IN THE MATTER OF RS Men's Hair Styling, Inc.,
Docket No. 91-42-ST
Student Financial Assistance Proceeding
Appearances: Michael A. Lamson, Esq. of Houston, Texas, for the
C. Phillips, Esq. of Washington, D.C.,
Office of the General Counsel, United States
Department of Education for the Office of Student
Before: Judge Allan C. Lewis
This case was suspended pending a decision by the Secretary in a
disqualification proceeding in In re Michigan Paraprofessional Training Institute, Dkt. No.
90-7-ST. The Secretary rendered a decision on August 28, 1991. As a result of the Secretary's
decision in Michigan, this case is now ripe for consideration. In his decision, the Secretary
determined that a disqualification
proceeding 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)) is limited in its scope.
According to the Secretary, "the guaranty agencies determine the
facts within a framework established by the Secretary, with the
Secretary's review 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
this standard as applied in the instant case, it is concluded
that RS Men's Hair Styling, Inc., d/b/a RS Institute and RS
Barber College (RS) is disqualified from its participation in the
guaranteed student loan programs.
Under the standards promulgated by the Secretary in Michigan and Aristotle, the present review
is limited to four issues:
1. Whether the guaranty agency's action was 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
(FISLP) as of January 1, 1985;
2. Whether the agency took its action on the basis of
substantive agency requirements regarding initial or continuing
eligibility that were not more onerous than those in effect for
schools participating in FISLP as of January 1, 1985;
3. Whether factual findings of the guaranty agency are
insupportable as a matter of law; and
4. Whether, as a matter of law, the guaranty agency correctly interpreted and applied the substantive requirements.
The Texas Guaranteed Student Loan Corporation's (TGSLC)
procedural rules governing the termination of an institution from
participation from the guaranteed student loan program are set
out in Procedure 6.0 of "How an Institution Shall be Limited,
Suspended, or Terminated from the TGSLP [sic]." RS stated in its
brief that it does not contest the procedural aspect of its
termination. For the sake of completeness, however, this matter
will be addressed. TGSLC's procedural rules are practically
taken verbatim from 34 C.F.R. Part 668. For example, the notice
requirements, hearing procedures and rules for appeals of
decisions are the same with the exception that TGSLC allows new
evidence to be introduced in an appeal, while the Department does
not. See Procedure 6.0 "How an Institution Shall be Limited, Suspended, or Terminated
from the TGSLP [sic]" and 34 C.F.R. §§ 668.77 and 668.81. Therefore,
TGSLC's procedural rules are
substantially the same as the Department's procedural rules
governing terminations as of January 1, 1985, and this criterion
for disqualification is satisfied.
The second criterion is whether the substantive agency
requirements were not more onerous than those requirements in the
Department's regulations as of January 1, 1985.
TGSLC's termination of RS was based upon findings that RS failed to adhere to federal and state student loan regulations over a sustained period of time. For purposes of the audit which examined RS's activities from January 1, 1988 to September 30, 1989, and the subsequent termination proceeding, TGSLC adopted and applied the Department's substantive rules and regulations in effect as of January 1, 1985, as its governing substantive rules to determine the continuing eligibility of an institution to participate in the guaranteed student loan programs.See footnote 1 1/
Therefore, its substantive rules and regulations were not more
onerous than the Department's regulations in effect as of January
The third criterion for consideration in a disqualification
action is whether the factual findings of the guaranty agency are
insupportable as a matter of law. Aristotle at 5. Under this standard, a factual finding is upheld
upon review unless it is
clearly erroneous. Salve Regina College v. Russell, 111 S. Ct. 1217, 1221 (1991) (citing Fed. R.
Civ. P. 52(a)).
Applying this deferential standard in the instant case, it is
determined that TGSLC's factual findings will stand. RS admitted
in its brief that it gave loans to ineligible students, certified
SLS loans before Stafford loans were utilized, and failed to
provide timely refunds. In addition, TGSLC documented each of
these violations in its Compliance Review Report which audited
RS's activities from January 1, 1988 to September 30, 1989. The
clearly erroneous standard does not require a measuring of the
evidence, it merely requires that there be an evidentiary basis
for the factual determination. Under this analysis, it is clear
that TGSLC's factual findings are supportable based on the
record. Therefore, the third criterion is satisfied.
The final criterion, a corollary to the third criterion, is
whether, as a matter of law, the guaranty agency correctly
interpreted and applied the substantive requirements. RS has not
contended in this proceeding that TGSLC incorrectly interpreted
or applied the substantive requirements for continuing
eligibility. RS's position is that termination was not justified
under the facts. It argues that good faith defenses exist or
that the regulations were themselves faulty and, on that basis,
RS declined to follow them. Upon review of TGSLC's determination
to terminate RS, it is concluded that, as a matter of law, TGSLC
correctly interpreted and applied the substantive regulations for
termination of an institution's eligibility as in effect on
January 1, 1985. Thus, the fourth criterion for disqualification
is satisfied. Therefore, it is appropriate to disqualify RS from
participation in the guaranteed student loan programs.
In view of the above, it is HEREBY ORDERED that RS is
disqualified from its eligibility to participate in the
guaranteed student loan programs.
Allan C. Lewis
Administrative Law Judge
Issued: November 17, 1992
TGSLC determined that RS failed to give accurate information
regarding the eligibility of some of its students to receive
guaranteed student loans. RS relied upon an unacceptable
Immigration and Naturalization Service form in determining the
eligibility of students for loans after it had been informed by
the Department in a Dear Colleague Letter (Gen-87-26, June 1987)
that this particular form should not be used for this purpose.
In TGSLC's view, such actions violated 34 C.F.R. § 682.605
(1984), a regulation in effect as of January 1, 1985.
Lastly, TGSLC determined that RS did not administer the institution's certification practices in accordance with federal policy, a violation of 20 U.S.C. § 1094(a) (1984). It found that RS certified loans under the Supplemental Loans for Students program without first utilizing Stafford loans in direct contravention of instructions set forth in the Department's Dear Colleague Letter, GEN-88-34 (October 1988). Such action violated, in TGSLC's view, Section 1094(a)'s requirement that any funds received by the institution must be used for the "purposes specified in, and in accordance with, the provisions of that program."