IN THE MATTER OF Muscular Therapy Institute,
Docket No. 94-79-SP
Student Financial Assistance Proceeding
Appearances: Leigh M. Manasevit, Esq., Brustein & Manasevit, of Washington,
D.C., for Muscular Therapy Institute.
Jennifer L. Woodward, Esq., Office of the General Counsel, Washington, D.C., for the Office of Student Financial Assistance Programs, United States Department of Education.
Before: Judge Ernest C. Canellos.
On February 18, 1994, the Office of Student Financial Assistance Programs (SFAP) of the United
States Department of Education (ED) issued a final program review determination (FPRD)
finding that for award years 1989-90 through 1991-92 Muscular Therapy Institute (MTI) disbursed
Federal student financial assistance funds in violation of Title IV of the Higher Education Act of
1965, as amended (Title IV), 20 U.S.C. § 1070 et seq. The FPRD requires MTI to repay the
holders of guaranteed student loans
See footnote 1 $2,246,070 and repay ED interest and special allowances and
Federal Pell Grant program liabilities totaling $150,507. Although the FPRD included eighteen
findings against the institution, MTI only challenges four of those findings in this proceeding.
See footnote 2
For the reasons stated below, I find that MTI failed to carry its burden of proof in this proceeding.
Specifically, the institution failed to comply with Title IV regulations which require an institution
measuring a student's academic progress in clock-hours to ensure that a student enrolled in the
institution's programs maintains half-time status.
MTI is a proprietary institution of higher education licensed and accredited to offer postsecondary
education programs within the Commonwealth of Massachusetts. According to MTI, the
institution offers a muscular therapy education program that trains its students in skills that could
ultimately assist individuals in recovery from injuries or in reduction in stress and muscular
tension. MTI argued, and there is substantial evidence in the record to support its argument, that
many of its graduates have been highly successful in achieving gainful employment as reflected in
the institution's low default rates on Title IV loans disbursed to MTI's students. However, the
gravamen of SFAP's allegation against the school does not involve the meritorious worth or quality
of the school's programs. Instead, SFAP argues that during the period at issue MTI was required
to operate as a clock-hour institution, yet it failed to comply with Title IV regulations requiring
institutions measuring student academic progress in clock-hours to ensure that a student enrolled
in the institution's programs be required to enroll in at least the minimum number of clock-hours
sufficient to enable the student to maintain half-time status. According to SFAP, for award years
1989-90 through 1991-92, none of MTI's students were enrolled in the muscular therapy program
on at least a half-time basis. As such, the students were ineligible for Title IV student financial
assistance pursuant to 34 C.F.R. §§ 682.200 and 690.2.
In its defense, MTI argues that the clock-hour regulations do not govern the school's participation
in Title IV programs. According to MTI, the institution actually measured its students' academic
progress in credit hours for Title IV purposes during the years at issue. In the alternative, MTI
argues that it complied with the appropriate regulations by ensuring that its students enrolled in at
least the minimum number of clock-hours sufficient to enable its students to maintain half-time
status through classroom course work and substantial field work.
See footnote 3
MTI claims that during the period at issue the pertinent regulations promulgated by the
Commonwealth of Massachusetts were somewhat ambiguous regarding whether an institution,
like itself, was required by state law to operate as a clock-hour institution. Not until July 1991 did
the institution, according to MTI, become aware that state law required it to operate as a clock-
See footnote 4 Notwithstanding its argument that the governing state law was ambiguous, MTI
concedes that the pertinent state law did, in fact, require the institution to operate as a clock-hour
See footnote 5 That being so, SFAP is clearly within its authority to apply the requirements
governing clock-hour institutions to MTI. Simply stated, for award years 1989-90 through 1991-
92, MTI was required to measure its educational programs in clock-hours, for Title IV purposes,
because the state in which the institution was licensed also required it to operate as a clock-hour
institution. See 34 C.F.R. § 600.2 and 600.3 (1990). Accordingly, I find that the clock-hour
regulations govern MTI's participation in Title IV programs during the period at issue.
