In the matter of MOUNTAIN STATES TECHNICAL INSTITUTE
Docket No. 93-60-SP
Student Financial Assistance Proceeding
The Student Financial Assistance Programs (SFAP), of the Department of Education
(ED), through its San Francisco regional office, conducted a program review at Mountain States
Technical Institute (MSTI), a proprietary trade and technical school owned by Ms. Delite Gaddie,
from November 12-15, 1990. SFAP issued a program review report on January 11, 1991. In that
report, SFAP found that for the award years 1988-89 and 1989-90, MSTI (1) failed to
consistently apply its satisfactory academic progress policy (SAP), and (2) adjusted expected
family contributions without adequate documentation for a number of students receiving aid under
Title IV of the Higher Education Act of 1965, as amended (HEA), 20 U.S.C. § 1071 et. seq.See footnote 1
MSTI closed on July 8, 1991 and, thereafter, filed for bankruptcy protection under Chapter 11 or
the bankruptcy code.
On March 14, 1991, MSTI responded to the program review findings. As related to
finding #2, MSTI responded by reviewing its SAP policy against the requirements of its
accrediting agency and modifying the policy to "make it less restrictive." In addition, MSTI
retroactively applied the unmodified SAP policy to all students that were attending the school
during the audited years. As related to finding #9, MSTI responded by reviewing the financial aid
files of all students for missing documentation. The school then revised and recalculated the
sixty-five (65) overawards that resulted from inadequate documentation.
Subsequently, SFAP issued MSTI a final program review determination letter, dated April
8, 1993 (FPRD) (Program Review No. 91109007), advising MSTI of its obligations related to the
following: the schools closure, the liabilities owed to Title IV programs as a result of the schools'
responses to the program review of November, 1990, and the school is right to appeal the FPRD.
By letter dated May 18, 1993, MSTI appealed the FPRD and SFAP referred this case to the Office of Higher Education Appeals for hearing. This proceeding is governed by Subpart H of 34 C.F.R. Part 668, as amended at 57 Fed. Reg. 47,752 (October 19, 1992). The hearing consists of the submission of written briefs by the parties and, if the hearing official determines it to be necessary, oral argument to clarify the issues and positions of the parties as presented in the parties' written submissions. 34 C.F.R. § 668. 116(b). MSTI has the burden in this proceeding of
proving that the expenditures questioned or disallowed by SFAP were proper and that it complied
with program requirements. 34 C.F.R. § 66,3.116(d). A hear1ng procedure providing for the
filing of written briefs by the parties was established. SFAP filed a brief but MSTI did not. The
May 13, 1993 letter of MSTI is considered as a brief.
34 C.F.R. § 668.14(e)(3)(v).
According to its published policy, MSTI, among other things, required its students to
maintain "a minimum attendance rate of 90 percent" in order to be considered to be making
satisfactory progress, and thereby eligible for financial aid. MSTI measured its school programs in
terms of phases; each phase included sixty (60) hours, or approximately eleven (11) school days.
Thus, if a student was absent more than once during a phase, that student failed to meet MSTI's
90 percent attendance policy. Students who failed to maintain the minimum attendance rate were
placed on probation for one phase. However, such students were still considered to be making
satisfactory progress during the probation period and, therefore, remained eligible for financial
aid. If, after the probation period, a student had not achieved the required progress levels (e.q.
raised their attendance rate to 90 percent), that student's financial aid funds were withheld by
MSTI. Furthermore, the student was subject to dismissal from school.
The program review found that MSTI had inconsistently applied its SAP policy in
violation of ED regulations. In this regard a number of student files were examined. For example,
student #4 enrolled in a seven month word processing course scheduled to begin on January 2,
1989. The fifth phase of the program ran from March 6-20, 1989 (approximately eleven days).
During that phase, student r 4 was absent two (2) days - meaning the student attended only 82
percent of the days during phase five. Because the student attended less days than the 90 percent
required by MSTI's published policy during phase five, the student should have been placed on
probation during the following phase: from March 21st to April 3rd. During phase six, student #4
was absent four (4) days - meaning attendance at only 63 percent of the days during phase six. At
that point (after Apr. 13, 1989), student #4 should have become ineligible to receive further
financial aid for failure to meet MSTI's attendance policy. However, in direct conflict with its
published policy, MSTI credited the student's account with the second disbursement of $734.00
of Pell grant monies on April 15, 1989.
Because MSTI failed to consistently apply its SAP policy, the program review required
the school to retroactively apply its SAP policy to all students during the reviewed years, to
develop a written procedure to ensure consistent application of the policy, and forward both to
the regional office. The program review further required that all incorrectly disbursed funds be
returned to the appropriate Title IV programs.
