IN THE MATTER OF
Selan's System of Beauty Culture, Docket No. 93-82-SP
Respondent. Assistance Proceeding
Appearances: David S. Dordek, Esq., Dordek, Rosenburg &
Associates, P.C., of Lincolnwood, Illinois, for Selan's System of Beauty
Cathy L. Grimes-Miller, Esq., and James D. Gette, Esq., Office of the General Counsel, for the Office of Student Financial Assistance Programs, United States Department of Education.
Before: Judge Ernest C. Canellos.
On June 7, 1993, the Office of Student Financial Assistance Programs (SFAP) of the United
States Department of Education (ED) issued a final program review determination
(FPRD) finding that during the 1986-87, 1987-88, 1988-89, 1989-90, and 1990-91 award
Selan's System of Beauty Culture (Selan's) failed to account for whether refunds were made
for unattended payment periods and failed to monitor and implement a reasonable satisfactory
academic progress policy as required under Title IV of the Higher Education Act of 1965, as
amended. See 20 U.S.C. § 1070 et seq. Several additional findings were included in the
FPRD, however, they are not within the scope of this appeal. By letter, dated July 21,
1993, Selan's filed a timely appeal of the FPRD. Due to the illness of the administrative law
judge initially assigned to this case, Judge Paul J. Clerman, this case was reassigned to me.
SFAP seeks recovery of $709,494.00: $549,352.00 in estimated losses to ED for
subsidy and default expenses in the Federal Stafford Loan (GSL) and Federal Supplemental
Students (SLS) programs, and $160,142.00 in the Federal Pell Grant and Supplemental
Education Opportunity Grant (SEOG) programs.
Pursuant to 34 C.F.R. § 682.606, institutions which disburse GSL or SLS program loans to
students must refund unearned tuition, fees, and other charges to a lender, on behalf of the
student, if the student does not complete a period of enrollment for which the loan was
made. The FPRD alleged that Selan's failed to present evidence that the institution paid
refunds to the appropriate lenders on behalf of students who had withdrawn or otherwise
failed to complete an enrollment period.
After an on-site review by the program reviewers, which revealed problems with refunds,
SFAP issued a program review report on June 26, 1991, that required Selan's to perform a
complete review of its student files for the 1986-87, 1987-88, 1988-89, 1989-90, and 1990-
91 award years. In addition, the school was required to submit copies of the front and back
of canceled checks for any refunds paid by the institution along with a report identifying the
school's students and the students' lenders. Attached to its appeal letter, Selan's submitted
material it claims satisfies SFAP's request.
Selan's concedes that some GSL and SLS refunds are still outstanding, but challenges
SFAP's calculation of liability. According to Selan's, only $19,763.88 is owed in unpaid
GSL and SLS refunds, and work sheets attached to its appeal letter support the school's
conclusion. SFAP disagrees on the basis that the work sheets do not indicate whether
refunds were actually made. The work sheets in a few instances indicate whether a GSL or
SLS refund was submitted to a student's lender, but does not include this information for
each of the students listed. In only one instance does the school's evidence include a copy of
a canceled check. As I have indicated in other decisions, copies of canceled checks showing
that GSL or SLS funds have been refunded is the most compelling documentation
demonstrating that refunds have been paid. See In the Matter of International Career Institute,
Dkt. No. 92-144-SP, U.S. Dep't of Educ. (July 7, 1994). I am persuaded that the evidence
presented by Selan's is insufficient to support the school's conclusion that only
$19,763.88 is owed in unpaid GSL and SLS refunds. Accordingly, I find that Selan's failed
to meet its burden of proving that timely and accurate refunds were made during the periods
To begin and continue participation in Title IV programs, an institution must establish,
publish, and apply a reasonable standard for measuring whether a student is maintaining
satisfactory progress in his or her course of study. 34 C.F.R. § 668.16(e) (1987); 34
§ 668.14(e) (1990). The Secretary considers an institution's standards reasonable if the
standards include a maximum time frame in which the student must complete his educational
program. Although the maximum time frame is determined by the institution, the time frame
must be based on the student's enrollment status and divided into increments, not to exceed
one academic year. Id. In addition, at the end of each increment, an institution must determine
whether a student has successfully completed a minimum percentage of academic
work in his or her course of study.
