UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
In the Matter
UNIVERSITY, Student Financial
Appearances: Leslie H. Wiesenfelder, Esq., Dow, Lohnes &
Albertson, Washington, D.C., for Fisk University.
Ronald B. Sann, Esq., Office of the
General Counsel, United States Department
of Education, Washington, D.C., for Student Financial Assistance Programs.
Before: Judge Richard F. O'Hair
IV financial aid.See footnote 1
Institutions that participate in Title IV programs may be obligated
to require student
applicants for Title IV aid to verify specified U.S. income tax data contained in their
applications, such as adjusted gross income, family size, and marital status, among others. This
verification must be performed when either the Secretary of Education exercises his prerogative
to direct that random student files be verified, or because a student application contains
incorrect, missing, illogical, or inconsistent information. 34 C.F.R. §§ 668.54,
§ 668.58(a)(1), an institution may not disburse Title IV funds to a student until the verification is complete. This verification requirement, however, was limited by § 484(f) of the HEA (20 U.S.C. § 1091(f)), which stated as follows:
Notwithstanding any other provision of law, the Secretary may not
prescribe regulations that require, institutions to verify the accuracy of data used
to determine the eligibility for any program under this subchapter and part C of
subchapter I of chapter 34 of Title 42 for more than 30 percent of the applicants in
any award year. In carrying out the provisions of this subsection no eligible
institution shall be required to verify more than 30 percent of such applicants in
any award year.
In the present case, the March 1992 program review found that Fisk
failed to complete
verification for seven students out of a sample of 25 students who had been selected for
verification by the Secretary. As a result, the program review required Fisk to review the files of
all Title IV aid recipients who were selected for verification for the 1989-90, 1990-91, and 1991-
92 award yearsSee footnote 2
2 to ascertain the full extent of either incomplete verification or the absence of verification.
The school was then required to attempt to resolve all verification discrepancies.
The program review warned that in cases where verification results in a change to a student's
Pell Grant index, scheduled award, and expected disbursement, Fisk would be liable for the
difference between the correct disbursement and the actual disbursement. The school would also
be liable for the disbursement of Title IV funds in cases where the verification process cannot be
Over the next two years, the school and ED exchanged numerous letters, as the school attempted to comply with the requirements of the program review. Not until May 1994 did Fisk claim that it had already verified more than 30 percent of its Title IV aid applicants for the award years in issue. Then, in May 1994, Fisk raised for the first time the argument that it should not be required to conduct the full file review because the Secretary was prohibited from ordering a
verification of more than 30% of its student files. In the letter, the school acknowledged that
during the program review, its files did not contain the information necessary to identify which
students it had not verified because of its reliance on the 30% statutory limitation. In response to
the program review, Fisk submitted a list of all students who had been selected for verification
but for whom verification had not been completed (Appendix E) and a list of students for whom
verification resulted in an award change (Appendix F). Based upon these submissions, the
FPRD determined that Fisk was liable for $248,469 in Title IV funds disbursed to the students
listed in Appendixes E and F, $10,471 in funds disbursed to two students out of the original
seven identified by the program review, and $49,816 in interest and special allowance (ISA)
SFAP contends that this tribunal owes deference to SFAP's position
in this proceeding
that Fisk may not raise the 30% "verification option" as a defense because Fisk was required to
"elect" the 30% verification "option" at the time of the program review. In support of its
deference argument, SFAP cites Chevron U.S.A. Inc. v. Natural Resources Defense Council,
Inc., 467 U.S. 837 (1984). I do not agree that Chevron requires deference to SFAP's
position on this issue. In Chevron, the Supreme Court required federal courts to defer to
the agency's position if it is reasonable, but it did not require administrative tribunals within an
defer to the position of another component of that agency. As Judge Cross stated in In re
Technical Career Institute, Dkt. No. 92-91-ST, U.S. Dep't of Educ. (Oct. 8, 1993),
"Chevron deference is owed to the Secretary. In this proceeding [SFAP] is an advocate
for its position and
does not speak for or stand in the shoes of the Secretary and therefore is not entitled to clothe
itself in the mantle of Chevron deference." Id. at 24. This decision was certified
by the Secretary on November 23, 1994. Moreover, SFAP's citation to In re Garces
Commercial College, Dkt. No. 92-23-SP, U.S. Dep't of Educ. (Nov. 25, 1992) and to 52 Fed.
Reg. 30114 is inapposite because neither that case nor the Federal Register notice protect SFAP's
if it is contrary to the plain meaning of the statute.
