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

On October 25, 1991, the Secretary remanded this matter to the Administrative Law Judge for further consideration in light of his decision in In re Michigan Paraprofessional Training Institute, Dkt. No. 90-7-ST, U.S. Dep't of Education (Sec. Dec. Aug. 28, 1991). In the Secretary's view, a disqualification proceeding before the Department under 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)) is a limited procedure "where the guaranty agencies determine the facts within a framework established by the Secretary, with the Secretary's review [in the disqualification proceeding] limited to whether the framework was appropriately applied." In re Aristotle College, Dkt. No. 89-35-S, U.S. Dep't of Education (Sec. Dec. Oct. 25, 1991) at 4. Under such a standard, it is concluded, for the reasons stated below, that Aristotle Colleges, Inc. (Aristotle) is disqualified from participating in the guaranteed student loan program.See footnote 1 1/

In Michigan, at 2, the Secretary held that the general framework of the review consisted of two principle issues, namely--

    1. Whether the agency took action on the basis of substantive agency requirements regarding eligibility that were not more onerous than those in effect for schools participating in the Federal Insured Student Loan Program as of January 1, 1985; and,

    2. Whether the agency took that action in accordance with procedures that were substantially the same as those that govern the limitation, suspension or termination of a school's eligibility under the Federal Insured Student Loan Program.

In addition, the Secretary amplified upon the nature of the review framework in Aristotle and held that factual findings of the guaranty agency are "relevant to the Secretary's review only to the extent that they are insupportable as a matter of law." Aristotle, at 5. As a corollary to this proposition, it appears that a fourth issue for consideration in this process is whether, as a matter of law, the guaranty agency correctly interpreted and applied the substantive requirements. These issues are addressed seriatim.

On April 24, 1989, a guaranty agency, the Higher Education Assistance Foundation (HEAF), notified Aristotle that HEAF proposed termination of Aristotle's participation in its guaranteed student loan program. The proposed termination was effective on May 24, 1989, unless Aristotle requested a hearing or submitted written information pertinent to the alleged violations by May 9, 1989. Aristotle did not request a hearing or submit written materials within this period and, accordingly, the termination was effective on May 24, 1989.

HEAF's termination was based on 16 findings which detailed various violations of 34 C.F.R. Parts 668 and 682 (1988), the then current regulations of the Department governing the substantive rules of the student financial assistance program in general and the guaranteed student loan and PLUS programs in particular.See footnote 2 The current regulations violated by Aristotle as determined by HEAF and their corresponding regulations in effect as of January 1, 1985, are as follows:

Finding Descrip. of Violation 1987 Reg. 1985 Reg.

1. improper loan disbursements . . . 682.604(e) 682.607(f)
2. failure to make refunds . . . . . 682.607 682.610
3. deficiencies in satisfactory progress policy . . . . . . . . . 668.14(e) 668.16(e)
4. failure to timely terminate students for lack of attendance . 668.14(e) 668.16(e)
5. absence of available documentation . . . . . . . . . . 668.23(f) 668.12(c)
682.610(b) 682.612(b)
682.610(d) 682.612(d)
6. no documentary evidence re ability to benefit . . . . . . 668.7(a)(3) 668.6(c)
7. necessary documentation re dependency status . . . . . . . . 682.2 682.301(d)
8. failure to obtain financial aid transcripts . . . . . . . . . . . 668.19 668.14
9. unacceptable default rate . . . . 668.15 668.17
10. calculation of need by wrong methodology . . . . . . . . . . . 682.301(f) 682.301(f) 682.610(b) 682.612(b)
11. absence of written policies on verification . . . . . . . . . . 668.53 *
12. absence of Pell Grant calculation . . . . . . . . . . . ** **
13. lack of certified information re income for loan eligibility . . . 682.301 682.301
14. mismatching of loan period and academic period . . . . . . . *** ***
15. inaccurate enrollment information reported to lenders and HEAF . . . . . . . . . . . . 682.610 682.612
16. failure to respond to HEAF inquires . . . . . . . . . . . . 682.14 668.16

* This regulation had no counterpart in the substantive regulations in force as of January 1, 1985.
** The Pell Grant program is not overseen by the guaranty agencies and, therefore, this purported violation has no relevance in this proceeding. 34 C.F.R. Part 690, Subpart G.
*** There is apparently no regulation on this point.

