IN THE MATTER OF: .
. Docket Number 93-170-SP
BERK TRADE AND .
BUSINESS SCHOOL, . Student Financial
. Assistance Proceeding
Appearances: Peter S. Leyton, Esq., of
Ritzert & Leyton, Washington, D.C., for the Respondent
Denise Morelli, Esq., Office of the General
Counsel, U.S. Department of Education, for
the Office of Student Financial Assistance
Before: Judge Ernest C. Canellos
Berk Trade and Business School (Berk) is a proprietary
vocational institution located in New York, New York. Berk
offers varied programs at seven locations in the New York City
metropolitan area, and is accredited by the Accrediting Alliance
of Career Schools and Colleges of Technology. Berk participates
in the Federal Family Education Loan (FFEL) ProgramSee footnote 1
and Pell Grant Program, both authorized under Title IV of the Higher
Education Act of 1965, as amended. These programs are
administered by the Office of Student Financial Assistance
Programs (SFAP) of the United States Department of Education
A program review was conducted at Berk from October 15-18,
1990, by SFAP's Regional Office in New York City. The review
examined Berk's administration of the Title IV programs for award
years 1989, 1990 and 1991. SFAP's program review report, dated
July 23, 1992, cited several areas of Berk's non-compliance with
pertinent statutes and regulations. While the parties attempted
to resolve the outstanding issues from the above report, an
additional program review was conducted to evaluate Berk's
compliance with its 1990 Default Management Plan. In March 1993,
SFAP issued another program review report citing Berk with
several violations of its plan.
On October 19, 1993, SFAP issued a final program review
determination letter (FPRD) detailing the findings that remained
outstanding from the two program review reports. All violations
from the 1992 report were resolved by agreement of the parties,
except the finding that Berk funded ineligible programs. That
finding was made because two of Berk's programs, the Auto
Mechanics and the Security/Loss Prevention Programs, were not
authorized during specific periods by the appropriate state
agency, thus making those programs ineligible for those specific
periods. With respect to Berk's compliance with its Default
Management Plan, the FPRD referred SFAP's 1993 finding to the
SFAP Compliance and Enforcement Division, ED's Office of
Postsecondary Education (OPE), for further action.
As a result of the finding that Berk applied Title IV funds
to ineligible programs, ED claims Berk must return $107,526 in
FFEL funds, interest subsidies, and special allowances, and
$23,209 in Pell Grant funds paid for students in these ineligible
Two issues are apparent in this case: (1) whether Berk's
auto mechanics and security/loss prevention programs were
ineligible for specific periods, and (2) whether ED has
accurately calculated Berk's FFEL liability resulting from that
ineligibility. I will discuss these seriatim.
Ineligibility of Programs
As a prerequisite to participating in Title IV programs, an
institution must be legally authorized to provide educational
programs in the state where it is physically located. 20 U.S.C. §§ 1085(c), 1088(b)
and 1141(a). Here, the laws of the State of
New York are controlling. The New York State Education
Department (NYSED) oversees authorization of all educational
institutions in the state.
Under the statutes and regulations of New York, an
institution such as Berk must be (1) licensed by the NYSED, and
(2) each program it offers must be approved by NYSED. It has
been clearly established that a school located in New York must
satisfy both prongs of this test to be eligible for Title IV
funds. Berk's contention to the contrary is therefore without
merit. See In the Matter of French Fashion Academy, Docket NO.
89-12-S, U.S. Department of Education (Decision of the Secretary)
(March 30, 1990), affirmed sub nom. French Fashion Academy, Inc.
v. Cavazos, No. 90 Civ. 6645 (S.D.N.Y. 1991), affirmed sub nom.
French Fashion Academy, Inc. v. Cavazos et al., Nos. 92-6010, 93-
7316 (2nd Cir. 1994).
Both programs at issue had been previously approved by
NYSED. NYSED's approval of the auto mechanics program expired
August 31, 1988. Berk's initial application for renewed approval
was rejected by NYSED on August 10, 1988. Berk reapplied for
renewal on December 9, 1988. With respect to the security/loss
prevention program, NYSED's approval expired on March 31, 1988.
Berk's application for renewal was not received by NYSED until
May 10, 1988. NYSED denied approval of the program, and Berk
reapplied January 5, 1989. NYSED subsequently granted approval
to both programs on January 19, 1989. In each case, such
approval was explicitly stated to be effective January 1, 1989,
thereby creating a situation where the auto mechanics program was
not authorized between August 31, 1988, and January 1, 1989, and
the security/loss prevention program was not authorized between
March 31, 1988, and January 1, 1989.