As an alternative basis for supporting its expenditure of Title IV funds, MTI contends that it
complied with the clock-hour regulations by ensuring that its students enrolled in at least the
minimum number of clock-hours sufficient to enable its students to maintain half-time status
through classroom course work and substantial field work. Therefore, the issue before me is 's 500 clock-hour practice
massage sessions meet the definition of clock-hour and, consequently, may be used to measure a
student's academic progress for the purpose of determining whether a student was eligible to
receive Title IV financial assistance. The relevant provisions of Section 600.2 defines clock-hour as
a period of time consisting of 50 to 60 minute class, lecture, or recitation in a 60 minute period or
a 50 to 60 minute faculty-supervised laboratory, shop training, or internship in a 60 minute period.
MTI provided a 1200 clock-hour two-year muscular therapy program for which students attended
600 clock-hours in classroom instruction, performed 500 clock-hours in practice sessions, and
received 100 clock-hours in non-classroom instruction on massage treatments. To complete 500
clock-hours in massage practice sessions, students performed massage therapy on volunteers or
friends in the home of the student or another familiar location. Faculty were not present during
these practice sessions. SFAP argues that the fact that faculty were not present during the practice
sessions indicates that the sessions were not faculty-supervised as required by Section 600.2.
According to SFAP, after subtracting the alleged improper 500 clock-hour practice sessions from a
student's program, the remaining 700 clock-hours are insufficient to qualify MTI students for half-
time student status over the course of the two year program. In other words, SFAP argues that
MTI students were ineligible to receive Title IV funds because MTI's program only included 700
permissible clock-hours over the course of a 24 month program. See 34 C.F.R. &3167; 682.200 and
According to MTI, its students were eligible to receive Title IV funds because the 500 clock-hour
practice sessions were properly included as part of the muscular therapy program for measuring a
student's academic progress. In support of its position, MTI argues that its practice sessions meet
the definition of clock-hour under 34 C.F.R. § 600.2. In MTI's view, since the term faculty-
supervised was not defined in the regulation during the period at issue, the school should be
permitted to interpret that term in a manner appropriate for the type of program offered by the
school. According to MTI, it is standard practice in training programs aimed at developing a
student's therapeutic skills to permit the student to conduct practice sessions without the direct
supervision or intrusion of a faculty member. In this respect, according to MTI, students are
able to learn to develop client/practitioner relationships and establish candor in evaluating the
needs of their clients. As such, MTI does not require the presence of a faculty member or other
school personnel when a student is completing a practice session. Instead, students are supervised by requiring them to submit to the school client session practice forms, which
document that the session occurred and contains feedback on the student's performance from the
SFAP argues that MTI's interpretation of the term faculty-supervised contravenes the well-settled
view of regulatory interpretation that in the absence of a regulatory definition, the words of a
regulation are assumed to have their ordinary meaning. In this respect, SFAP argues that faculty-
supervised means that the training session must be conducted in the presence of a faculty
member. I am persuaded that the straightforward application of the plain meaning of the term
faculty-supervised comports with SFAP's reading of the term. Although MTI makes much of the
fact that there is no specific regulatory provision defining the term faculty-supervised, MTI points
to no authority, and I know of none, that supports its position that in instances where a regulation
does not define a term contained therein, specialized or narrow interpretations of the term should
be preferred over the term's common and ordinary meaning. To the contrary, the weight of
authority supports the position that the undefined words of a statute or regulation should be
construed according to their ordinary sense, and with the meaning commonly attributed to them.
See footnote 6 Indeed, absent indicia to the contrary, the very fact that a term is left undefined suggests that the
drafters of the regulation intend that the terms be given their common and ordinary usage.
Accordingly, I find that MTI failed to carry its burden of proof in establishing that the 500 clock-
hour practice sessions conducted by its students meet the definition of clock-hour as set forth by
34 C.F.R. § 600.2.
See footnote 7 Therefore, it was improper for MTI to use the 500 clock-hour practice sessions
to measure its students' academic progress for the purpose of determining whether the students
were eligible to receive Title IV financial assistance. In that regard, I find that for award years
1989-90 through 1991-92, MTI students were ineligible to receive Title IV funds because the
institution's students were not enrolled at least half-time in MTI's 24 month muscular therapy
Finally, MTI challenges SFAP's calculation of liability. According to MTI, pursuant to In the
Matter of Chauffer's Training School, Dkt. No. 92-113-SP, U.S. Dep't of Educ. (Sept. 9, 1994)
(Chauffer's) and a series of cases issued subsequent to Chauffer's,
See footnote 8 I should reject SFAP's calculation
of liability and, instead, calculate the institution's liability by applying the average of MTI's five year
published cohort default rate against all improperly disbursed Title IV Federal Stafford and SLS
loans received by MTI's students during the period at issue. In other words, MTI argues that I
should apply what is often referred to as an actual loss formula to calculate the school's liability for
improperly disbursed Title IV loans.
