Docket No. 94-23-ST
Student Financial Assistance Proceeding


    This case involves an Office of Student Financial
Assistance Program's (SFAP) complaint seeking to terminate
Michigan College of Beauty's (MCB) eligibility to participate
in the student financial assistance programs authorized by
Title IV of the Higher Education Act (HEA) of 1965, as
amended, 20 U.S.C. . 1070 et seq. ED Ex. A. SFAP initiated
this action against MCB for maintaining excessively high
cohort student loan default rates for the most recent five
fiscal years. ED Ex. A. MCB bears the burden of coming forward
with evidence of diligent implementation of Appendix D. 34
C.F.R. . 668.90(a)(3)(iii).

    The issue in this proceeding is whether MCB acted
diligently to implement the default reduction measures in 34
C.F.R. Part 668 Appendix D (Appendix D). 34 C.F.R. .

    Oral hearing on the complaint or letter notice was held
at Detroit, Michigan. Post hearing briefs were filed. Absent
such diligent implementation MCB must be terminated from all
Title IV programs, not just loan programs but Pell Grants as

    First, MCB offers a general statement made by its
independent auditor regarding the school's compliance with
student financial assistance regulations to serve as evidence
that it complied with Appendix D. However, an institution is
required to make an affirmative showing that it has taken
steps to put into effect the numerous and comprehensive
measures identified in Appendix D which are designed to
reduce defaults. The individual must commence these steps as
of the date it is first notified of its high default rate. 34
C.F.R. . 668.90(a)(3)(iii). A generalized statement by an
auditor that a school has taken the necessary steps is not
sufficient proof of the school's compliance with Appendix D
default reduction measures.

    MCB also argues that it produced other evidence
sufficient to meet this burden. In this regard MCB relies
upon the opinion testimony of one witness who admits that he
has no first hand knowledge of the school's actual
implementation of default reduction measures. Tr. at 57,

In addition, SFAP produces evidence to rebut this

opinion. SFAP submits a default review checklist and the
    testimony of a program reviewer. Tr. at 70 - 82; ED Ex . 6 . MCB argues
that the checklist supports a finding of substantial Appendix
D compliance. However, MCB' s claim to have diligently
implemented default reduction measures is belied by its
failure to take some of the Appendix D measures and by
unrefuted evidence of steadily rising default rates over a
five year period. Tr. at 30-31. Rather then decreasing, the
default rates increased from 53 percent to 76 percent. MCB
insists that it should be given credit for its alleged
voluntary withdrawal from the Federal Family Education Loan
(FFEL) programs. MCB approved its final loan a few months

before, in a separate ED action, the school was terminated
from further participation in loan programs. Unfortunately
this voluntary self-action by MCB is not a defense under
Department of Education rules. As noted, the sole issue is
weather the school sufficiently implemented default reduction
measures as to loans already in existence.

    MCB further contends that the socio-economic status of its
students should be considered. However, the fact that MCB might
have a high percentage of students who are "low income,
socio-economically deprived students," again, is not an issue
herein. The fact that two thirds or more of MCB students are
individuals from disadvantaged economic backgrounds can be
offered only as a seperate claim to the Secretary of Education
under ED rules. In making such a claim, the institution bears
the burden of proof and is required to submit very specific
evidence to support its position. 34 C.F.R. . 668.15 (g)(9). MCB had a
prior opportunity to raise this with the Secretary, but did
not do so. Tr. at 3637. It cannot now raise this as a defense
to the present action to terminate it from further
participation in all Title IV programs.

    I find that MCB maintained excessively high default rates
for the 1987 through 1991 fiscal years, in violation of 34
C.F.R. i 668.15(b)(1); MCB failed to diligently implement the
default reduction measures in Appendix D; and that MCB must be
terminated from further participation in the Title IV
programs, pursuant to 34 C.F.R . 668.90(a)(3)(iii). IT IS SO

Paul Cross

Dated: September 30, 1994