IN THE MATTER OF COMMERCIAL TRAINING SERVICES, INC.,
Docket No. 92-128-SP
Student Financial Assistance Proceeding
Appearances: Bob B. Bouneff, Esq., of Portland, Oregon for the Respondent
Howard D. Sorenson, Esq., of Washington, D.C., Office of the General Counsel, United States
Department of Education for the Office of Student Financial Assistance
Before: Judge Ernest C. Canellos
Commercial Training Services, Inc. (CTSI) is a proprietary vocational school offering a
transport operator program. It participates in the Guaranteed Student Loan Programs (GSL)
under Title IV of the Higher Education Act of 1965, as amended (Title IV).See footnote 11 Program
Reviewers from the Seattle Regional Office of the Office of Student Financial Assistance
(OSFA) conducted a program review at CTSI from January 27-31, 1992. A program review
report, issued on March 20, 1992, concluded that CTSI was in non-compliance with the
requirements of Title IV due to (1) failure to meet the course length requirement for participation
in the GSL Program during the period under review, (2) incomplete default reduction measures,
(3) incomplete verification for one student, and (4) one student's independent status was not
An inspection by the Office of Inspector General of the Department of Education (ED)
was conducted from March 23-27, 1992. The report, issued on August 4, 1992, also concluded that CTSI failed to meet the course
A final program review determination was issued by OSFA on October 7, 1992,
acknowledging that CTSI had taken the corrective actions necessary to resolve findings (2) and
(3) and assessing no liability thereunder. Findings (1) and (4), however, were affirmed. CTSI was
directed to remit $239,813 to ED for actual losses suffered, including the default liability of $
178,849, interest of $ 54,427, and special allowances of $ 6,537.
CTSI accepted OSFA's finding (4), but appealed finding (1), arguing that the program
does meet the 300 hour requirement and that the actions of ED precluded its recovery under the
doctrine of estoppel.
Three issues in this case are apparent: (1) whether CTSI violated the 300 clock hour
course requirement, (2) whether ED is barred from recovering the $239,813 due to the doctrine
of estoppel, and (3) whether ED correctly calculated the amount it claims CTSI owes. We will
discuss these seriatim.
1. 300 Clock Hour Requirement
In order for a student to be eligible to receive a GSL, the student must be enrolled in an
eligible program. Federal regulations state than an eligible program is a program of education or
training that, "[i]n the case of an institution using clock hours to measure academic progress, is
no less than 300 clock hours of supervised training." 34 C.F.R. § 668.8 (a)(2)(v)(B). Students
enrolled in a program offering less than 300 hours are not in an eligible program and are,
therefore, not eligible for any Title IV funds.
CTSI offered a 300 hour program in six week sessions for full-time students and ten week
sessions for part-time students. Class days, however, were not offered on six holidays during the
calendar year. These six holidays were: Memorial Day, the Fourth of July, Labor Day,
Thanksgiving, Christmas, and New Year's Day. No additional training was scheduled to
compensate for missed classroom time due to these holidays. Therefore, when one or more
holidays occurred during the six week or ten week session, students received less than the mandated 300 clock hours of instruction.
OSFA contends that when holidays fell during training sessions, CTSI did not offer
programs of sufficient length to meet a minimum requirement of 300 clock hours. Time off for
holidays cannot be counted towards program length or hours completed because it does not meet
the federal regulatory definition of a clock hour. Under 34 C.F.R. § 600.2, a clock hour is the
equivalent of a 50 or 60 minute class, lecture, recitation, or faculty supervised laboratory, shop
training, or internship. Unsupervised time away from class does not fall into any of these
CTSI argues that the legislative history of 20 U.S.C. § 1094 established the "no less than
300 clock hour" language of 34 C.F.R. § 668.8 (a)(2)(v)(B) should be interpreted in a flexible
manner. As pointed out by OSFA, the legislative history relied on is a discussion of whether
schools could decide to measure their courses either on a credit hour or clock hour basis. The
legislative history suggests the institutions should have flexibility in determining which
measurement to use, but never discusses flexibility with regard to the minimum hours required.
CTSI further argues that the very definition of a clock hour as a 50 or 60 minute class
suggests its flexible nature. This difference could mean a 300 hour course using a 50 minute
clock hour is actually substantially shorter (50 less hours of classroom instruction) than if the 60
minute clock hour was utilized.See footnote 22
CTSI also argues that holidays should be counted as excused absences which do not have
to be made up. Students who miss class time due to sick days do not attend 300 hours of
classroom time yet are able to graduate. The regulations, however, require the school to offer the
minimum hours. Due to the holiday policy, students could attend every hour offered by CTSI and
still not attend the minimum required number of hours.
I find that the regulations clearly require 300 clock hours for an institution to be eligible
to receive Title IV funds. CTSI was not offering an eligible program when offering less than 300
hours of instruction. Therefore, CTSI's failure to offer an eligible program makes it liable for the
return of all Title IV funds improperly expended on such programs.
CTSI asserts that ED should be estopped from ordering CTSI to remit the $239,813 since
CTSI had relied on certain communications from ED with respect to its holiday policy.
CTSI became eligible to participate in various Title IV programs and was so certified on
February 22, 1985. Its holiday policy remained unchanged from 1973 through March 1992. In
September, 1990, CTSI reduced the program from 320 to 300 hours. On November 1, 1990,
CTSI submitted a required Renewal Application for Institutional Eligibility and Certification
which was granted. Included with its Application for Renewal was its calendar, catalog, and
program hours. CTSI claims it relied on the 1985 Participation agreement and the 1990 Renewal
in maintaining its holiday policy.
