In the Matter of
Docket No. 94-89-SA
Boston Architectural Center, Student Financial Assistance Proceeding
Appearances: Jeffrey F. Jones, Esq.,
and Mary Ellen Alessandro, Esq., Boston,
Massachusetts, for Boston Architectural Center.
D. Sorensen, Esq., Office of the General Counsel, Washington,
the Student Financial Assistance Programs, United
Department of Education.
Before: Frank K. Krueger, Jr.,
The auditor made a number of specific findings which were
adopted in the Final Audit Determination and are part of this appeal. The auditor was unable to
locate a large number of
documents necessary to validate that the Respondent was complying with ED program
requirements concerning the filing of Statements of Selective Service Registration Status and
Statements of Educational Purpose by students receiving aid, the determination by Respondent
satisfactory academic progress of participating students, and the verification of the half-time
status of students. The auditor also found that Respondent incorrectly calculated Pell Grants
resulting in some improper awards, failed to perform proper verification procedures in order to
ensure that information provided by applicants for Federal student aid was accurate, and
maintained some excess cash for Pell Grants. For all of the violations, SFAP determined that the
Respondent must repay ED $116,960 for improperly awarded Pell Grants, and buy back
$153,299 in outstanding balances for unauthorized Guaranteed Student Loans (GSLS).
As part of this appeal, the Respondent advances a number of factors which it believes justify the
waiver of liability in this case. Alternatively, Respondent submits a number of documents which
believes demonstrate that it complied with many of the program requirements cited as violations
by the auditor, and, thus, substantially reduces its liability.See footnote 2
As discussed specifically below, the documents submitted by the Respondent justify some
partial reduction in its liability.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
I. Waiver of Liability
Although the Secretary may have the authority to waive
reimbursement, it is clear that the
hearing official has no such authority. The regulations governing this proceeding, at 34 C.F.R.
668.117(d) provide as follows:
The hearing official is bound by all
applicable statutes and
regulations. The hearing official may not --
(1) Waive applicable statutes and regulations; . . . .
Even though the Secretary's Decision issued in Baytown, supra, provides that the hearing
official may waive certain procedural requirements specified in the regulations governing audit
the hearing official cannot waive substantive program requirements.
Under 34 C.F.R. § 668.33, an institution participating in the
Federal student aid programs
must ensure that all participating students file with the institution a Statement of Registration
Status, certifying that the student is registered with the Selective Service System or is not
to register. An institution may waive the requirement that the statement be filed for each
academic year if the institution has a valid statement on file and the student's status has not
changed. Id. at 668.33(e). According to the audit, this documentation was missing from
the files of 24 students. In its brief, Respondent contends that Exhibits 3 and 4 account for
eleven of the
24 students, for a reduction in its liability in GSLs.
Exhibit 3 contains a Registration Verification form from the Selective Service System which shows that four students were registered with the Selective Service System -- J.E.D. (#7), J.A.S. (#29, #174), M.S.K. (#228), and M.P.K. (#260).See footnote 3 3 The audit work paper summaries
submitted with Respondent's Reply Brief indicate that the four students received GSLS in the
amount of $10,325. J.A.S. (#174) also received a Pell Grant for $750. Respondent contends that
it should have no liability for these students. However, the regulatory requirement of 34 C.F.R.
§ 668.33 is that participating institutions have copies of Statements of Registration Status for all participating students, not that students are registered with the Selective Service System. The fact that these four students were registered is irrelevant to whether Respondent was in violation of 34 C.F.R. § 668.33. Asking the hearing official to reduce liability for these students is, in effect, asking the hearing official to waive the requirements of the regulation which, as discussed above, is specifically proscribed by 34 C.F.R. § 668.117(d). Although the hearing official may be able to waive certain procedural requirements in the interest of fairness in conducting an audit review, section 668.117(d) makes it clear that the hearing official lacks the necessary discretion to waive substantive program requirements. In addition, the Pell Grant awarded to J.A.S. (#174) was also questioned by the auditor since Respondent did not have a Statement of Educational Purpose on file for J.A.S. for that award year. Consequently, even if Respondent is excused for not having a Statement of Registration Status on file for this student, Respondent would still be liable for the Pell Grant because of the absence of a Statement of Educational Purpose.
Respondent claims that additional records submitted as part of
Exhibit 3 show that six
additional students whose records were found wanting of the required Statement of Registration
Status were not required to register. However, the records offered are illegible and it is not
intuitively obvious how the records prove that students were not required to register and
Respondent provides no explanation. Thus, these records must be rejected.
Exhibit 4 is a Financial Aid Report issued by ED for R .S. (#272),
whose file was
reviewed by the auditor, and found to be without a Statement of Registration Status. R. S.
received a GSL for $1,282 in 1988-89. The Financial Aid Report contains a valid Statement of
Registration Status signed by this student. Respondent is in compliance with section 668.33 with
respect to R.S., and thus has no liability for R.S.'s loan.
B. Statements of Educational Purpose.
Under 34 C.F.R. § 668.32, in order for a student to be
eligible for Federal aid, the student
must file with the participating institution a Statement of Educational Purpose, certifying that the
student will use the funds received solely for educational expenses at the institution where the
student is enrolled. The certification must be filed for each award year. Id. The auditor
was unable to find this required certification for 23 students receiving Federal aid. Respondent
submits several exhibits which it contends should reduce its liability for eight students.
