LONG BEACH COLLEGE OF BUSINESS,
Docket No. 92-132-SP
Student Financial Assistance Proceeding
Appearances: Sara W. Goddard, Esq., of Irvine, CA, for the Respondent.
Edmund J. Trepacz, II, 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
Long Beach College of Business, Inc., (LBCB) is a proprietary trade school. The School participates ln the various student financial assistance programs authorized under Title IV of the Higher Education Act of 1965, as amended (Title IV). These programs are administered by the Off ce of Student Financlal Assistance Programs (SFAP), of the Unlted States Department of Education (ED). ED's Regionai Inspector General for Audit, Region IX, issued an audit report of March 1992 (audit report) concluding that LBCB improperly administered student financial assistance programs for the period February 16, 1988, to December 31, 1990.
On September 30, 1992, ED's Institutional Participatlon and Oversight Service issued
a final audit determination letter (FADL) based upon the audit report. The FADL
concluded that LBCB was ineligible to participate in Title IV programs due to: (1)
the enrollment of non high school graduates without proper determination of their
ability-to-benefit and (2)the improper conversion of programs from a clock-hour to a
credit-hour basis. The second finding of the FADL was later withdrawn by ED with
prejudice. LBCB was directed to remit $1,474,050 to ED, including $657,000 in Pell
Grants, $741,000 in campus-based funds, and $76,050 in interest and speclal allowance
costs. In addition LBCB was directed to reimburse $2,553,000 to lenders for
Guaranteed Student Loans made durlng the audit period. LBCB filed a timely appeal.
This matter has been fully briefed by he parties and an Oral Argument was held.
On November 30, 1993 I dismissed the FADL witthout prejudice on the ground that it
was not issued by the proper authority, which constitutes a jurisdictional defect. On
February 16, 1994, the Secretary determined that the FADL was properly issued. The
Secretary reinstated the FADL and remanded the case to me for further proceedlngs.
Upon receipt of the Secretary's decision, I took the case under advisement for a
decision on the merits.
Regulations require that evidence submitted for review must be both timely and
admissible. 34 CFR 668.116(e) & (f). They also provide that any materials that have
not been submitted to ED in connection with an audit or program review should be
provided no later than 30 days after the institution's filing of its request for
review. 34 CFR 668.116 (e)(1)(v). If the materials are not submitted within 30 days,
then said materials, pursuant to the regulations, are neither timely nor admisslble.
LBCB's request for review is dated November 12, 1992. The evidence in question was
introduced as exhibits to LBCB's initial and reply briefs. These briefs were dated
April 24, 1993 and July 8, 1993, respectively.
SFAP contends that the evidence submitted with LBCB's briefs is untimely pursuant to
34 C.F.R. 668.116. SFAP also contends that LBCB's evidence does not fall within the
categories of admissible evidence set forth in 34 CFR 668.116(e)(1)(i),(ii), (iii),
(iv), and (v). SFAP concludes that, as such, this evidence is inadmissible .
LBCB claims that the exhibits in question fall into the categories set forth in 34
CFR 668.116(e)(1) because they were submitted to ED in the course of the original
audit. LBCB also claims that SFAP's failure to object in a timely manner constituted
a waiver. Finally, LBCB claims that the evidence should be admitted in the interests
In, In the Matter of Baytown Technical Sch., Inc., Dkt. No. 9140-SP, U.S. Dep't of
Educ. (Decision of the Secretary) (April 12, 1994), the Secretary concluded that
admission of evidence should be guided by the Hearing Official's obligation to
provide a fair and impartial proceeding. According to the Secretary, this obligation
transcends the stringent evidentiary requirements of 34 CFR 668.113(b) and
Having reviewed the evidence in question, I find that it is not persuaslve.
Therefore, its admittance would not affect this proceeding in any way.
In order to be eligible to receive Title IV assistance, a student must have a high
school diploma, its equivalent, or a demonstrated ability-to-benefit from a program
of study. 20 USC 1091(d). Pursuant to the relevant regulations, an applicant may be
administered a nationally recognized, standardized, or industry developed test in
order to demonstrate that ability-tobenefit. This test must be administered as part
of the student's admissions requirements. If an applicant is unable to satisfy
admissions testing requirements, then that applicant may complete a program of
remedial education, not to exceed one year, or enter a certified GED program in order
to qualify for federal ald. 34 CFR 600.11.
LBCB used a nationally recognized test, published by E.F. Wonderlic, Inc.
(Wonderlic), to determine whether students could benefit from its programs. However,
LBCB accepted a minimum score of nine. In most cases, this was significantly below
the publisher's suggested minimums, which ranged from 18 to 10. SFAP contends that
LBCB did not provide valid evidence to support acceptance of scores so low. It is
also SFAP's position that the acceptance of scores so far below the publisher's
minimum has resulted in an excessive drop out and default rate among ability
Initially, LBCB argues that there are no laws prescribing which test scores to use.
However, it is important to note that Wonderlic's exams and scoring guidelines are
the products of extensive study and testing. The procedures established by Wonderlic
with regard to the application and scoring of their exams are well established
components of those exams. As such, wnen an institution chooses to use the Wonderlic
exam (Exam), this choice necessarily encompasses all of the procedures prescribed by
Wonderlic. I find that without comprehensive evidence supporting the use of different
procedures, LBCB must defer to the scoring guidelines established by Wonderlic.