The regulations at issue in findings numbered 1 through 10, 13, 15, and 16 are identical or substantially similar in all pertinent, material aspects to their counterpart regulations in effect as of January 1, 1985. As noted above, finding 12 is not relevant in a guranteed student loan program determination; finding 14 had no apparent substantive basis in the regulations; and finding 11 had a substantive foundation based upon a regulation which was not in effect as of January 1, 1985. As such, it may be argued under a literal interpretation of Section 428(b)(1)(T) of the Higher Education Act of 1965, as amended, (20 U.S.C. § 1078(b)(1)(T)), that these aspects of the HEAF determination reflect eligibility requirements which are more onerous than the requirements in effect as of January 1, 1985. However, given the number of different violations and the severity and magnitude of these other violations, these matters constitute a de minimis aspect of HEAF's ultimate determination, and therefore, are entitled to little weight in this disqualification proceeding. Accordingly, for purposes of this proceeding, the regulations applied by HEAF were not more onerous than those in effect under the Federal Insured Student Loan Program as of January 1, 1985. Therefore, the HEAF termination satisfies the first criteria necessary for disqualification.

HEAF's procedural rules governing the termination of a participant's eligibility to participate in its guaranteed student financial assistance program are set forth in its Bulletin L/S No. 61. Since Aristotle did not request a hearing before HEAF, the only relevant aspect of the HEAF hearing process in this proceeding is limited to HEAF's termination notice rule. In this regard, HEAF's notice requirement (paragraph 7) is similar in all respects to the Department's notice requirement in effect as of January 1, 1985, which is set forth in 34 C.F.R. § 668.77(b) (1984). That is, a notice must be sent by certified mail, with return receipt requested; it must cite the particulars and consequences of the intended action and identify the alleged violations; the termination shall not be effective not less than 20 days from the date of the mailing of the letter of intent; and if an institution requests a hearing within 15 days of the mailing date of the notice, the termination date will be automatically delayed until after a final determination is made through the process. Therefore, the second criteria necessary for disqualification is satisfied.

While unnecessary however, it is determined, for the sake of completeness, that the remaining procedures within HEAF's termination process are also substantially the same as the Department's procedures. Thus, for example, the HEAF hearing is conducted by a presiding officer in which a written record is made; evidence is presented at this hearing and the presiding officer renders an initial decision based on the evidence; and the initial decision may be appealed to a higher authority within the agency. Compare paragraphs 7 and 8 of HEAF's rules with 34 C.F.R. §§ 668.79 and 668.81. Hence, HEAF's procedural rules are not more onerous than the Department's regulations in effect as of January 1, 1985.

The third criteria in the disqualification action, according to the Secretary's decision in Aristotle, is whether the factual findings of the guaranty agency are insupportable as a matter of law. In this case, the institution did not contest the termination action before the guaranty agency. Hence, the factual findings of HEAF were not disputed and, therefore, there is nothing to review regarding this matter in this proceeding. Lastly, Aristotle has not contended in this proceeding that HEAF misinterpreted the substantive regulations in its determination. Its position was that the facts relied upon by HEAF were incorrect or that existing violations had been corrected. A review of HEAF's determination confirms that, as a matter of law, HEAF interpreted the substantive regulations correctly. Thus, the third and fourth criterion for disqualification are satisfied. Hence, it is appropriate to disqualify Aristotle from its eligibility to participate in the guaranteed student loan program.

In view of the above, it is HEREBY ORDERED that Aristotle is disqualified from its eligibility to participate in the guaranteed student loan program.

Allan C. Lewis
Administrative Law Judge

Issued: November 1, 1991
Washington, D.C.


On November 1, 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.
Suite 1100
White, Fine & Verville
1156 15th Street, N.W.
Washington, D.C. 20005

Footnote: 1 1/ The parties were not requested to file additional memoranda after the Secretary's remand since the issues herein were addressed by the parties in their prior submissions.
Footnote: 2 It appears, based on the termination notice which incorporated a program review report, that HEAF adopted the Department's regulations as its substantive rules governing its guaranteed student loan program.