IN THE MATTER OF CHAUFFEUR'S TRAINING SCHOOL,
Docket No. 92-113-SP
Student Financial Assistance Proceeding
Appearances: Keith J. Roland, Esq., of Albany, N.Y., for the
Carol S. Bengle, Esq., of Washington, D.C.,
Office of the General Counsel, U.S. Department of Education, for the Office of Student Financial Assistance Programs.
Before: Judge Ernest C. Canellos
Chauffeur's Training School (CTS) is a proprietary trade school
which, until September 1991, participated in the Guaranteed
Student Loan (GSL) programs under Title IV of the Higher
Education Act of 1965, as amended (Title IV). Such programs are
administered by the Office of Student Financial Assistance
Programs (SFAP), United States Department of Education (ED).
Program reviews were conducted at three CTS locations - Albany,
Chicago, and Houston in December 1990 and January 1991. A final
program review determination letter (FPRD), issued by SFAP's
Institutional Participation and Review Branch on August 27, 1992,
concluded that CTS was ineligible to participate in Title IV
programs due to its failure to meet the ability-to-benefit (ATB)
requirements found at 34 C.F.R. § 668.7 and 668.14. Although the
ATB violation was the major finding, CTS was also cited for
incomplete file verification practices, incorrect file review
procedures, lack of financial aid transcripts, and failure to
satisfy minimum required program hours. The FPRD sought
repayment of $28,223,842 which SFAP claims represents ED's actual
losses for GSL funds CTS received during the years 1986-1990.
CTS filed a timely appeal and the case was assigned to me for
resolution. On December 3, 1993, I dismissed the FPRD without
prejudice on the ground that it had not been issued by the proper
authority. On February 16, 1994, the Secretary determined the
FPRD was issued properly and reinstated the FPRD. The case was
then remanded to me for further proceedings.
Upon receipt of the Secretary's decision and remand, I took the
case under advisement for a decision on the merits. CTS filed a
motion seeking an evidentiary hearing and requesting that a
decision be deferred pending the conclusion of such hearing. On
April 15, 1994, I denied the motion because the applicable
regulations do not provide for evidentiary hearings; rather, they
provide for a hearing consisting of written briefs. 34 CFR §
668.116(b). I did, however, provide the opportunity for an oral
argument if either party requested. Neither party made such a
It is SFAP's position that, as a general rule, pervasive ATB
violations should result in a finding that the entire institution
is ineligible to participate in the Title IV Programs, while
occasional ATB violations would only result in individual
students becoming ineligible recipients of Title IV funding.
Here, SFAP claims that CTS was not eligible because the alleged
ATB and the other violations are numerous, pervasive,
significant, and so repetitious that they affect all the
The following issues are apparent in this case: (1) whether the
violations occurred and are of sufficient seriousness so as to
result in the loss of institutional eligibility; (2) may SFAP
determine its loss by applying a 5-year average default rate if
institutional eligibility is lost and, (3) how should liability
be calculated if these violations are established but are not of
such a nature so as to lead to the loss of institutional
A sample of 187 student files was selected for review by the
program reviewers at the three CTS locations. A review of those
files revealed the following discrepancies: 36 ATB violations, 20
incomplete verifications, 13 undocumented adjustments, 15 files
lacking a financial aid transcript, 6 disbursements to ineligible
students, 2 file discrepancies, and 1 program which failed to
provide the minimum required hours.
Applying the number of violations against the sample size results
in violation rates of 19% for ATB violations, 11% for
verification problems, 7% for undocumented adjustments, 9% for
missing financial transcripts, and 1% for other file
discrepancies. I find that these numbers do not rise to the
level of being severe, pervasive, or of overriding concern.
Thus, it is highly questionable that these are the type of
violations upon which to base a finding of loss of institutional
The scope of CTS' violations is further affected by the evidence
CTS submitted. CTS submitted student file records, the ATB tests
administered, financial aid worksheets, and miscellaneous records
to address SFAP's claims. Of the 36 ATB violations, CTS tendered
evidence to refute 10; for the 20 verification problems, CTS
refuted 6; for the 13 undocumented adjustments, CTS accepted full
responsibility but due to double counting, the total is reduced
to 12; for the 15 files lacking aid transcripts, CTS refuted 5
but, based on double counting, 9 remained; for the 6
disbursements to ineligible students, CTS refuted 3; for 2 file
discrepancies, CTS refuted 1.