Here, SFAP's interpretation is contrary to the plain meaning of the statute. Fisk was not required to "elect" the 30% verification "option" at the time of the program review because this is not an "option" at all, but a statutory limitation on ED. The statute is very clear that notwithstanding any other provision of law, ED may not require an institution to verify more than 30% of its Title IV applicants in any given year.See footnote 3 3 Nonetheless, the school must be able to prove that it verified at least 30% of these students, and that it did so during the 1989-90 to 1991-92 award years, before it disbursed Title IV funds to these students. Otherwise, the school is liable for these funds under 34 C.F.R. § 668.58(a)(1). The program reviewers were not
satisfied that Fisk had done so. Moreover, under § 668.116(d), Fisk has the burden of
this issue. To the extent that Fisk argues that it should not be required to demonstrate to the
Department which 30% of its students had been verified because this is somehow a
"modification" of the statute, I disagree. The statute may prohibit ED from requiring Fisk to
verify more than 30% of its Title IV applicants, but in this Subpart H proceeding, Fisk still must
prove that it complied with the statute by demonstrating that it actually verified at least 30% of
its Title IV applicants. The fact that the school did not claim that it had already verified more
than 30% of its Title IV applicants until 1994, more than two years after the program review, and
after it had undertaken the file review requested by the program reviewers, certainly weakens the
school's argument that it verified these students back in 1989-91.
In support of its claim that it verified more than 30% of its Title IV
aid applicants during
the award years in issue, Fisk has submitted the affidavit of Linda N. Ellison, the Chief Financial
Officer of Fisk University. In her affidavit, Ms. Ellison states that "Fisk University in fact
verified more than 30 percent of the financial aid applicants in each of the award years covered
by the Review Period." She also states that "[t]he documentation supporting the verification of
these students was forwarded to Region IV during the program review and is hereby
incorporated by reference." Fisk submitted these documents as its exhibits 8 and 9 concurrently
with its reply brief. These exhibits contain various worksheets and other documentation
demonstrating verification for Fisk students during the 1989-90 and 1990-91 award years. With
its reply brief, Fisk attached Schedules 1 and 2, which listed the relevant pages in Exhibits 8 and
9 for each student (these schedules also included the students identified in Appendix F to the
FPRD, which was a listing of students for whom Fisk had completed verification and for whom
verification had resulted in an award change). According to Ms. Ellison's affidavit, Schedule 1
lists 196 students and the relevant portions of Exhibit 8 demonstrating that verification was
completed for 30.15% of the 650 students who applied for and received Title IV aid during the
1989-90 award year. Schedule 2 lists 194 students and the relevant portions of Exhibit 9
demonstrating that verification was completed for 30.27% of the 641 students who applied for
and received Title IV aid during the 1990-91 award year.
SFAP claims that 14 of the students listed in Respondent's exhibits
8 and 9 were not in
fact verified. For the reasons discussed in Fisk's sur-reply brief, I agree with Fisk that SFAP
cannot at this time reverse the finding of the FPRD that six of these students had been verified.
Having reviewed the evidence as to the 14 students in question, I find that they were in fact
verified during the award years in question.
In conclusion, I find that Fisk has satisfied its burden of proving
that it verified at least
30% of its Title IV applicants during the award years in question. Under 20 U.S.C. §
ED cannot require Fisk to verify more than 30% of its Title IV applicants. As a result, Fisk was
not required to verify all of its Title IV applicants, and thus has no liability for its
failure to verify the students listed on Appendix E.
Fisk has accepted liability, however, for the students listed in Appendix F for whom
verification resulted in a change of award. The amounts of these overawards total $28,539 in
Pell grants, $17,394 in Federal Family Education Loans (FFELP) loans, $2,326 in Supplemental
Educational Opportunity Grant (FSEOG) funds, $2,643 in Federal Work Study grants, and
$3,489 in Federal Perkins Loan funds.
As for the $28,539 in Pell Grant overawards to certain students
identified in Appendix F,
the school contends that its liabilities for these overawards should be offset by the Pell Grant
underawards to other students identified in Appendix F. Nonetheless, the statute cited by Fisk
does not support this. 20 U.S.C. § 1094(c)(7) plainly states that institutions shall be
offset "grants or other assistance provided by an institution" [emphasis added] against any sums
determined pursuant to an audit to be owed by that institution. Here, the "underawards" claimed
by Fisk represent amounts that it could have awarded to students, but did not. Since these
amounts were never provided to students, Fisk is not entitled to offset them under 20 U.S.C.