SFAP claims that during the period at issue, Selan's satisfactory progress policy did not comply with the regulatory requirements set out above. According to SFAP, although Selan's policy required part-time students to complete their programs within four years, the policy also permitted part-time students to attend as little as 40% of the student's required
clock hours each month. This policy, ultimately, permitted part-time students to maintain
satisfactory progress over the course of four years, notwithstanding the fact that at this
reduced level of attendance, a student could not complete his or her course of study within
Selan's maximum time frame of four years. Consequently, a student enrolled part-time in a
1,500 clock hour program that had a maximum time frame of four years would result in a
student having only completed 1,152 clock hours at the end of a four year period if the
student only completed 40% of his required clock hours each month (or 24 clock hours).
Stated plainly, Selan's satisfactory progress policy was not reasonable because the school's
standard for measuring satisfactory progress did not include an enforceable maximum time
frame for which part-time students must complete their educational program.
For its part, Selan's argues that SFAP's program reviewers based their conclusions about the
school's satisfactory progress policy on an outdated policy that was not in effect during the
years at issue. In support of its argument, Selan's submits a copy of several revised versions
of its satisfactory progress policy. These indicate that the satisfactory progress policy was
revised on July 1, 1989, and that revision brought the policy into compliance with the
regulatory requirements. Based on the school's evidence of the existence of its revised
policy, I am persuaded that the school's satisfactory progress policy complied with the
requisite regulatory requirements during the 1989-90 and 1990-91 award periods. Selan's,
however, presents no probative evidence that its satisfactory progress policy complied with
the regulatory requirements prior to July 1989. Accordingly, I find that during the 1987-88
and 1988-89 award years, Selan's satisfactory progress policy violated the regulatory
mandates requiring institutions to establish a reasonable standard for measuring whether a
student is maintaining satisfactory progress in his or her course of study.
As I noted supra, in SFAP's calculation of liability under the GSL and SLS refund issue, SFAP required Selan's to repay ED $549,352.00 in estimated losses to ED for subsidy and default expenses. SFAP calculated the liability by applying an actual loss formula to the total amount of GSL and SLS loan funds disbursed by Selan's during the award years at issue.See footnote 1 1 This loss formula was used in lieu of requiring Selan's to both repurchase the total amount of its undocumented loan expenditures and to repay ED the total amount of interest and
special allowances paid by ED on the undocumented loan expenditures.See footnote 2
Although I must uphold SFAP's calculation of liability because Selan's failed to provide
SFAP with the
requisite data required to measure precisely the school's liability, I recognize that in cases in
which the school provides SFAP with some degree of relevant data, the actual loss formula
should be applied in a manner that reflects SFAP's loss clearly associated with the proven
In other words, SFAP should be entitled to recover the losses directly attributed to Selan's
failure to pay refunds to lenders. If the evidence is available to determine the extent of that
loss, that amount will constitute the extent of SFAP's recovery. Notably, SFAP has elected
to bring this case under the procedures set forth under Subpart H -- audit and program
review -- regulations. In that respect, the remedies available to SFAP in such proceeding are
contractual in nature and allow only for recovery of proven compensatory damages.See footnote 3
See, e.g., In the Matter of Phillips Junior College, Melbourne, Dkt. No. 93-90-SP, U.S.
Dep't of Educ. (November 23, 1994).
In the case before me, Selan's submitted evidence on the number of students who completed
its programs during the award years in question. SFAP did not dispute the reliability of
Selan's evidence with regard to this issue. By definition, an institution cannot owe an
outstanding GSL or SLS loan refund on behalf of a student who has graduated or otherwise
completed his course of study. Therefore, the school's evidence accounts for some of the
loans disbursed during the period at issue. As such, the school should not owe a liability
calculated on the basis that all loan disbursements are undocumented expenditures.
