IN THE MATTER OF MILE HI COLLEGE,
Docket No. 93-105-ST
Student Financial Assistance Proceeding
The Student Financial Assistance Programs (SFAP) of the Department of Education (ED) seeks to terminate Mile Hi College (Mile Hi) from further participation in student financial assistance programs authorized by Title IV of the Higher Education Act (HEA) of 1965, as amended.
The notice of intent to terminate Mile Hi mostly is based upon Mile Hi's failure to satisfy numeric
financial strength indicators contained in applicable Federal regulations. Mile Hi incurred operating losses
over the last three fiscal years. Financial statements of Mile Hi disclose that in fiscal year 1991, Mile Hi had
an operating loss of $33,902. In fiscal year 1992, the operating loss increased to $89,876. In 1993, the
fiscal year loss was $67,771. In addition, at the end of its 1992 fiscal year, Mile Hi had current assets of
$148,980 and current liabilities of $153,544 for a negative ratio of .097. At the end of its 1993 fiscal year,
current assets were $133,095 and current liabilities were only $116,696, producing a positive ratio of 1.22.
As well, as of June 30, 1993, Mile Hi had a positive net worth of about $22,000.
As permitted under section 498(c)(3)(A) of the HEA, Mile Hi had an option to submit a letter of
credit or surety bond to demonstrate that it is financially responsible. According to SFAP, this surety figure
is approximately one-half of the amount of Title IV, HEA funds Mile Hi receives during the award year.
SFAP derives a $250,000 surety amount by multiplying .50 by $486,000, the total amount of Title IV
funds Mile Hi received according to recent data. At an earlier time Mile Hi obtained a letter of credit of
$75,000. It is not clear whether that letter of credit is still in existence. While $25,000 possibly is excessive,
a significant guarantee appears to be required. I conclude that an amount of only $75,000 is insufficient.
Here it should be noted that Mile Hi offers no evidence concerning the required amount of the surety. Only
SFAP presents evidence on this subject.
In its response to SFAP's initiation of the termination action, Mile Hi submitted a new financial
statement for the 1993 fiscal year. This statement demonstrates that Mile Hi continues to suffer operating
losses now stretching over the three most recent fiscal years. As noted, Mile Hi thereby fails one of the
mandatory financial responsibility tests under ED regulations. 34 C.F.R. § 668.13(C)(l)(I)
Mile Hi does not rebut the numeric evidence which demonstrates that it is not financially
responsible. Instead, the school argues that other factors should be taken into consideration. Mile Hi's
arguments, which are addressed below, fail to provide a satisfactory alternative basis upon which it can be
found to have an acceptable level of financial strength.
Mile Hi cites section 2(I)(9)(C) of P.L. 103-208 (107 STAT. 2479), the Higher Education
Technical Amendments (HETA) of 1993,See footnote 1
arguing that as an alternative to a surety for up to one-half of
the Federal liability, the school has statutory authority to make an alternate demonstration of financial
responsibility.See footnote 2
20 U.S.C. 1099c(3)(C). Although final regulations incorporating the HEA Amendments of
1992 and the HETA of 1993 have not been promulgated,See footnote 3
SFAP believes that the HETA changes do not
weaken current law or permit any greater leniency toward institutions regarding the Department's financial
responsibility determinations.See footnote 4
Indeed, SFAP construes the 1993 HETA changes as having imposed more
stringent responsibility standards.
Under existing law and regulations, institutions which do not meet the numeric requirements for
financial responsibility, may still demonstrate financial responsibility by various means, including the
posting of a letter of credit or a surety bond. As noted, SFAP seeks to require Mile Hi to post a $250,000
letter of credit.
Again, as noted, Mile Hi hopes to avoid the posting of a large letter of credit. Mile Hi points out
that section 2(I)(9)(C) of HETA references another type of proof of financial responsibility that an
institution can invoke. However, Mile Hi submits scant evidence in support of this alternative.
ED, as required by statute, must permit an institution to avail itself of section 2(I)(9)(C) of HETA,
in situations where an analysis of the institution's financial information, aided by an opinion of a certified
public accountant, shows that the institution had taken comprehensive steps to put in place mechanisms to
ensure against its precipitous closure. Nonetheless, Mile Hi has not submitted an adequate operational plan
demonstrating that it "has sufficient resources to ensure against [its] precipitous closure, including the
ability to meet all of its financial obligations." 20 U.S.C. § 1099c(c)(3)(C). There is an insufficient basis,
therefore, for the institution to escape the consequences of its failure to pass the regulatory numeric tests
(it is not profitable) and its failure to post a letter of credit that is otherwise required to safeguard Federal
funds disbursed through the institution.
Instead of showing how the institution has sufficient resources to meet contingent liabilities, the
owner and President of Mile Hi, Mr. Hoflin, makes statements about his own personal wealth, which lend
insufficient support to the claims of Mile Hi that it has readily available financial resources in the event of
closure. He says that he has invested $750,000 in Mile Hi, but fails to provide a detailed explanation. He
also says that he has given the school $112,500 in text book inventory. However, the school must sell the
books to gain any benefit therefrom. And, of course, Mile Hi is incorporated, and as such, the personal
assets of the owner are inaccessible to ED in the event of bankruptcy or closure of Mile Hi.See footnote 5
Mile Hi posits that this tribunal should take into consideration its financial progress,
notwithstanding its failure to meet minimum financial responsibility criteria. Although Mile Hi's financial
condition is slightly improved, it still is losing money and fails to meet financial requirements. Ed cannot
rely upon vague predictions by an institution of its financial potential and under regulations is required,
inter alia, to look at previous awards years in its analysis of an institution's financial responsibility. Mile Hi
asks the Department to extrapolate its future financial condition based upon estimated revenue from a new
course, which arguably might generate income in upcoming years, and from a $66,000 cost reduction in
administrative salaries. These projections are tenuous, and underpinned by unproven assumptions. In
addition, the anticipated increase in revenue would be generated from students who receive Title IV, HEA
funds, and not from an independent source that externally strengthens the institution. Moreover, as to
expenses, note F to Mile Hi's 1992 and 1993 financial statements reveals that the school is paying $52,000
a year in rental expenses. As well, it paid $72,000 in such rent in 1991. All of these funds were paid to its
president and primary stockholder. Here, it should be noted that forgiveness of the 1991 rent by the
president, would have produced a 1991 Mile Hi profit of $41,000. In my opinion, the financial recovery
plan offered by Mile Hi is not sufficiently credible.
Considering Mile Hi's total financial circumstances, a finding is required that the school fails to show financial responsibility, in accordance with HETA and HEA. As well, there is no surety even
approaching the amount sought by SFAP.See footnote 6
This matter was handled under a written procedure. Mile Hi also seeks an oral hearing to further
argue its position. However, it offers nothing which would justify this further procedural step. The request
for oral hearing is denied.
I find that Mile Hi fails to demonstrate financial responsibility.
I also find that Mile Hi should be terminated from further participation in Title IV, HEA programs.
It is so Ordered.
In the absence of a timely appeal or a stay, this decision shall become effective as the decision of
the Secretary of the Department of Education
Dated this 15th day of March, 1994.
Paul S. Cross
Administrative Law Judge
Office of Higher Education Appeals
U.S. Department of Education
400 Maryland Avenue, SW
Washington, DC 20202-3644