IN THE MATTER OF KANE Docket No. 94-70-SP
BUSINESS INSTITUTE, Student Financial
Respondent. Assistance Proceeding
Kathleen Kane, Esq.
, for Kane Business
Cathy L. Grimes-Miller, Esq.
, Office of the General Counsel,
for the Office of Student Financial Assistance Programs, United States
Department of Education.
Before: Judge Richard F. O'Hair
The Institutional Review Branch (Region I) of SFAP conducted a program review of Kane on January 10-15, 1993, for award years 1991-92 and 1992-93, and this review included a sampling of 38 student files. A final program review determination (FPRD) was issued on February 4, 1994, and it contained 10 findings of noncompliance by Kane with federal regulations governing the use of Title IV funds. Four of the findings (findings number 3, 4, 6, and 10) resulted in Kane being ordered to pay $2,992 to EDSee footnote 1 1 and $2,626 to the current holders of
Stafford loans.See footnote 2
Kane appealed only findings number 4 and 6 to this tribunal, and only those two findings
will be addressed herein. Both parties presented briefs and exhibits in support of their
respective positions on those findings.
FINDING NUMBER 4
Finding number 4 contained two subparts. In the first, the FPRD
found that Kane
misspent $327 by failing to use a pro rata refund calculation for two students who had
withdrawn from the Kane program. On appeal, ED determined that the method used by Kane to
the refunds was acceptable and withdrew the request that $327 be refunded to the student
financial aid program.
The second subpart of finding number 4 alleged that Kane had
improperly disbursed a
second payment of $1,000 in Pell Grant funds to student number 24, a full-time student, prior to
that student having reached the midpoint of the term. For this violation ED has requested Kane
to refund $1,000.
On November 3, 1992, a second Pell Grant payment in the amount
of $1,000 was
disbursed to student number 24. As of that date, the student had attended 270 hours of classes
and had accrued 78 hours of excused absences, for a completion of 348 hours of the 750 hour
course. The student later withdrew from the program, and the last day of attendance was on
November 17, 1992.
According to Kane's attendance policy, a student could be excused
from 20% of the
instructional hours. To justify this second disbursement Kane combined: 1) the number of hours
attended as of the last day of attendance, November 17, (294 hours) and, 2) 91 hours of excused
absence, the maximum number of excused absence hours permitted for each student (20% of the
456 hours that had been offered as of the last date of attendance). Kane argued that the sum of
the hours attended and hours of excused absence provided a total attendance of 385 hours.
this procedure, Kane contended that the student had completed more than half the 750 hour
program at the time of withdrawal and, therefore, was entitled to the second disbursement.
Kane uses a system of clock hours, rather than academic terms, for its educational program. Because its program is less than an academic year (less than 900 hours), its payment
period for Pell funds for a student should be as follows --
(i) The first payment period must be the period of time [in] which
completes the first half of his or her educational program (in credit or clock hours);
(ii) The second payment period must be the period of time in which the student completes the second half of his or her educational program.
34 C.F.R. § 690.3(b)(3).
The amount of the student's Pell Grant payment is not in dispute
here; only its timing is in
dispute. SFAP maintains that Kane was premature in its second disbursement and I agree. The
regulations clearly delineate the appropriate determination of the two payment periods. The
second of two payments cannot be disbursed until at least half of the program has been
completed. In this instance, the institution could properly combine the hours of excused
with the hours of attendance to identify the point at which the student had completed the first
of the program (375 hours), thus becoming eligible for the second Pell Grant payment.
the number of excused absence hours is not unlimited; it cannot exceed the lesser of the amount
credited to the student or the maximum number allowed by the institution.
Kane permitted its students to have no more than 20% excused
absences. Since this was a
750 hour program, student number 24 could accrue up to 150 hours (20% of 750) of excused
absences and have this amount added to the number of hours of actual attendance to compute the
mid-point of completion. At the time of payment, however, student number 24 was credited with
only 78 hours of excused absences. This figure, combined with the 270 hours of attendance,
indicates the student had completed only 348 hours. Therefore, the student had not completed
half of the program as of the November 3rd disbursement date and was not eligible for the
Pell Grant disbursement. Accordingly, Kane must repay $1,000 to ED.
