute the family
contribution figure for B.S., Aristotle admits that it used the
incorrect methodology. It used the methodology applicable for
the loan period immediately prior to July 1, 1988, for a loan
commencing in August 1988 rather than the newly revised method.
This error was caused by the fact that it did not have the newly
revised Congressional methodology on a computer disc. Aristotle
did recalculate the need of B.S. using the correct methodology;
however, the record does not indicate when or whether it made any
Finding 11. According to HEAF, it noted "concern" that the
school does not have written policies and procedures for the
verification of students' information which was required as of
July 1, 1986, by Reg. § 668.53.
The parties stipulated that Aristotle had its own internal
policies and procedures for verification of student information
under Reg. § 668.53. These policies and procedures are contained
in Aristotle's financial aid manual.
ED argues that Aristotle has not established that the manual was
being used at the time of the review by HEAF. However, this
factual argument is rejected. The tribunal's findings are based
upon the record. This includes the stipulation and the normal
inferences flowing therefrom, namely that all facts set forth
therein are pertinent to the period in issue unless specifically
stated otherwise. Accordingly, it is concluded that HEAF's
finding and ED's position are in error inasmuch as Aristotle had
a written policy and procedure for the verification of student
Finding 12. According to the HEAF report, Aristotle did not have
a Pell Grant calculation in the file at the time of the loan
application for P. Grubb was certified. The parties stipulated
that Aristotle "had the Pell Grant calculation information [of P.
Grubb] on file" (Jt. Stip. Para. 32) and accordingly, the
information was present at the time of her certification. Thus,
HEAF's finding and ED's position are erroneous.
Finding 13. According to HEAF, Aristotle failed to obtain
certified information regarding the income status of two students
for purposes of determining the student's loan eligibility as
required by Reg. § 682.301(c). As indicated in the HEAF report,
the only documentation in P. Grubb's student file was an unsigned
schedule B obtained from her Federal income tax return. In the
other case, T.R.'s loan eligibility was calculated using her
parents' income which was not certified.
Under Reg. § 682.301(c)(1), "[t]he institution shall determine
the adjusted gross family income of the student's family based
upon data provided, and certified to, by each person whose income
is required to be considered."
The parties stipulated that P. Grubb's husband signed the
certifications attesting to the accuracy of loan eligibility
information, the verification worksheet and the student aid
report. In addition, Mr. Walker, President of Aristotle, stated
under oath that "Aristotle certificied [sic] the student's
eligibility based on certifications of Ms. Grubb and her
husband." Based on this record and the weight of the evidence,
it is found that Aristotle had a certification attesting to the
accuracy of P. Grubb's loan eligibility at the time of her
attendance at the institution. Therefore, Aristotle was in
compliance with Reg. § 682.301(c) regarding P. Grubb.
The parties stipulated that T.R.'s file does not contain a
written certification from her parents regarding the accuracy of
the income information and that her mother was present during the
completion of the income information in the offices of Aristotle
and made oral representations regarding the accuracy of the
financial data. Aristotle certified her eligibility based on her
ED argues that Reg. § 682.301 does not authorize oral
certifications. While the regulation requires that a student
submit an application to the lender and that the application must
include a certification from the student's institution regarding
the student's adjusted gross family income and other information,
Reg. § 682.301 is silent whether the financial information relied
upon by it can be certified in writing or orally. The regulation
provides only that the adjusted gross family income determination
is made by the institution "based upon data provided, and
certified to, by each person." While the construction proffered
by each party is feasible, i.e. certification orally or in
writing, one of the underlying functions of the regulations is to
provide a means for auditing the activities of the institutions.
In this regard, the written form is most definitely preferred as
it leaves a paper trail. Accordingly, a reasonable construction
of the regulation requires that the institution should receive
these certifications in written as opposed to oral form. Under
this view, Aristotle was not in compliance with the regulation in
this one instance. However, there is no evidence that the
student was not eligible to receive the interest benefits, and
therefore, there does not appear to be any harm suffered by the
student, the guaranty agency, or ED as a result of this
Finding 14. HEAF determined there was one instance involving
student A.H. in which the beginning of the student's loan period
did not match the actual starting date of the program. In its
view, a student's loan period must correspond to an academic
period and, therefore, the beginning date of the loan period
should correspond to the student's actual starting date.
