UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
IN THE MATTER OF
Dkt No. 94-109-SP
AMERICAN EDUCATION Student Financial
CENTER, INC., Assistance Proceeding
Appearances: Harry M. Moss, President, of American Education Center, Inc., of Huntington Woods, MI, for American Education Center.
L. Woodward, Esq., Office of the General Counsel, of the United
Department of Education, Washington, D.C., for the Office of
Student Financial Assistance
Before: Judge Richard I. Slippen
American Education Center, Inc. (AEC) is a private, coeducational vocational school offering
certificates in the field of travel consulting that began operating in 1973 and is accredited by the
National Association of Trade and Technical Schools . AEC is an eligible institution for
of participation in the student financial assistance programs authorized under Title IV of the
Higher Education Act of 1965, as amended, (Title IV). 20 U.S.C. § 1070 et seq. AEC
first obtained Title IV funding beginning in the 1988 school year.
From April 29-May 3, 1991, Institutional Review Specialists from the U.S. Department of
Education's (ED) Office of Student Financial Assistance Programs (SFAP), Region V, conducted
a program review of AEC's Title IV compliance for the award years 1989-1990 and 1990-1991.
A program review report was issued on November 21, 1991, that contained twenty-three adverse
findings. SFAP subsequently issued a Final Program Review Determination (FPRD) on May 27,
1994, affirming each of the adverse findings and noting that AEC had satisfactorily resolved
thirteen of the initial findings. For these findings, ED sought repayment of $501,788.13.See footnote 1
AEC timely appealed these findings.
AEC's contested liability was originally $501,738.13, however that amount was reduced
significantly through SFAP's acceptance of AEC evidence which has substantially satisfied the
findings at issue, in some cases fully resolving the finding. SFAP's Reply Brief, filed November
16, 1994, reviews the claim on a finding-by-finding basis, and breaks out AEC's total liability as
$90,691.62. That sum corresponds to $80,871 due on Title IV Loans and $9820.62 due for
interest and special allowance. See Reply at 15. The present action comes before this tribunal as
an appeal of the FPRD issued on May 27, 1994. This action is governed by 34 C.F.R.
§668.116(d) and, therefore, AEC has the burden of showing the following: (1) that the
questioned expenditures of federal student financial assistance funds were proper; and (2) that
institution complied with Title IV program requirements.
Finding 2- Federal Family
Education Loan (FFEL) Refunds
Not Made or Untimely Made.
SFAP makes a strictly regulatory argument in support of this finding based upon the
requirements of 34 C.F.R. § 682.606. Under that provision, SFAP accurately asserts that a
school's eligibility is contingent upon its establishment of a "fair and equitable refund
under which the school shall make a refund of unearned tuition, fees, room and board."
additionally argues that AEC violated § 682.607 in failing to operate an acceptable refund
program to ensure that withdrawn students were timely reimbursed.
In response, AEC attempts to shield itself from liability by hiding behind the alleged
incompetency of its financial aid officer. In its defense, AEC states that once the delinquent
and/or unprocessed refunds were recognized, the school moved swiftly to remedy this
violation. Therefore, AEC asserts that it should be spared the liability for the interest and
assessed in the amount of $781.20.
The requirements of § § 682.606 and 682.607 have been thoroughly examined. In
the Matter of Branell Institute, Dkt. 93-157-SA, U.S. Dep't of Educ. (July 22, 1994). In that
matter, this tribunal held that subsequent correction of an error found as a result of an ED audit
determination, does not release the institution from liability absent authenticated records of
payment.See footnote 2
While AEC blames its financial aid officer for mismanagement of the funds,See footnote 3
it is a well settled legal principle that an employer is vicariously liable for the acts of his/her
committed when the employee is acting within the scope of his/her employment. See, e.g.. Moy
v. Adelphi Institute, Inc. 866 F. Supp. 696, 700 (E.D.N.Y. 1994). Liability must attach to AEC
through the actions of its financial aid officer. Therefore, I find that AEC is liable for
Finding 3- Failure To Comply with the
Delayed Disbursement Requirement.
SFAP charges AEC, pursuant to §682.603(c), with the additional responsibility of
disbursement of a Guaranteed or Supplemental Student Loan for at least thirty days into the start
of the borrower's program. SFAP asserts that its program reviewers found nine violations of this
mandate and AEC's subsequent full file review, in accordance with the FPRD, uncovered an
additional five violations of this regulation. SFAP argues that one student out of the fourteen
actually withdrew after receiving her check prior to the thirty day waiting period. SFAP,
therefore, assesses AEC a liability in the amount of $ 125.00.
AEC chooses not to dispute the material allegation, except to argue that its default rating was not
as high as SFAP indicated. AEC, again argues that it was just following the direction provided
by its Financial Aid Administrator and therefore should not be liable for her incompetency.
argues and includes documentation to demonstrate that it repaid the outstanding amount of
$602.50, but fails to address its non-payment of the $ 125.00.
