In the Matter of RICE COLLEGE, Birmingham,
Docket No. 94-142-ST
Student Financial Assistance Proceeding
Rice College (Rice) of Birmingham, Alabama, is an eligible institution of higher education. It
participates in the various student financial assistance programs authorized under Title IV of the
Higher Education Act of 1965, as amended (Title IV). Such programs are administered by the
Office of Student Financial Assistance Programs (SFAP), U.S. Department of Education (ED).
Rice failed to file the required audited financial statements for the period ending on December 31,
1993. SFAP made numerous requests to Rice to comply with that requirement, however, Rice
provided only unaudited financial statements. As a result of Rice's continued failure to provide
audited financial statements, on August 23, 1994, SFAP issued a notice of intent to terminate
Rice's participation in the Title IV programs for this violation which constituted a failure to meet
the requirements of financial responsibility found at 34 C.F.R. § 668.13. In addition, SFAP
proposed a fine of $15,000.
Rice filed a timely appeal requesting an administrative hearing and enclosing the audited financial
statements in question. SFAP's review of those statements revealed that Rice failed to satisfy the
requirements of financial responsibility because: it had a negative net worth, it had an acid ratio of
assets to liabilities of less than one-to-one, and it had two consecutive years of operating losses.
See, 20 U.S.C. § 1099c(c)(2) and 34 C.F.R. § 668.13(c).
In its defense, Rice points out that it has closed and that it has taught-out its students. It argues
that although submitted late, the audited financial statements were eventually submitted and that,
in the interim, Rice had provided SFAP with unaudited financial statements for their information.
On these facts, Rice argues that the termination action is moot and that a $15,000 fine is
The procedures for initiating the termination of eligibility of an institution to participate in the
Title IV, HEA programs are set forth in Subpart G, 34 C.F.R. § 668.81 et seq. During any such
proceeding, ED has the burden of proof and persuasion. See, 34 C.F.R. § 668.88(c)(2). The
Secretary may terminate or limit the eligibility of an institution to participate in any or all Title IV,
HEA programs, if the institution violates any provision of Title IV or any regulation or agreement
implementing it. See, 34 C.F.R. § 668.86(a).
I find that SFAP has met its burden of establishing that Rice was not financially responsible and
that it failed to timely file the audited financial statements, due on December 31, 1993, which are
required by 34 C.F.R. § 668.13 (e). As a consequence, I find that termination of Rice's eligibility
to participate in Title IV programs is warranted.
Further, I find that this termination action is not moot. At first blush, this case appears to fall
clearly within that category as established by the Secretary in Bliss College, Docket No.
93-15-ST, U.S. Dep't of Educ. (February 23, 1994). However, in a number of subsequent cases,
the Secretary has modified his position on this issue. Indeed, he has reversed decisions by hearing
officials which dismissed as moot termination actions against closed schools in the same corporate
family and under circumstances quite similar to Bliss. See, In re Fischer Technical Institute,
Docket No. 92-141-ST; In re Draughan Business College, Docket No. 92-94-ST; In re Spencer
College, Docket No. 93-27-ST; and In re Pikeville Beauty College, Docket No. 94-36-ST.
Although the concerns raised by the Secretary in those cases are clearly not present in this case, I
must conclude that the Bliss decision has been effectively overruled and cannot be applied here.
In addition to the proposed termination of eligibility, SFAP seeks a fine of $15,000. In Puerto
Rico Technology and Beauty College. and Lamec. Inc., Docket No. 90-34-ST, U.S. Dept. of
Educ. (June 11, 1993), the Secretary iterated the statutory and regulatory requirement that in
setting an appropriate fine, one must take into account the gravity of the violations as mitigated
by the size of the institution. No doubt, Rice erred in not submitting its audited financial
statements in a timely manner; they were, however, eventually submitted. My review of the record indicates that this case should be viewed as one where a business failed because of market
conditions, not as one caused by wrongdoing. Therefore, I believe no fine is appropriate.
On the basis of the foregoing, it is hereby ORDERED that the eligibility of Rice College,
Birmingham, to participate in the student financial assistance programs under Title IV of the
Higher Education Act of 1965, as amended, be terminated.
Judge Ernest C. Canellos
Issued: April 6, 1995