The parties stipulated that the loan period, as determined by
Aristotle, was correct inasmuch as A.H. was enrolled on December
4, 1987, and attended classes during that month. Accordingly,
HEAF's conclusion and ED's position are in error.
Finding 15. HEAF determined that Aristotle reported inaccurate
information regarding the enrollment status of two students to
the lender. Aristotle reported the students' graduation dates as
the dates the students completed their final written examinations
rather than the dates they completed their externship programs.
The effect of this inaccuracy status is that the student was
prematurely placed into repayment status. With respect to
student M.R., she completed her externship program 30 days after
her written examination and, with respect to student D.H., she
completed her externship program within 80 days after her written
Aristotle admits an error was committed in both situations and
has modified its student information system to prevent this
problem from occurring in the future.
Finding 16. HEAF determined that Aristotle had failed to respond
"on several occasions" prior to the review to requests for
information from HEAF concerning whether a borrower's account was
handled properly. In its view, "this failure to acknowledge
HEAF's inquiries indicates a lack of administrative capability
under . . . Reg. § 682.14 (sic)."
HEAF's finding is a generalization which is not supported by any
specific evidence of HEAF's inquires or Aristotle's failure to
respond properly. Although ED had ample opportunity to
supplement the record in this proceeding and provide specific
instances of misdoings, it proffered no additional evidence.
Thus, the finding is not supported by any facts established in
this proceeding and, accordingly, it is rejected.
As is evident from the above analysis, it is clearly inappropriate for ED to disqualify Aristotle from participation in the guaranteed student financial assistance programs.See footnote 13 13/
On the basis of the foregoing findings of fact and conclusions of
law, and the proceedings herein, it is hereby--
ORDERED that the request by the Office of Student Financial
Assistance to disqualify Aristotle from participating in the
guaranty student loan programs administered by the guaranty
agencies is denied; and it is further
ORDERED that this matter is dismissed with prejudice.
Allan C. Lewis
Administrative Law Judge
Issued: August 21, 1991
On August 21, 1991, a copy of the attached decision was sent by
certified mail, return receipt requested, to the following:
Brian Siegel, Esq.
Office of the General Counsel
U.S. Department of Education
Room 4091, FOB-6
400 Maryland Avenue, S.W.
Washington, D.C. 20202
Peter S. Leyton, Esq.
White, Fine & Verville
1156 15th Street, N.W.
Washington, D.C. 20005
1. whether the factual conclusions by the agency are clearly
erroneous based on the information possessed by the agency;
2. whether the action was based on the correct application of the law;
3. whether the action involved an abuse of discretion by the agency based on the information possessed by the agency; and
4. whether the agency's procedures and standards were substantially the same, i.e. not more onerous, as ED's procedures and standards under the Federal Insured Student Loan program.
Earlier in the proceeding the parties presented the tribunal with
the question of whether the tribunal functions in this proceeding
as a factfinder or as an appellate reviewer. On April 19, 1990,
the tribunal held in favor of Aristotle, namely that the nature
of the proceeding required an evidentiary hearing under the
Administrative Procedure Act, 5 U.S.C. §§ 556 and 557 as opposed
to an appellate type hearing. In re Aristotle, Dkt. No. 89-35-S, U.S. Dep't of Education (Order).
Subsequently on September 26, 1990, ED filed a motion in limine to preclude the receipt of evidence from Aristotle in the forth coming hearing. While not articulated in its motion, it is now readily apparent that the basis of ED's position therein reflected a drastically altered legal position which abandoned, apparently, its appellate type review position in favor of its present position. In re Aristotle, Dkt. No. 89-35-S, U.S. Dep't of Education (Order Oct. 26, 1990).
Lastly, Aristotle argues that ED failed to establish that HEAF acted properly through its "designated official" and that ED's Deputy Assistant Secretary for Student Financial Assistance had been delegated the authority by the Secretary to initiate the disqualification action. The record was closed on February 21, 1991. Aristotle raised this argument for the first time in its brief filed on March 22, 1991, some 30 days after the record was closed. Accordingly, its argument is rejected as it was raised too late in the proceeding.