AEC does not refute that it violated ED's mandate pursuant to section 682.603(c) (1991, 1992).
The tribunal finds, therefore, that AEC has not carried its burden of proof to show that the
institution complied with a Title IV program requirement and finds AEC is liable in the amount
of $125.00. AEC again attempts to excuse its noncompliance stating that it was following the
direction of its Financial Aid Administrator. As discussed, supra, this argument is not
Finding 4- Failure to Comply with the
Reduced Annual SLS Amount Limit.
20 U.S.C. § 1078-1(b)(1) establishes limitations on the amounts of loans to students. The
states that a student who has not previously completed one or two years in a program of
undergraduate education and is enrolled in a program "whose length is less than 2/3, but at
1/3 of an academic year" may borrow a maximum amount of $ 1500.00. See 20 U.S.C.
§ 1078-1 (b)(1)(B) (1990). In the present matter, SFAP points to two AEC students who
were awarded an
amount in excess of the $1,500.00 limit. SFAP argues that this overaward constitutes a violation
of Title IV and that AEC is liable to the current holders of the SLSs in the amount of $ 2,185.00.
AEC's argument that it made a mistake and that these loans are being repaid by the individual
students is not persuasive. AEC provided the tribunal no evidence to support its argument that
this mistake allows them to escape liability. Additionally, AEC fails to substantiate its assertion
that the loans are currently being repaid by the individual borrowers. AEC has again failed to
carry its burden to present a compelling showing that it followed the procedures for
of federal student financial assistance funds as outlined in the HEA. See, e.g. In the Matter of
Pan American School, Inc., Dkt. No. 92-118-SP, U.S. Dep't of Educ. at 4 (Oct. 18, 1994)
(stating "[t]he institution's failure of proof in this regard is a fatal defect to its
(certified on July 25, 1995) . AEC, therefore, is liable for the balance of these improperly
disbursed loans totaling $ 2,185.00.
Finding 7- Lack of Independent
SFAP argues that AEC failed to verify the independent status of three students to whom the
school disbursed Stafford Loans in the amount of $ 2,552.28 and SLSs in the amount of
$1,772.00. SFAP notes that 20 U.S.C. sections 1070a-6(D) and 1087vv(d) require a Financial
Aid Administrator to "certify an individual [as independent] . . .on the basis of a
made by the individual, but no disbursal of an award may be made without
documentation."See footnote 4
SFAP argues that AEC is responsible for the interest and special allowance that ED paid to
lenders of the three improperly disbursed Stafford Loans. AEC's failure to use a system to
certify students resulted in loans to three undeserving students. Its renewed blame on its financial
aid officer has already been addressed. SFAP states that AEC remains liable for all the fees in
connection with these disbursements.
AEC is ultimately responsible for these loans as a fiduciary of federal student financial
funds. As stated In the Matter of Monmouth County Vocational Sch. Dist., when a school signs
a program participation agreement pursuant to section 668.12 it undertakes "a fiduciary
responsibility to comply with the regulatory and statutory requirements of Title IV, HEA 20
U.S.C. § 1094." Dkt. No. 94-144-SP, U.S. Dep't. of Educ., at 3-4, (April 21, 1995).
tribunal, thus, finds that AEC's failure to comply with the applicable statute and regulations
governing the administration of Title IV funds resulted in an abdication of its fiduciary
obligations. See e.g., In the Matter of Maurice Charles Academy of Hairstyling, Dkt. No. 91-
18-ST at 14 (May 17, 1993)(finding violations of regulations demonstrates disregard of
institution's fiduciary obligations). AEC is liable for the improperly disbursed $ 2,252.28 in
Stafford Loans, $ 1,772.00 in SLSs and $717.14 in interest and special allowances for a total
liability of $4741.42.
Finding 8- Financial Aid Transcripts
Not Requested or Properly Completed.
SFAP argues that ten of the sample students' financial aid records reviewed did not contain the
Financial Aid Transcript (FAT) in violation of 34 C.F.R. §668.19. Furthermore, AEC's
review found that eight additional folders were missing the FAT. The regulation at §
See also, the general provisions on standards of administrative capability at 34 C.F.R. §
SFAP asserts that AEC's failure to obtain FATs for these students makes AEC liable for the
amount of student financial assistance disbursed to them. The erroneously disbursed amount
includes $27,526.00 in Stafford Loans, $10,822.00 in SLSs, and $8,322.38 in interest and
The purpose of requiring participating institutions to obtain a FAT is to determine whether the
amount of the current loan proceeds would cause the student to exceed the federal student loan
limits and whether the student previously defaulted on a student loan. See § 668.19; see
also Monmouth, supra, at 3, for its discussion of the FAT regulation. AEC does not dispute this
claim and, therefore, does not carry its burden to demonstrate that it complied with Title IV
program requirements. This tribunal, thus, assesses the liability to AEC at $46,670.38.