I find that ED may recover the funds. The long standing rule is that no estoppel will lie against the Government. This rule was originally articulated in Utah Power and Light v. United
States, 243 U.S. 389 (1971) and confirmed more recently in Schweiker v. Hansen, 450 U.S. 785
(1981). The Secretary recently affirmed that ED may not be estopped from recovering funds
disbursed contrary to law, even when ED had erroneously granted eligibility. In The Matter of
Academia La Danza Artes Del Hogar, Decision (Judge Lewis) (May 19, 1992), Docket No.
90-31-SP, aff'd Certification of Decision by the Secretary (Aug. 20, 1992). Therefore, CTSI's
reliance on estoppel is misplaced.
3. Amount of Recovery
CTSI argues that if ED is not estopped, then any liability on its part should be reduced
due to mitigating factors such as CTSI's reliance on ED's communications, contending that its circumstances directly correspond to the requirement for mitigation under 20 U.S.C. §
1234(b)(2). I note, by its terms, these provisions are inapplicable to higher education student loan
cases. See 20 U.S.C. § 1234i.(2).
CTSI argues that it submitted its program hours and calendar during its certification
process and the holiday policy was not challenged at that time. OSFA responds by stating it was
ED who relied on CTSI's Certification of the length of its programs. CTSI was charged with
compliance of all applicable laws and regulations and acknowledged this obligation in its
Program Participation Agreement.
I find that ED, in fact, has put forth a reasonable calculation of CTSI's liability. 34 C.F.R.
§ 668.95 states that an institution may be required to take corrective action to remedy violations
of regulations. The corrective action may include payment of any funds which the institution
improperly received. Although every GSL certified by CTSI for programs with less than 300
scheduled hours was ineligible, ED has not required CTSI to repay every ineligible loan. The
face amount of those loans would have been $376,006. Instead, ED calculated its expected actual
losses--default claims plus interest and special allowance incurred as follows:
Ineligible Stafford Loans $ 377,318 See footnote 33
Multiplied by default rate (47.4%) $ 178,849
Estimated subsidies from disbursement
to repayment $ 54,427
estimated special allowance from
repayment to default $ 2,041
estimated special allowance from
repayment to PIF $ 4 496
Total to be Reimbursed $ 239,813
CTSI suggests any liability should be the actual amount of each student's total federal
loan that was proportionately attributable to the missed holidays which
totals $12,873.See footnote 44 This is not appropriate. CTSI fails to recognize that the entire program is
ineligible during those periods when a full 300 hour course was not offered, not just the actual
hours missed due to the holidays.
Lastly, CTSI argues that if CTSI must reimburse funds, OSFA's calculations are
incorrect. CTSI asserts that the default rate used by OSFA (FY '90) does not correspond precisely
to the program review period and includes defaults on loans from other programs.
CTSI states that due to the six month grace period, none of the students whose loans were
used in computing the liability for the period under review would go into repayment until at least
January 1991, after the Cohort year 1990. CTSI requests the more relevant 1991 and 1992
Cohort Default rate be used to compute CTSI's liability. Additionally, CTSI requests that
noncomparable programs used in OSFA's calculations be excluded. In the review period, CTSI
was offering one transport operator program (T.O.P.) in Portland, Oregon. OSFA's 1990
calculation includes T.O.P. in both Portland and Los Angeles, as well as a corrections officer
training program at the same two locations.
I find that the school's objection to the cohort rate used is not persuasive. OSFA used the
most recent default rate available, the FY 1990 Cohort which includes those who entered
repayment in FY 1990 (Oct. 1, 1989 to Sept. 30, 1990) and defaulted by September 30, 1991.
Since the review period was July 1, 1989, through June 30, 1991, this rate is a
reasonable indicator of ED's default losses. This FY '90 default rate, as the most recent data, is
the only one ED could effectively use.
ED's assessment of liability is consistent with the best information available. ED did not
assess the maximum it could have, and its assessment evidences its good faith efforts to institute
a fair and corrective action. Most importantly, CTSI did not provide any information to establish
that any other rate would be substantially different. Although CTSI argued that the default rate
may be lower due to the Default Management Plan instituted in July 1989, no evidence to
support this contention was provided. It should be noted that CTSI has the burden of proof both
as to compliance with regulations and the expenditures which are questioned. 34 C.F.R. §
I FIND the following:
CTSI did not offer the required 300 clock hours and so was not conducting an eligible program
during those periods where a holiday occurred during the training sessions,
ED is not estopped from recovering the funds,
CTSI's liability amounts to $ 239,813.
On the basis of the foregoing it is hereby-
ORDERED, that Commercial Training Services, Inc., repay to the United States Department of
Education the sum of $239,813.
Ernest C. Canellos
Issued: August 4, 1993
It is not allowable to count more than one clock hour per 60-minute period; in other words, a
school cannot schedule several hours of instruction without breaks, and then count clock hours in
50-minute increments. The result would be that seven hours of consecutive instruction would
count as 8.4 clock hours (420 minutes/50 minutes = 8.4 hours). This is not allowable, seven
real-time attendance hours cannot count for more than seven clock hours.
Number Gross Number %
of Total of of Total
Students Loans Holidays Trng Hrs. Liability
74 190,522 1 2.675,081
15 38,484 2 5.332,052
34 89,250 1 2.672,380
18 47,250 2 5.332,520
4 10,500 3 8.00840