Berk argued that NYSED's enrollment agreements constituted
program approvals during t he periods at issue. However, as
indicated by a July 23, 1991 letter from NYSED to Berk, the
enrollment agreements explicitly state that review has not been
made for compliance with any other provisions of Federal or State
statutes or regulations. Consequently, these enrollment
agreements have no bearing on Title IV eligibility.
The employee who was responsible for ensuring Berk's
compliance with state requirements during the time in dispute
declared that it was not uncommon to request and receive oral
extensions of program approvals. However, he did not remember if
he made such a request in these particular instances.
Nevertheless, this statement is insufficient to overcome the
evidence that the two programs were not approved by NYSED for the
specific periods at issue.
Berk has demonstrated NYSED's current practice of granting
interim extensions of program approval in writing, and claims
that NYSED adopted the written form as a substitute for the oral
extensions described above. However, the record does not support
the claim that such an oral extension occurred in this case.
I find that the record clearly supports SFAP's determination
that the auto mechanics program was ineligible from September 1,
1988, through December 31, 1988, and that the security/loss
prevention program was ineligible from April 1, 1988, through
December 31, 1988. This is not a mere technical violation where
a program, in essence unchanged, is renewed, albeit late. Here,
NYSED had substantive reasons for denying the renewals, and it
was only after the programs had been restructured by Berk to
satisfy NYSED's concerns that they were approved.
Calculation of Liability
All Title IV funds expended to students in ineligible
programs is erroneous and is subject to be returned to ED.
However, ED is seeking only its actual loss based on applying
Berk's cohort default rate of 47.7 percent to the total and
demanding the return of that amount. In addition to $23,209 in
Pell Grant funds, ED claims that Berk must return $107,526 in
FFEL funds, interest subsidies, and special allowances paid for
students in the above programs. Berk does not contest the Pell
Grant amount, but maintains that SFAP's calculations of its FEEL
liability are excessive.
Berk contends that SFAP improperly calculated its actual
loss by utilizing the FFEL amount certified for each student,
rather than the amount actually disbursed. Berk asserts that
certified amounts do not always reflect the loan amount disbursed
to the student. In addition, all Title IV funds must be issued
in at least two disbursements. 34 C.F.R. § 682.604. It is
therefore erroneous to assume that Berk actually expended the
entire certified amounts to its students.
SFAP argues that the document used to calculate the FFEL
amounts was submitted by Berk itself, and that Berk had ample
opportunity to revise its figures before the FPRD was issued.
While this may be true, Berk has since made an apparent good
faith effort to correct its error. Furthermore, when requesting
Berk to provide the loan amounts certified, SFAP indicated that
second disbursements were assumed to be half of the amount
certified. It is therefore not unreasonable that Berk would
provide the total amount certified, presuming SFAP would then
assess any liability based only on actual disbursements.
I have an obligation to ensure fairness in administrative
proceedings. Permitting ED to assess liability based on FFEL
amounts certified, rather than disbursed, would be inconsistent
with that responsibility. This is particularly true given Berk's
continued insistence that its original submission was in error.
I find that SFAP improperly assessed Berk's FFEL liability
based on certified loan amounts of $198,750. Berk's accurate
liability should be based on its disbursement of $102,111. When
applied to SFAP's actual loss work sheet, this proper amount
creates a liability of $56,194.
Berk's Remaining Contentions
Berk also appeals SFAP's determination regarding compliance
with its Default Management Plan, which SFAP transferred to OPE
for further action. Since Berk was not adversely affected by the
determination, this Tribunal has no authority to review such SFAP
Finally, Berk maintains that it has been improperly imposed
with the burden of proof in this proceeding. The burden of proof
in this type of procedure is on the Respondent. 34 C.F.R. §
668.116(d). SFAP does have the burden of production and this
burden is satisfied if SFAP presents sufficient evidence to
enable a reasonable person to draw the inference that a violation
has occurred. In the Matter of Sinclair Community College,
Docket No. 89-21-S, U.S. Department of Education (Decision of the
Secretary) (September 26, 1991). SFAP has clearly met its
burden, and there has been no unlawful imposition upon Berk.
I FIND the following:
Berk's auto mechanics program was
authorized by the State of New York from September 1,
1988 through December 31, 1988, therefore, was not a
Title IV eligible program during this period;
Berk's security/loss prevention
program was not
properly authorized by the State of New York from April
1, 1988 through December 31, 1988, therefore, was not a
Title IV eligible program during this period;
SFAP improperly assessed Berk's
liability based on loan amounts certified rather than
amounts actually disbursed. Berk's accurate FFEL
liability is $56,194.
SFAP properly assessed Berk's
liability for Pell Grants
Berk's total liability for the funding of
ineligible programs is $79,403.
On the basis of the foregoing it is hereby --
ORDERED, the Berk Trade and Business School repay to the
United States Department of Education the sum of $79,403.
Judge Ernest C. Canellos
Issued: June 27, 1994