Although the record shows that as many as 45% of the school's loan recipients graduated in a given award year, there is incomplete evidence on the amount of GSL and/or SLS loans disbursed to those students. Clearly, the issue was raised by SFAP in its FPRD and, as a result, Selan's had the burden of proof on this issue. Consequently, on the basis of the record, I am unable to measure ED's loss more precisely than the calculation offered by SFAP.See footnote 4 4 Accordingly, under the circumstances, I must uphold, as reasonable, SFAP's
calculation of liability regarding the GSL and SLS refund issue. Selan's owes a liability to
ED for $549,352.00 for failure to refund GSL and SLS program loans.
In SFAP's calculation of liability concerning the satisfactory progress issue, SFAP required
Selan's to repay ED $160,142.00, one-half of all Title IV funds (excluding GSL and SLS
loans) disbursed during the 1987-88 through 1990-91 award years. SFAP proposed this
liability because Selan's failed to provide SFAP with appropriate documentation detailing the
application of the school's satisfactory progress policy during the years at issue. Although
Selan's may have had a reasonable explanation for failing to provide SFAP with the
requested documentation, it is well established that the nature of the enforcement of Title IV
programs, through the use of program review determinations, creates the need for institutions
to cooperate with SFAP by providing the agency with complete file reviews when that
information is needed to determine whether any, if not all, Title IV funds disbursed to the
institution were spent contrary to statutory and regulatory requirements. More
fundamentally, an institution's cooperation in providing SFAP with documentation of its
expenditure of Title IV funds is consistent with its fiduciary duty to account for the
disbursement of Title IV program funds.
Under the circumstances of this case, the school's failure to provide SFAP with the data
requested regarding the school's satisfactory progress policy undercuts the school's position
that Title IV funds should not be recovered. In fact, SFAP has little choice other than to
require the return of all Title IV funds disbursed during the period at issue when an
institution fails to provide SFAP with an accounting of its expenditure of Title IV funds. To
its credit, SFAP attempted to strike a balance between its dual role of enforcing the statutory
requirements of Title IV and of ensuring the protection of public funds by proposing that
Selan's repay ED only one-half of all of the Title IV funds at issue. That notwithstanding,
as noted supra, in a Subpart H proceeding, SFAP must calculate an institution's liability in a
manner that reflects ED's loss under the circumstances of the proven regulatory violation.
Consequently, if the school had provided SFAP with some degree of relevant data, the
liability under this finding should have been limited to the amount of Title IV funds
disbursed to part-time students who did not complete their course of study within four years
during the 1987-88 and 1988-89 award years.
Nonetheless, since the record neither contains indicia of the enrollment status of the school's students, nor reveals an appropriate basis for determining how many students who received Title IV funds were enrolled as part-time students during the 1987-88 and 1988-89 award years, I am unable to determine the school's liability more precisely than the calculation offered by SFAP. Accordingly, I uphold SFAP's calculation of liability for the 1987-88 and 1988-89 award years. Selan's owes a liability to ED for $90,971.00 for failure to establish a
reasonable standard for measuring whether a student is maintaining satisfactory progress in
his or her course of study.See footnote 5
I FIND the following:
1. Selan's, violated 34 C.F.R. §§ 682.606 and
682.607, by failing to make
timely refunds of GSL and SLS loans to lenders and students during the 1986-
87, 1987-88, 1988-89, 1989-90, and 1990-91 award years.
2. Selan's failed to meet its burden of proof of showing that during
88 and 1988-89 award years, the school's satisfactory progress policy
established a reasonable standard for measuring whether a student is
maintaining satisfactory progress in his or her course of study.
3. Selan's met its burden of proof by showing that during the
1990-91 award years, the school's satisfactory progress policy established a
reasonable standard for measuring whether a student is maintaining satisfactory
progress in his or her course of study.
On the basis of the foregoing findings of fact and conclusions of law, it is HEREBY
ORDERED, that Selan's System of Beauty Culture pay to the United States Department of
Education the sum of $640,323.00.
Ernest C. Canellos
Issued: December 19, 1994