In its assessment of liability, SFAP determined that MTI was liable to the holders of Title IV loans
for all unpaid balances that remain on Stafford and SLS loans certified by MTI from August 17,
1989, through July 21, 1993; that amount totaled $743,017.00 in Stafford loans and
$1,503,053.00 in SLS loans.
See footnote 9 In addition, SFAP found the institution liable to ED for $83,181
in improper Pell Grant disbursements and $70,926 in interest and special allowances.
See footnote 10 At oral
argument, SFAP conceded that the actual loss formula provides a fair basis for determining an
institution's liability under the circumstances of this case and that it is currently used in cases of
this type, but rejected adopting the formula for assessing MTI's liability because the formula had
not been adopted by SFAP at the time the FPRD was issued. In addition, SFAP argues that MTI's
improper expenditure of Title IV funds was so egregious that its request that MTI repay all
remaining balances on Title IV loans disbursed during the period at issue is warranted.
Unquestionably, the actual loss formula has been relied upon by SFAP in prior cases as an
alternative assessment of liability against an institution found to have improperly disbursed
Title IV loans. More importantly, the decisions of this tribunal have consistently approved
SFAP's use of the actual loss formula as a fair and accurate assessment of liability. See, e.g.,
In the Matter of Selan's System of Beauty Culture, Dkt. No. 93-82-SP, U.S. Dep't of Educ.
(December 19, 1994); In the Matter of Berk Trade & Business School, Dkt. No. 93-170-SP,
U.S. Dep't of Educ. (June 27, 1994). In those decisions, this tribunal has recognized that in
cases, like this one, where the procedures set forth under Subpart H -- audit and program
review regulations -- govern the proceeding, SFAP is entitled to recover losses directly
attributed to the institution's improper expenditure of Title IV funds. In that respect, this
tribunal has consistently held that use of the actual loss formula constitutes a fair calculation of
the extent of ED's losses where it is determined that an institution has improperly disbursed
Title IV loans. Consequently, on the basis of the record, I see no reason to depart from the
current use of the actual loss formula. Accordingly, I find that the use of the actual loss
formula in this proceeding is appropriate.
The actual loss formula measures the estimated loss to ED that has or will result from
ineligible loans certified by the institution. Under the formula, an institution's cohort default
rate is multiplied by the total amount of ineligible loans disbursed during a given award year to
yield an estimated expenditure of defaulted loans. This estimate is added to estimated loan
subsidies and special allowance payments (ISAs) made by ED during the award year to yield
the actual loss formula liability. In this case, the parties do not dispute that MTI's current five-
year-average cohort default rate is 2.8%. The FPRD indicates that the total amount of
ineligible loans disbursed by MTI was $2,246,070.00 and that MTI's ISA liability totals
$67,326.00. Consequently, MTI is liable to ED for $130,215.96 for improperly disbursed
Title IV loans, as calculated under the actual loss formula, and must repay ED $83,181.00 for
improperly disbursed Pell Grants. Accordingly, the institution's total liability to ED is
2. MTI failed to carry its burden of proof in establishing that the 500 clock-hour
practice sessions conducted by its students met the definition of clock-hour as set
forth by 34 C.F.R. § 600.2.
3. For award years 1989-90 through 1991-92, MTI students were ineligible to
receive Title IV funds because the institution's students were not enrolled in at
least 12 clock-hours of instruction per week over the course of MTI's 24 month
muscular therapy program.
4. The use of the actual loss formula in this proceeding is appropriate.
On the basis of the foregoing findings of fact and conclusions of law, it is HEREBY
ORDERED, that Muscular Therapy Institute pay to the United States Department of Education
the sum of $213,396.96.
Ernest C. Canellos
Issued: July 14, 1995