Next, LBCB claims that it was within their discretion to accept lower test scores for
several reasons. One reason, according to LBCB, was that the Exam was culturally
biased. Another was the contention that the Exam was supplemented by counseling,
remediation, and a GED program. However, mere assertions, such as these, will not
meet LBCB's burden of persuasion. The evidence produced does not support these claims
and, as a result, I find that they lack any weight.
LBCB also produced a Longitudinal Study produced in an attempt to establish the
acceptability of a score of nine. This study compares test scores of
ability-to-benefit students with those of high school graduates and indicates that
ability-to-benefit students actually scored marginally higher than high school
graduates. However, the conclusions that LBCB generates from this study are invalid.
The ability-to-benefit requirement is a legislatively created alternative to a high
school diploma. It is the final opportunity for students to establish their
eligibility. As such, it stands on its own and must be accepted without comparison to
alternate standards of eligibility.
LBCB also claims that the Association of Independent Colleges and Schools (AICS)
approved the ability-to-benefit procedures at issue. Whether AICS, as LBCB's
accrediting body, even had the authority to approve LBCB's ability-to-benefit program
is questionable. In any event, there is no evidence that AICS explicitly approved
this program. The re-accreditation of LBCB, by AICS, is neither an appropriate nor an
adequate sign of approval. Even ignoring Ihe questionable nature of AICS's authority
in this matter, I find that such, at best, implicit approval will not support LBCB's
acceptance of below average test scores.
Finally LBCB disagrees with SFAP's correiation of default rates to improper testing
procedures. The abil ty-to-benefit requirement is a precondition to eligibility. It
is immaterial whether improper determination of the ability-to-benefit really led to
high default rates. Therefore, I find that LBCB did not properly determine the
ability-to-benefit of its applicants.
As a separate and distinct defense, LBCB asserts that SFAP is estopped from claiming
that respondent's ability-to-benefit procedures were deficient. This argument is
based upon a 1988 program review that the respondent claims impiicitly accepted
LBCB's procedures. However, the program review in question specifically states that
the absence of statements regarding specific policies or procedures cannot be
construed as acceptance of those policies or procedures. Factually, LBCB's argument
It is also important to point out that, as a rule, estoppel will not lie against the
government. See Schweiker v. Hansen, 450 U.S. 785 (1981), Utah Power and T ight v.
United States, 243 U.S. 389 (1971). The Secretary conf med this rule when he affirmed
that ED may not be estopped from -ecovering funds disbursed contrary to law, even if
eligibility had been mistakenly granted. In the Matter of Academia La Danza Artes Del
Hogar, Docket No. 90-31-SP, U.S. Dep't of Educ. (May 19, 1992), Aff'd (Certification
of Decision by the Secretary) (Aug. 20, 1992). Therefore, I find no basis in law or
fact for LBCB's argument that ED is estopped from enforcing the ability-to-benefit
It is SFAP's contention that LBCB was ineligible to participate in Title IV programs
during the ?eriod in dispute. As a result, SFAP demands that all funds tendered
during that period be repaid. There is, however, much dispute as to whether the
ability-to-benefit should be an institutional eligibility requirement or an individual
eligibility requirement. When it removed ability-to-benefit from the institutional
eligibility provisions, 20 USC 1085(c), Congress apparently recognized that it would
be unjust to revoke the eligibility of an institution solely because a minority of
students is ineligible.* Although this change occurred after the audit period, it is
still a consideration.
While ability-to-benefit can be an individual eligibility question, a school must
establish an ability-to-benefit program.
* Even before this change, the fairness of enforcing the ability-to-benefit
requirements as criteria for institutional eligibility was obvious. It appears clear,
to me, that some consideration should be given to whether it is fair to apply the
requirements in this manner. However, I do not have the authority to waive or avoid
the regulations in question. Ultimately, it is only the Secretary who has plenary
Consequently, ability-to-benefit may also be an institutional eligibility question.
LBCB insisted as a policy issue that during the audit period it accepted scores as
low nine on the Exam. LBCB has failed to prove that this was an acceptable procedure.
Since no evidence has been presented to determine otherwise, during the period in
question LBCB did not properly enforce the ability-to-benefit provisions and was
therefore ineligible to participate in Title IV programs.
I FIND the following:
Long Beach failed to follow the guidelines established by the test manufacturer,
Wonderlic, when it determined the ability-to-benefit of applicants based on the
Long Beach failed to meet its burden of establishing that its ability-to-benefit
procedures were valid;
SFAP is not estopped from recovery as claimed;
Long Beach was ineligible to participate in Title IV programs during the period in
Long Beach's liability amounts to $1,474,050 to ED and $2,553,000 to lenders in the
Guaranteed Student Loan Program.
On the basis of the foregoing it is hereby--
ORDERED, that the Long Beach College of Business, repay to the United States
Department of Education the sum of $1,474,050 for PELL grants and campus-based funds
awarded to ineligible students and $2,553,000 to the respective lenders for
ineligible loans in the Stafford and Supplemental Loans to Students programs.
Ernest C. Canellos
Issued: July 14, 1994
On July 14, 1994, a copy of the attached document was sent to the following:
Edmund J. Trepacz, II, Esq.
Office of the General Counsel
U.S. Department of Education
Room 4091, FOB-6
400 Maryland Avenue, S.W.
Washington, D.C. 20202-2110
Sara W. Goddard, Esq.
4330 Barranca Pkwy.
Irvine, CA 92714-4740