In response to the program review report, MSTI retroactively applied its SAP policy to all
students for the applicable award years. This application resulted in $99,634.31 in liabilities,
arrived at by the school, comprised of the following: $10,418.00 for the Pell Grant Program;
$37,379.64 for the Stafford Loan Program; and, $51,070.67 for the Federal Supplemental Loans
for Students Program.See footnote 2
SFAP requests that MSTI be required to repay $10,418.00 to ED or ineligible Pell Grant
awards, and that the school pay the current holders of he loans the balances for all students
identified in their response to the program review report, total of $88,450.31.See footnote 3
In its request for a hearing, MSTI asserts that the 90 percent attendance policy in effect
during the audited years was its creation and " . . . was put in place to demand a high standard of
attendance from students." ;MIST further asserts that its attendance policy " . . . makes it
extremely difficult to . . . maintain satisfactory progress from a student standpoint." However,
the contentions of MSTI do not provide a defense against applicable ED regulations. These
regulations require consistent application of standards to all students which means that MSTI was
required to enforce whatever policy it had in effect. See ,4 C.F.R. § 668.14(e)(3)(v). Just because
the school's policy was purportedly created for a laudable purpose (e.q., to require "high risk"
students to attend most classes) does not alter the fact that MSTI was obligated to enforce its
own policy. The policy should have been applied to every student that failed to attend 90 percent
of the hours of a given phase but, instead, was only applied where MSTI choose to apply it, in
direct violation of ED regulations.
Furthermore, MSTI argues that because neither ED nor the school's accrediting agency,
the National, Association of Trade and Technical Schools (NATTS), had an attendance
requirement as an indicia of satisfactory academic progress, it's own policy "should not be used to
deny financial aid claims." However, MSTI's incorrectly interprets ED regulations. ED regulations
specifically require a school to apply reasonable standards to ensure that students are maintaining
satisfactory progress. C.F.R. § 668.14(e). If the standards applied conform to those of the
school's accrediting agency, they will be considered reasonable by ED. 34 C.F.R. § 668.14 (e)(1).
However, the fact that an accrediting agency does not require something does not mean that its
inclusion should not be considered as part of a reasonable SAP policy. Neither ED nor NATTS
created the 90 percent attendance standard or imposed it on MSTI; nor is the policy shown to be
inherently unreasonable; and the fact that neither ED nor NATTS requires such a policy has no
impact on MSTI's obligation to apply its own "reasonable" standards to measure its students
satisfactory academic progress. Because MSTI both created and published the 30 percent
attendance policy, and regardless of whether such l policy was required by ED or NATTS, MSTI
was required to consistently apply its own policy which is not per se unreasonable.
Finally, MSTI argues that prior audits of the school found no liabilities, therefore
something must have " . . . changed the way they [the auditors] handled the situation." In its
request for a hearing, the school states as follows:
One need analysis document of the type referred to in the above regulation is a Student
Aid Report (SAR), which is "[a] report provided to a financial aid applicant showing the amount
of his or her expected family contribution." 34 C.F.R. § 690.2(c). From the SAR, the amount of
grant or loan monies the student is eligible to receive is determined. 34 C.F.R. § 690.13. The term
"family contribution" is defined as follows:
Because it helps form the basis of a financial aid award, a student's expected family contribution
can only be adjusted in a limited number of circumstancesSee footnote 4
, and, only on the basis of adequate
documentation. HEA 479A(a), 20 U.S.C. §1087tt.
MSTI, as a participant in the Federal Family Educational Loans Program, was required to
provide adequate supporting documentation for any changes made to its students' family
contributions. Such documentation should have been included in the file of any student whose
family contribution was changed from ED's determination on that student's SAR.
The program review found that adjustments were made to the family contributions of
students #2 and #7 without adequate file documentation. For example, the SAR for student #2
determined the family contribution to be $1506.00. However, the student's promissory note
specifies an est-mated contribution of $119.00. Thus, student #2's family contribution was
changed, but no documentation supporting that change was found in the file.
The program review required MSTI to reconcile all student files for the reviewed award
years and to recalculate and adjust any awards made to students whose files did not contain
adequate documentation for changes to family contributions. The review further required that a
copy of the school's review be submitted to the Regional Office that conducted the review
(Region IX, San Francisco, California).
In response to the program review pertaining to this finding, MSTI conducted a full file
review of all student financial aid files for the reviewed years. The school reviewed a total of 2173
family contribution calculations of which 434 " . . . were revised without adequate documentation
. . . Of this 434, MSTI concluded that 65 of the revised student files resulted in overawards.See footnote 5
MSTI further responded by stating the following:
The FPRD accepted MSTI's full file review determinations of overawards which
amounted 'o an $18,679.00 liability. The FPRD instructed MSTI that this amount was due to the
In its request for a hearing, MSTI falls to adequately respond to the liability assessed
against it for failure to provide adequate documentation for changes to student's family
For example, the school states that its "error factor" is 2.5 percentSee footnote 6
regulations do not provide for avoidance of liabilities based on an "acceptable" amount of error.
Furthermore, in making it's "error factor" argument, MSTI admits that it did not have the requisite
documentation to substantiate changes to students' family contributions. Thus, MSTI fails to meet
its burden of establishing that it complied with program requirements as related to this FPRD
MSTI also argues that it is not financially capable of paying the liability assessed in
relation to this finding. However, this argument is unavailing because the purpose of the FPRD is
simply to establish liabilities - not to determine an institution's ability to pay those liabilities.
Findings #2 and #9 of FPRD are upheld. In the instance of the former, MSTI failed to
apply its satisfactory academic progress policy and in the case of the latter, MSTI adjusted
expected family contributions without adequate documentation. Accordingly, MSTI must repay
ED and lenders in accordance with the FPRD.
The appeal of MSTI dated May 18, 1993 is denied.
Dated this 16th day of September, 1993.
Paul S. Cross
Administrative Law Judge
Office of Higher Education Appeals
U.S. Department of Education
400 Maryland Avenue, S.W.
Washington, D.C. 20202-3644