Finding 9- Incorrect Verification-Conflicting Documentation for each Student Participating in a Title IV Program.
SFAP argues that pursuant to 34 C.F.R. § 668.14, an institution must demonstrate through
the maintenance of student academic and financial records that it is capable of administering
student financial assistance funds. Furthermore, SFAP asserts that these records shall be
maintained so that the institution can issue a report to ED upon request. The FPRD cites AEC's
improperly kept records and notes that it failed to verify the financial aid applications of eight
students. SFAP contends that AEC's inability to submit the requested summary report showing
each student's verification of need for student financial assistance constitutes a violation of this
regulation. SFAP argues that this violation requires it to recover all Title IV funds disbursed by
AEC from July 1, 1989, through June 30, 1991. This liability would amount to $ 494,963.00.See footnote 5
AEC does not dispute that it did not immediately comply with the summary report called for in
the FPRD. AEC contends that it did not fully understand what ED was requesting and it was not
attempting to be uncooperative with the SFAP reviewers. Furthermore, AEC notes that it did
attempt to comply with a later in-house audit of its financial aid program. AEC argues that this
audit submitted to SFAP on August 4, 1994, demonstrated AEC's commitment to conduct a
"good faith effort" to fulfill its responsibility as a fiduciary of Title IV funds. In
details its past mismanagement and contends that it has taken steps to ensure future compliance
with Title IV program requirements.
SFAP initially argued for a full recovery of all Title IV funds issued to AEC from July 1, 1989,
through June 30, 1991, on an actual loss basis. However, SFAP revised its claim under this
finding as set forth in SFAP's Reply Brief of November 16, 1994, in which it makes a total claim
for $36,189. The revision is based on SFAP's conclusion that AEC's August 1994 file review,
as set forth in Exhibit 9 to AEC's response brief, fully resolves the loan liability, interest, and
special allowances which SFAP initially charged to AEC under this Finding. In SFAP's attempt
to credit AEC's file review, resolve any incorrect verification problems in this Finding, and
reduce the liability here, SFAP could not overlook nor could this tribunal, that AEC's own file
review provided no verification whatsoever for certain named students who received Title IV
funds. AEC's inability to locate any documentation for the named students means there is no
support for the award of funds. Each such award AEC is unable to account for is an institutional
liability under 34 C.F.R. § 668.116(d).
Under § 668.116(d), a recipient institution has the burden of proving (1) that expenditures
questioned or disallowed were proper and (2) that the institution complied with program
requirements. Using AEC's file review, inclusive of Appendices A & B, SFAP proceeded
to identify the student accounts by student number and the amounts from the "Aid Received, ($) of
Award" columns for each student as listed in AEC's Exhibit 9. SFAP stated that AEC was
unable to locate any documentation and it correlated that with its notation, "NO FILE FOUND,"
for the following students: Students #8 and #9 on page 2 of Appendix A; Student 1,. at 3;
Students #4, #5, and #7 at 4; Students #4--7, at 5; Student #7, at 6; Student #1, at 16; Student 4,
at 1 (sic) 17; and Student #7 on page 1 of Appendix B. Concerning the missing files, SFAP
asserted that AEC had the obligation to maintain (for 5 years) copies of records related to student
loans under 34 C.F.R. § 682.610 which it has failed to do for the above-identified
SFAP seeks to hold AEC liable for the actual losses for the student loans represented only by the
missing files. SFAP determined the full liability against AEC is the $36,189, which it identifies
as due and owing in its Reply Brief. I accept SFAP's calculations of the award amounts to be
correct, based on AEC's own records, and find that AEC has not met its burden to properly
account for Title IV funds under § 668.116(d). I find that AEC is liable for the revised
Finding 13- Lack of Documentation to Support Student's
Admission as Regular Students.
SFAP's Reply Brief, filed November 16, 1994, clarifies that this finding has been resolved based
on AEC's submissions.
For the enumerated Findings Nos. 2, 3, 4, 7, 8 and 9, AEC has failed to meet its burden of
proving that the questioned disbursements were proper or that it complied with program
requirements. § 668.116(d). The liabilities computed for each finding are
On the basis of the foregoing facts and conclusions of law, it is HEREBY ORDERED, that
American Education Center, Inc. pay to the United States Department of Education the sum of
$90,692.00See footnote 6
Richard I. Slippen
Dated: March 15, 1996 Administrative Judge
A copy of the attached initial decision was sent by certified mail, return receipt requested, to the
Harry A. Moss
American Education Center
26075 Woodward Avenue
Huntington Woods, MI 48070
Jennifer L. Woodward, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Room 5442, FOB-10
Washington, D.C. 20202-2110