Docket No. 94-1-SP
Student Financial Assistance Proceeding


Appearances: William J. Sanchez, P.A., Coral Gables, Florida,
for the Respondent

Steven Z. Finley, Esq., of the Office of the
General Counsel, United States Department of
Education for the Office of Student Financial
Assistance, Washington, D.C.

    Before:    Judge Paul S. Cross, Administrative Law Judge,
        Office of Higher Education Appeals, U.S.
        of Education, Washington, D.C.

This is an appeal of a final program review determination
(FPRD) issued on October 18, 1993, by the Office of Student
Financial Assistance (SFAP) within the United States
Department of Education (ED). Mr. Arnold's Excellance Beauty
Schools, Inc. (Respondent), asserts that FPRD findings 3, 4,
5, 6, 7, and 10 should be vacated. Respondent filed a brief on
June 17, 1994, in response to SFAP's brief of March 22, 1994.
The FPRD is based upon a program review conducted between
November 12 and 15, 1991. Respondent has the burden of
establishing that the FPRD findings are erroneous.

    Respondent points out that in another proceeding, No.
92-121ST, an ED administrative judge issued a decision finding

1) ED failed to meet its burden of proving that
Respondent committed fraud by altering
Ability-toBenefit test answers.

2) Ed failed to meet its burden of proving that
Respondent did not meet the standard of
administrative capability and the fiduciary standard
of conduct.

3) Respondent did not make timely refunds as required by
34 CFR 668.21. The Respondent did not dispute this

Docket No. 94-1-SP

4) ED failed to meet its burden of proving that
Respondent did not implement the default reduction
measures of 34 CFR 668.

5) Respondent's participation in federal student
financial assistance programs under Title IV of the
HEA of 1965, as amended, should not be terminated.

6) Respondent should be fined $6,000.

However, these findings are not at issue herein. This is a
separate proceeding with different issues. As noted, the
findings at issue on appeal in this FPRD are findings 3-7 and


Finding 3: Credit Balances on Student Accounts

Finding 3 revealed that Respondent was giving students excess
funds after the full amount of the school's tuition and fees
were paid or was not making refunds. As set out on Page 2 in
the October 18, 1993 FPRD, Respondent owed the following

$15,163 due to 29 students

28,136 due to Stafford Loan holders for 30 students
4,972 due to SLS holders for 3 students
792 due to SFAP for Pell Grants for 3 students
$49,063 Total

As noted on page 7 of SFAP's brief, all of the 29 students who
are owed refunds received a Stafford loan, but either
graduated or received a federal Pell Grant which created a
credit balance on their account. Respondent only paid a refund
of $136 to one student. SFAP seeks recovery of $11,474,
composed of the alleged improper federal Pell Grant ($792) and
the interest and special allowance subsidies (I&SA)($10,682).
Respondent admits that the refunds identified in the December
1991 program review remain unpaid because the institution is
currently under administrative offset which reduces its
monthly HEA funds by approximately $12,000. Respondent says
that an ISA of $10,682 is extreme and seeks to have it
eliminated from this finding. SFAP states that no challenge
has been made as to the accuracy of the interest calculation
and no alternative or corrected calculation has been provided.
I uphold Finding No. 3.

Finding 4: Incorrect Ability to Benefit Test Scores

Finding 4 reflects the fact that Respondent used the Wonderlic
Test during part of the period covered by the program review
as the admission test for all of its students, thereby using
its ability-to-benefit test as an admissions procedure for
everyone, regardless


Docket No. 94-1-SP

of whether the student did or did not have a high school
diploma. As explained in the program review, students taking
an untimed Wonderlic test were required to have raw scores of
at least 21, which the four students identified in the FPRD
did not achieve. However, three of the four students retook
the test and obtained satisfactory scores. SFAP seeks $1700
repayment for one of the students who did not make a passing
score on the entrance examination. Also, the student
purportedly graduated from high school in Cuba. Respondent
failed to show that graduation from a high school in Cuba can
be accepted under the regulations as the equivalent of a high
school diploma issued by a state-approved institution. I
uphold Finding No. 4.

Finding 5: Incorrect Pro-rate Refund

Respondent does not question the amount of refund owed under
this finding, but states that the interest and special
allowance is extreme. However, SFAP requests that this

tribunal affirm the calculated liability of $16,950 and take
into consideration both the actual loan rates at issue and the
lengthy time since the refund became due on June 1990. (See
page 5 of the 10/18/93 FPRD.) I uphold Finding No. 5.

Finding 6: Ability to Benefit (ATB) Test Answers Changed

Under this finding, the Respondent bears the burden of proving
that the questioned Title IV expenditures were proper.
White-out was used in conjunction with marginally passing
scores. This creates a presumption of irregularity. SFAP
points out that even though other test score sheets are not at
issue in this proceeding, a department witness identified
numerous other instances of changed answers and that the
cumulative effect of these altered scores was to convert a
failing test into a passing test. According to SFAP, the
Respondent could have adopted different screening procedures
and directly admitted students that were high school graduates
without requiring an ability-to-benefit test. However, the
school did not do so. The admission test was the basis for
admitting students. SFAP thus says that HEA funds improperly
were disbursed to students with failing scores and such funds
should be repaid to ED. Therefore, SFAP asks this tribunal to
affirm the liability for finding 6 of $6,933 of Federal Pell
Grant funds and $4,927 of Federal Family Education Loans. I
uphold Finding No. 6.

Finding 7: Federal Pell Grant Overpayment

SFAP notes that the FPRD identified an overpayment of $383 in
Federal Pell Grants. Respondent does not appear to challenge
its liability for this finding in its appeal, but says its
servicer is responsible for this miscalculation. Respondent
also asserts that

Docket No. 94-1-SP

it is currently subject to administrative offset, apparently
proffering this as the explanation of why the funds need not
be repaid. SFAP properly seeks repayment of $383 in Federal
Pell Grants. I uphold Finding No. 7.

Finding 10: Improper Grant Disbursement

SFAP points out that Respondent improperly disbursed a
Supplemental Educational Opportunity Grant (SEOG) in the
amount of $374 to a student after her last recorded date of
attendance. Respondent apparently acknowledges the liability
and makes reference to the current administrative offset
proceeding as an explanation of why these funds have not been
repaid. SFAP asks that the SEOG of $374 be repaid. I uphold
Finding No. 10.

    On the basis of the record before me, the disputed FPRD
findings are affirmed.

    By Paul S. Cross, Administrative Law Judge on the 26th of