The one allegation to which CTS made no effective challenge involved its failure to provide 300 minimum hours in the Tractor Trailer Driver II Program at the Albany campus. To comply with the 300 hour requirement, the class schedule included a session on the July 4th holiday. CTS claims that the class was rescheduled on July 6th, but records of CTS fail to establish that such a session took place. Consequently, I find that CTS did not provide a 300 hour program in this instance and, therefore, did not offer an eligible program. See generally In the Matter of Commercial Training Services, Docket No. 92-128-SP, U.S. Dep't of Educ. (August 4, 1993). While determining this program was ineligible, I note it had a very small class enrollment and find it to be the exception to CTS' program practices, and not representative of a larger, systemic type violation.
After due consideration of the evidence contained in the case
file, I find CTS has met its burden of proof and persuasion.
Specifically, I find only the violations which are enumerated
above and further delineated in the attached Appendix to be
supportable by the evidence. 34 CFR § 668.116(d). See also In
the Matter of Sinclair, Docket No. 89-21-S, U.S. Dep't of Educ.
(Sept. 26, 1991).
Having found that 26 ATB violations have been established, I must
then determine the legal effect of such violations. I have had
the opportunity in another case to discuss the possible effects
of ATB violations. See In the Matter of Long Beach College of
Business, Docket No. 92-132-SP, U.S. Dep't of Educ. (July 14,
1994). Such violations could affect either institutional eligibility or individual eligibility. In Long Beach, the policy of uniformly accepting artificially low ATB scores went to the very validity of the ATB procedures it had in place and caused me to determine that institution eligibility was affected. Unlike Long Beach, CTS was not implementing an improper threshold ATB policy affecting all students or potential students, so there is not a similar kind of systemic problem presented.
Likewise, I am satisfied that the other violations, when combined
with the ATB violations, do not affect institutional eligibility.
I will, therefore, determine liability here based on the loss of
individual student eligibility.
Calculation of Liability
ED calculated CTS's liability as $28,223,842. After finding the
violations in the files reviewed, ED gave CTS the choice of
conducting a full file review to determine potential liability or
having ED assess loss by applying the published cohort default
rate against all Title IV aid that CTS received during the
period. CTS chose not to do the file review and, as a result, ED
calculated the loss on the alternative basis utilizing the 5-year
average default rate of 54.4%. This would have been a reasonable
method to quantify loss if it had been determined that CTS was
ineligible during the period in question. See In the Matter of
Southeastern University, Docket No. 93-61-SA, U.S. Dep't of Educ.
(June 22, 1994) and In the Matter of Commercial Training
Services, Docket No. 92-128-SP, U.S. Dep't of Educ. (August 4,
1993). However, I find otherwise.
The more appropriate process to determine actual losses is to
project the violations within the representative sample to the
universe of students. See In the Matter of Hi-Tech Institute of
Hair Design, Docket No. 92-129-SA, U.S.Dep't of Educ. (July 14,
1994). Here, the representative sample is 187 students. This
constitutes 10% of the student population of the three identified
campuses. Therefore, in order to project ED's actual losses the
sample liability need only be multiplied by a factor of 10.
The liability within the sample used is $205,660. This breaks
down to $87,758 for ATB violations; $23,421 for files which were
incorrectly verified; $22,312 for files which were missing
required financial aid transcripts; $19,703 for funds disbursed
to students not currently enrolled; and $52,466 for undocumented
adjustments to estimated family contributions. See Appendix. The
sample liability is then multiplied by 10, resulting in liability
for these violations of $2,056,600.
The remaining violation is for the ineligible program which did
not meet minimum required hours. This was one program and
affected only eight students. Based upon an average loan amount
of $3,551, as calculated from the sample of loan amounts at the
Albany campus where the program was offered, the resulting
liability is $28,408.
CTS' total liability for the violations resulting from the
program reviews is $2,085,008.
I FIND the following:
The violations of Title IV program regulations were not
sufficiently serious to reach the level of loss of
SFAP may recover actual losses by extending the statistical
sample to the universe of students.
Liability calculated in this manner is $2,056,600.
Liability for the minimum hour program violation is $28,408.
Respondent's total liability amounts to $2,085,008.
On the basis of the foregoing, it is hereby--
ORDERED, that Chauffeur's Training School repay to the
United States Department of Education the sum of
Ernest C. Canellos
Issued: September 9, 1994