In Finding 6, SFAP alleges that Kane disbursed $2,626 in Stafford
Loan funds to two
students at a time when both were on a leave of absence from the institution. SFAP maintains
that these students were not eligible to receive these funds while in that status and argues that
Kane must repay that amount to the current holders of those Stafford loans. Also, Kane must
repay ED interest and special allowances of $390.
According to the FPRD, student number 1 was on a leave of absence from January 28 - June 22, 1992, and on February 12 Kane credited $1313 in Stafford funds to this student's account. Student number 11 was on a leave of absence from October 28 - December 9, 1991,
and Kane credited that student's account with $1313 in Stafford funds on December 4. To justify
these payments, Kane refers to several provisions of the regulations in effect at that time: 34
C.F.R. §§ 682.604(b); 682.201(a); and 682.605(c). The school believes that these
support its position that a student on a leave of absence was considered to be enrolled in the
school and was therefore eligible to have loan proceeds credited to his or her account. In
December, 1992, the governing regulation, 34 C.F.R. § 682.604, was amended, and all
now agree that, without question, "[a] school may not credit a student's account or release
proceeds of a loan to a student who is on a leave of absence...." 34 C.F.R. §
Kane argues that at the time of the two disbursements in question,
the regulations did not
explicitly prohibit a school from crediting a student's account with a guaranteed student loan
the student was in a leave of absence status. One might argue that common sense would dictate
that the opposite result should prevail, that a student who is not attending classes because of
having been granted a leave of absence should not be receiving funds from, or become obligated
for, a student loan. Nonetheless, apparently this area of the regulations was sufficiently
ambiguous that it was the subject of a Comment in the Appendix of the November 10, 1986,
Federal Register which promulgated the final rules for 34 C.F.R. Parts 682 and 683. 51 Fed.
40,886, 40,946 (1986). The Appendix contains a response to one of the comments regarding
students in a leave of absence status. There the writer clearly states that a school may not release
a loan check to a student's account when the student has been granted a leave of absence.
Kane's justification for crediting the student's account is premised
on the fact that the
students were in a proper leave of absence status at the time of the fund transfers. In this regard,
the FPRD and the Program Review Report (PRR) assert that these two students were not in a
proper leave of absence status because of Kane's failure to comply with the provision of the
regulations that addresses leaves of absence. The regulation permits a school to approve a leave
of absence if the request is submitted in writing and is for no more than 60 days, with the
exception that a leave of absence may be extended to no more than 6 months if supported by a
physician's statement. 34 C.F.R. § 682.605(c).See footnote 3
In this instance, the PRR charges that neither student's leave of absence was accompanied
by a written request from the student and the FPRD
states that student number 1's leave of absence was for more than the allowable 60 days.See footnote 4
Kane has not rebutted any of these findings. Since neither leave of absence was properly
both students should have been considered to have withdrawn as of the first day of their absence.
34 C.F.R. § 682.605(b).
Accordingly, the interpretation Kane gave to the regulation that
addresses whether or not
a student in a leave of absence status is an eligible recipient of a Stafford loan is irrelevant
the students could not be placed in a leave of absence status as a result of Kane's noncompliance
with the applicable regulatory provisions. The students should have been considered withdrawn
from Kane and, thus, ineligible for the loan payments. Therefore, Kane is liable to the lenders
$2626 in improperly disbursed Stafford loans and indebted to ED for $390 for interest and
I find the following:
Kane improperly disbursed a second
Pell Grant payment of $1,000
to student number 24 prior to that student having completed one-
half of the program.
Kane improperly credited the
accounts of students number 1 and 11
with $1,313 each at a time when they were improperly maintained
on the school's attendance rolls as being in a leave of absence
Based on the foregoing, it is hereby--
ORDERED, that Kane repay $1,390
to the applicable Title IV
program account and $2,626 to the current holders of the Stafford
Richard F. O'Hair
Issued: October 21, 1994
S E R V I C E
A copy of the attached initial
decision was sent by CERTIFIED MAIL, RETURN RECEIPT REQUESTED to the
Kathleen Kane, Esq.
2401 Pennsylvania Ave.
Philadelphia, PA 19130
Cathy L. Grimes-Miller, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110