IN THE MATTER OF EDMONDSON JUNIOR COLLEGE,
Respondent.
Docket No. 93-7-SP
Student Financial Assistance Proceeding
Appearances: Leslie H. Wiesenfelder, Esq., of Washington,
D.C., for the Respondent
Howard D. Sorensen, 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
Edmondson Junior College (Edmondson) is a two-year
proprietary school located in Chattanooga, Tennessee.
Phillips College, Incorporated (PCI) was the corporate owner
and operator of Edmondson until Edmondson closed in July,
1992. PCI owns and operates approximately thirty career and
technical schools in the United States, including Phillips
College (Phillips).
The Office of Student Financial Assistance (OSFA)
conducted a program review at Edmondson from May 6-10,
1991. A program review report, issued on July 31, 1991,
found that Edmondson had violated federal regulations for
the years 1988-89 and 1989-90 by awarding Title IV student
financial assistance in accordance with regulations
applicable to schools that do not have established academic
terms while declaring in its catalog that the school
provided instruction based on academic terms. The program
review report recommended that Edmondson remit $786,027, and
pay an informal fine of $112,000, to the United States
Department of Education (ED).
A final program review determination was issued by OSFA
on November 18, 1992, adopting the recommendations of the
program review report and directing Edmondson to remit
$786,027. The fine was not pursued. On January 7, 1993,
Edmondson appealed, arguing that it does not have, nor ever
had, established academic terms and does not believe that it
violated any federal regulations by issuing student
financial assistance in accordance with regulations
applicable to schools that do not have academic terms.
This appeal was routinely assigned to Judge Ernest C.
Canellos for resolution. In due course, briefs and
evidentiary matters were filed in a timely manner by OSFA
and Edmondson, and the case was taken under advisement.
ISSUE
The sole issue in this case is whether Edmondson should be
treated as a term school even though it maintains that it is
actually practicing as a non-term school. The major
difference between having the status of a term school as
opposed to a non-term school for federal financial aid
purposes is that a term school is required to make payments
to students in three installments while a non-term school is
to make payments in two installments. Consistent with its
claim that it is a non-term school, Edmondson has
historically disbursed federal student financial assistance
in two installments.
DISCUSSION
The only support OSFA provides for its determination
that Edmondson disbursed Title IV funds using the incorrect
academic year definition is that Edmondson's catalog states
that the school has sessions divided into terms, yet
Edmondson disbursed Title IV funds as a non-term school.
OSFA admits that it cannot impose, and is not imposing,
academic terms on Edmondson. Rather, since Edmondson
indicated in its catalog that it has terms with definite
starting dates, OSFA believes that Edmondson should be
treated as a school that has academic terms.
Although OSFA's brief defines the required "payment period" for a school with academic terms (34 C.F.R. § 690.3(a)) and a school without academic terms (34 C.F.R. § 690.3(b)), OSFA does not cite any authority defining an academic term. In essence, OSFA admits that there is no regulation or statutory provision defining an academic "term". Rather, a 1979 memorandum (memo) written by the Director of Policy and Program Development for the United States Department of Health, Education and Welfare (now ED) regarding Phillips states that the definition of a term school depends upon the actual definition of the academic calendar at the school. It is significant to note that the Phillips calendar which was the subject of the memo and the Edmondson calendar which is at issue in this case are indistinguishable. It appears clear that it is left up to the school to determine whether it practices as a term or non-term school.
According to the memo, if a school
publishes in its catalog that it has regular quarters
although it does not have academic terms, the school should
follow the regulation governing those institutions with
credit hours but without academic terms. According to PCI,
the only reason the term calendar is used and published in
the Phillips catalog is to show start dates for new
students. There is no indication that Edmondson's program
policy differs from that used at Phillips.
There is nothing in Edmondson's catalog stating that
the school has established terms, even though the school's
four sessions are divided into seasonal "terms". In fact,
the catalog states that new students may begin classes at
any of the four different seasonal start dates, thus
supporting Edmondson's contention of the purpose of the
phrase "term". Edmondson's catalog also states that
students have the opportunity to take "mini-terms", which
overlap the four regular sessions. By offering overlapping
courses, Edmondson's schedule is not typical of a term
school, which generally has separate, non-overlapping
sessions.
Although Edmondson's catalog does not specifically
indicate whether the school is term or non-term, PCI's 1987
and 1988 Financial Aid Policies and Procedure Manual, which
is used by Edmondson and other schools owned and operated by
PCI, states that the colleges of the PCI system measure
student progress without academic terms. Furthermore,
tuition and book costs are charged on a per program basis
rather than a per term basis. Term schools typically charge
students a tuition rate on a per term basis rather than on a
per program or degree basis.
In rejoinder, OSFA relies on Harris School of Business,
Initial Decision, No. 91-109-SP (Feb. 5, 1993), which states
that auditors must be able to rely on the written policy of
the school as the basis of an audit. However, the fact that
Edmondson divides its program into "terms" is inadequate to
support a finding that Edmondson's written policy states
that it is a term school. In fact, the written policy of
Edmondson, as stated in the financial aid manual, is that
the school does not have academic terms.
In deciding whether Edmondson portrayed itself as a
term school while practicing as a non-term school, and
therefore should be deemed to be a term school, it is
appropriate to determine whether Edmondson gained any
advantage by acting in such a fashion. OSFA offers no
argument or proof that Edmondson purposely deceived the
public or unjustly benefitted from its use of the word
"term" in its catalog. On the contrary, Edmondson argues
that it has always considered itself to be a non-term school
and has never believed that it was portraying itself as a
term school.
Rather than being a mere academic exercise of defining
the school's program, OSFA contends that Edmondson issued
excess funds to students who withdrew by disbursing 50% of
the available Title IV funds as a non-term school rather
than the 33% it should have disbursed as a term school. For
those students who dropped out during the first term, the
loss to the federal government was the difference between
the 50% and the 33% of the aid authorized. However, OSFA
fails to realize that Edmondson may have saved federal money
at those times when the school disbursed 50% of the
available funds before a student withdrew rather than the
66% that it would have disbursed had a second payment been
authorized and the school been practicing as a term
institution. The discussion of whether Edmondson saved or
cost OSFA money is moot, as Edmondson had the choice to
decide how it wished to practice and it disbursed funds
based on its decision to be a non-term school.
There is no indication that any students were placed at
a disadvantage by Edmondson's decision to use the phrase
"term" in its catalog while practicing as a non-term school.
Students do not normally decide whether to attend a school
based on the school's decision to consider itself term or
non-term for financial aid purposes. In fact, if a student
stays in school for the entire program, the student would
receive the same amount of federal aid regardless of whether
the school practiced as a term or non-term institution.
However, in 1979, the Department did recommend, albeit for
reasons not related to basic grant regulations, that
Phillips explain in its catalog how the calendar actually
operates. Such advice still has merit today. Had PCI
explained in Edmondson's catalog, in addition to its
financial aid manual, that the school was a non-term
institution perhaps these proceedings would have been
spared.
FINDINGS
I FIND the following:
Edmondson was free to choose whether it should be treated as a term or non-term school;
Edmondson chose to be treated as a non-term school; and,
Edmondson's listing of course start times in its catalog did not alter the school's intention to practice as a non-term school.
ORDER
On the basis of the foregoing it is hereby--
ORDERED, that Edmondson Junior College be relieved
of the obligation to pay the United States
Department of Education the sum of $786,027.
________________________
Ernest C. Canellos
Issued: June 4, 1993
Washington, D.C.