Fisk also argues that the estimated actual loss formula should be
applied to the $17,394 in
FFELP loans listed in Appendix F in order to limit the school's liability. Under that formula, an
institution's liability is determined by multiplying the total amount of ineligible loans by the
institution's cohort default rate. SFAP opposes the use of the estimated actual loss formula in
This tribunal has previously held that application of an institution's
cohort default rate to
each year's ineligible loans is an appropriate manner in which to determine the actual loss to
SFAP. For example, in In re Empire Technical Schools, Dkt. No. 92-11-SP, U.S. Dep't
of Educ. (April 24, 1995), this tribunal stated:
[W]hen an institution fails to submit a full file review in response
to a program
review, SFAP may be entitled to recover all Title IV funds disbursed to that
institution during the time period covered by the program review, but only if the
school has not provided relevant data with which to measure the actual loss to
SFAP. Nonetheless, that data must be accurate and reliable.
Empire at 3.
Numerous additional cases have upheld the usage of the actual loss formula. See In re Monmouth County Vocational School District, Dkt. No. 94-144-SP, U.S. Dep't of Educ. (April 21, 1995), at 2. See also In re Commercial Training Services, Inc., Dkt. No. 92-128-SP, U.S. Dep't of Educ. (Aug. 4, 1993), at 6-7; In re Southeastern University, Dkt. No. 93-61-SA, U.S. Dep't of Educ. (June 22, 1994), at 2; In re Berk Trade and Business School, Dkt. No. 93-170-SP, U.S. Dep't of Educ. (June 27, 1994), at 4-5; In re Calvinade Beauty Academy, Dkt. No. 93-151- SA, U.S. Dep't of Educ. (March 21, 1995). More recently, this tribunal not only has held that SFAP can use the actual loss formula as a fair and accurate assessment of liability, but also has required its usage even when SFAP opposed its application. In In re Nettleton Junior College,
Dkt. No. 93-29-SP, U.S. Dep't of Educ. (June 8, 1994), the school requested that its liability be
determined using the actual loss formula. SFAP refused and argued that SFAP could select the
method of repayment. The judge held that the school was entitled to have its liability determined
according to the actual loss formula and this decision was certified by the Secretary on February
28, 1995. A very recent decision also mandated usage of the actual loss formula to reduce the
school's liability. In re Muscular Therapy Institute, Dkt. No. 94-79-SP, U.S. Dep't of
Educ. (July 14, 1995), at 5-6. Therefore, in the case before me, I reject SFAP's attempts to
characterize the actual loss formula, which SFAP itself developed and which has been applied in
other cases, as somehow being unfair to SFAP.
Nonetheless, due to the relatively small amount and clearly
identifiable nature of the
FFELP loans at issue in this case, I do not find it necessary to apply the estimated actual loss
formula here. In other cases where the loan amounts were relatively small and the students were
specifically identified, the school has been required to repurchase those loans from the holders.
See In the Matter of Empire Technical School, Dkt. No. 91-53-SP, U.S. Dep't of Educ.
(Dec. 13, 1993), at 54-55; In the Matter of Rice College, Dkt. No. 91-102-SA, U.S. Dep't
of Educ. (Dec. 29, 1993), at 31-32. In those cases, the school was also required to contact the
agencies to determine the total amount of interest and special allowances paid by ED for
ineligible loans, and repay those amounts to ED. Therefore, Fisk should identify and repurchase
from the holders the $17,394 in FFELP loans for the students listed in Appendix F. Fisk also
should contact the appropriate agencies, determine the total amount of interest and special
allowances paid by ED on those loans, and repay these amounts to ED.
In conclusion, Fisk must repay $28,539 in Pell Grant overawards,
$2,326 in FSEOG
overawards, and $2,643 in Federal Work Study overawards. Fisk also must repay $17,394 in
FFELP loan overawards, contact the appropriate agencies to determine the total amount of
interest and special allowances paid by ED on those loans, and repay these amounts to ED. Fisk
also must deposit $3,489 into its Federal Perkins Loan Fund.See footnote 4
2. Fisk is not entitled to offset Pell Grant underawards that were
never provided to
students against overawards.
3. The actual loss formula should not be applied here to reduce
Judge Richard F. O'Hair
Dated: October 5, 1995
On October 5, 1995, a copy of the attached initial decision was sent by certified mail, return
receipt requested to the following:
Leslie H. Wiesenfelder, Esq.
Dow, Lohnes & Albertson
1255 Twenty-Third St., N.W.
Washington, D.C. 20037-1194
Ronald B. Sann, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110