Exhibit 5 contains files for two students which include the Statement of Educational
Purpose. Exhibit 5 demonstrates that C. M. D. (#222, #255), who received GSLs for Award
Years 1987-88 and 1988-89 for $1,500 each year, signed a valid Statement of Educational
Purpose on August 31, 1987. Thus, Respondent is not liable for the 1987-88 GSL. Since there
no certification for award year 1988-89, Respondent remains liable for that loan. Exhibit 5 also
demonstrates that M. T. (#206, #238), who received GSLs for 1986-87 and 1987-88 for $2,500
each year, signed a valid Statement of Educational Purpose on August 15, 1987. Thus,
Respondent is not liable for the 1987-88 GSL. Since there is no Statement for award year 1986-
87, Respondent remains liable for the loan awarded for that year.
Exhibit 6, presumably, contains loan applications for six students
who provided the
required certification on their applications. However, three of the applications are almost totally
illegible and five do not contain the certifications. Concerning the latter five, Respondent's brief
explains (footnote 5, page 11) that the lending institution which made the loans only kept the
pages on the loan applications on microfiche, but that an officer of the company confirmed that
the second pages contained the required Statements of Educational Purpose. It is not clear from
the brief whether the loan company officer "confirmed" that the second pages contained the form
for the required Statement, or that the students who completed the applications actually signed
the Statement. In any event, this exhibit cannot be given probative value based on this
secondhand representation by counsel in their brief.
C. Academic Progress.
According to the audit report, twenty-eight student files lacked the
documentation to ascertain whether the Respondent had determined whether the students were
making satisfactory academic progress as required by the regulations. In response, the
Respondent contends that four of the students whose files lacked the necessary determination
actually graduated and submits, as part of Exhibit 7, transcripts for four students. Exhibit 7
demonstrates that three students -- D. R. H. (#14), E.T. (#158), and T.M. (#45) -- graduated.
However, 34 C.F.R. § 668.7(c) requires that participating institutions make a
participating students are making satisfactory educational progress, not that the students actually
graduate. The fact that the students graduated is irrelevant to this audit finding. Exhibit 7 also
contains a document represented as a transcript for C.C. (#4, #128), but the so-called transcript
lists no courses, grades, or credits. Thus, the evidence concerning this student is rejected as
irrelevant and as unreliable.
In addition, Respondent argues that the regulations at 34 C.F.R. § 668.7(c)(2) require that the determination of academic progress be made only after the completion of a student's second academic year of attendance at the institution, and that three of the students at issue had not completed their second years before the end of the award year in question. In support, the Respondent proffers Exhibit 8, which contains transcripts for three students -- S.M., P.E.S. (#30), and J.P (#197, #234). However, S.M. does not appear on the list of students whose files were reviewed by the auditor. Although the transcript for P.E.S.shows that he had just completed his freshman year when the auditor found that his file lacked evidence of a determination of academic
progress, the auditor also found that P.E.S. had not filed a Statement of Registration Status as
required by 34 C.F.R. § 668.33; thus the Respondent remains liable for the GSL ($2,500)
awarded to this student for 1983-84.
The auditor questioned the file for J.P. for two award years --
1986-87(#197) and 1987-
88 (#234). J.P.'s transcript shows that for the 1986-87 award year, he had just started his second
year at the Boston Architectural Center, although he had transferred a large number of credits
from community college. Under 34 C.F.R. § 668.7(c)(2), Respondent was not required to
determination of academic progress because J.P. had not yet completed two academic years at
Boston Architectural Center. Respondent is not, therefore, liable for J.P.'s GSL for the 1986-87
award year ($2,500). However, Respondent should have made a determination for the 1987-88
award year, and remains liable for J.P.'s GSL for the 1987-88 award year ($2,500).
E. Half-time Students.
Under 34 C.F.R. § 668.7(a), in order for a student to be eligible for a GSL, the student had
enrolled in a course of study on at least a "half-time" basis (six credit hours at the Boston
Architectural Center). The auditor found that the half-time status of thirteen students was not
documented, as required by the program regulations. Respondent argues that Exhibit 9, which is
a student transcript and class roster, verifies that at least one student found to have lacked
verification as half-time was, in fact, half time. The transcript appears to show that D.R. (#152)
completed three credit hours in the Fall of 1985 and six credit hours in the Spring of 1986. The
class roster shows that D.R. attended six of thirteen classes in another course not appearing on
transcript; he apparently dropped out of this course after attending six classes. From this
Respondent argues that D.R.was a half-time student at the beginning of the Fall of 1985, when
was awarded the GSL questioned by the auditor, because he was enrolled in six credit hours of
courses -- three credit hours from the course appearing on the transcript, and three credit hours
for the course that he dropped. Although the class roster is labeled "Fall," it is not otherwise
dated or verified. Again counsel seeks to have the hearing official rely on their unsworn and
unqualified testimony in Respondent's brief. This evidence must be rejected, and Respondent
remains liable for D.R.'s GSL.
668.14(1984, 85, and 86). Thus, the Final Audit Determination concerning the failure of the
Respondent to fulfill these regulatory requirements is affirmed.
Issued: July 3,
Washington, D.C. Frank K. Krueger, Jr.
Howard D. Sorensen, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Ave., S.W.
Washington, D.C. 20202-2110