UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
In the Matter of
UNIVERSIDAD EUGENIO MARIA Docket No. 95-128-ST
Student Financial Assistance Proceeding
Appearances: Arcadio J. Reyes, Esq., of Washington, D.C., for Universidad Eugenio Maria de
Paul G. Freeborne, Esq., Office of the General Counsel, United States Department
of Education, Washington, D.C., for Student Financial Assistance Programs.
Before: Judge Ernest C. Canellos
On July 27, 1995, the Office of Student Financial Assistance Programs (SFAP) of the
United States Department of Education (ED) issued a notice of intent to terminate the
eligibility of Universidad Eugenio Maria de Hostos (Universidad),
located in the Dominican
Republic, from participation in Federal student financial assistance programs authorized by
Title IV of the Higher Education Act of 1965, as amended (Title IV). 20 U.S.C. § 1070 et seq.
and 42 U.S.C. § 2751 et seq. The notice also proposed to fine Universidad $95,000.
See footnote 1 SFAP
initiated the termination and fine action as a result of its determination that the institution failed
to satisfy Title IV's general standards for administrative capability during the 1992-93 and 1993-
94 award years. See 34 C.F.R. § 668.16 (1993).
During the award years at issue, Universidad participated in Title IV programs as a
postsecondary foreign university. On May 23 through May 26, 1994, program reviewers from
SFAP's regional office in New York conducted an on-site review of Universidad's
administration of the Federal Family Educational Loan (FFEL) program. The program review
report dated January 12, 1995, revealed several alleged deficiencies in the institution's
administration of the FFEL program. Based on these findings, SFAP concluded that Universidad
was not administratively capable to participate in Title IV programs.
The law is well-established that to begin and continue to participate in Title IV
programs, an institution must demonstrate that it is capable of adequately administering Title IV
programs under the standards set forth by 34 C.F.R. § 668.14 (1993).
See footnote 2 Section 668.14 sets out a
range of factors that SFAP considers when determining whether an institution can adequately
administer Title IV programs including, but not limited to, whether the institution: designates a
capable individual to be responsible for administering the institution's Title IV programs;
provides adequate financial aid counseling to eligible students who apply for Title IV financial
assistance; obtains and reviews all student aid applications and other documents to verify
information received from the student or other sources; and establishes, publishes, and applies
reasonable standards for measuring a student's satisfactory academic progress. According to
SFAP, Universidad's administration of the FFEL program was deficient in each of these areas,
and so pervasive that it evidences an unwillingness on the part of the institution to comply with
Title IV program requirements and, therefore, warrants the institution's termination from
participation in Title IV programs.
See footnote 3
According to SFAF, Universidad failed to meet the standards of administrative
capability in several respects; namely, that the institution failed to maintain FFEL program
records such as loan applications, need analysis documents, and statements of educational
purpose, that the institution failed to develop a satisfactory academic progress policy, failed to
publish a tuition and fee refund policy, and failed to develop adequate systems for establishing
student eligibility and loan counseling.
Universidad generally defends itself against these allegations by arguing that in most
instances the institution relied on the students' certification on their loan applications as
documentation for determinations of educational purpose, non-default status, and other such
requirements. In addition, Universidad argues that the fact that substantial acts of fraud by
students occurred under this rather relaxed system should not result in the institution being held
accountable since the fraud was perpetrated by the independent acts of others.
The institution's argument is meritless. Indeed, the institution's position, if correct,
would vitiate the fiduciary role institutions play as participants in Title IV programs.
See footnote 4 Institutions
that participate in Title IV programs owe the highest standard of care and diligence in
documenting that each student awarded Title IV financial assistance meets the eligibility
requirements of Title IV. 34 C.F.R.§ 668.82(b). While a student's statement certifying that he
or she meets the eligibility requirements as required by the loan application is entitled to due
regard, reliance on such statements, without other checks and balances, is clearly inadequate to
identify or resolve discrepancies in the information a student may submit to an institution.
Universidad also argues that to the extent that the institution did not meet some of its
administrative obligations under Section 668.14 those deficiencies were the result of the
Department's failure to provide the institution with adequate counseling, guidance and pre-
certification training. In particular, Universidad notes that since its entrance into participation in
Title IV programs, the institution has never received the mandated program materials or
counseling guidance from SFAP's Office of Training and Program Information.
My review of the record persuades me that SFAP has met its burden of proof in
establishing that Universidad failed to meet the general standards of administrative capability as
required by Title IV. After careful consideration of Universidad's evidence, I find that the
records Universidad proffers simply do not demonstrate that the institution met its record
keeping obligations. Many of the records do not cover the award years at issue and the ones that
are pertinent are too few to be statistically representative of Universidad's overall record keeping
performance. This evidence clearly is inadequate to rebut SFAP's evidence obtained during the
onsite program review.
Further, Universidad's argument regarding the Department's failure to adequately train
the institution's staff on Title IV program responsibilities is without merit; it is the responsibility
of the participating institution, not the Department, to take affirmative steps to ensure that school
personnel are adequately trained in Title IV program requirements. Further, the mere fact that an
institution was not provided with adequate guidance on how to administer its Title IV program
responsibilities cannot, thereby, excuse the institution from its duty to comply with Title IV
With regard to SFAP's contention that the institution failed to maintain FFEL program
records and loan applications, Universidad concedes that it can only account for 5 of the 10
missing FFEL applications noted in the program review report, but argues that it need not
account for each of the missing documents noted in the program review because this proceeding
is limited to issues in the termination proceeding. Universidad argues that its proffer of evidence
need not rebut each allegation advanced in the program review report. In the institution's view,
it sufficiently defends itself in a termination proceeding by merely presenting evidence that some
of the allegedly missing FFEL applications were, in fact, maintained as records by the institution;
it need not present evidence accounting for each missing FFEL application.
SFAP argues that the institution's alleged refusal to comply with its request, issued in the
program review report, to perform a full file review for the award years at issue and report the
results of the review to the Department implicitly admits that it failed to maintain FFEL
program applications for all students who received FFEL program funds during award years
1989-90 through 1993-94.
On the limited basis of the sample of student files selected by the
program reviewers, it is evident that the institution was able to account for only half of the
FFEL applications at issue. In this regard, the evidence shows that the institution, at the very
least, was negligent in administering the FFEL program.
According to SFAP, Dr. Jorge Diaz-Vargas is employed by Universidad as its director of
finance. During a May 1994 program review exit interview, Dr. Diaz-Vargas allegedly stated to
SFAP's program reviewers that Universidad could not be held responsible for program
deficiencies in its administration of the FFEL program since the FFEL program existed as an
agreement between the Federal government and student beneficiaries, and that the school was
essentially a conduit between the students and the Federal government. On this basis, SFAP
determined that Dr. Diaz-Vargas, as the person directly responsible for finances at Universidad,
was not capable of administering the FFEL program for the institution, as required by 34
C.F.R. § 668.14.
For its part, Universidad argues that SFAP mischaracterized Dr. Diaz-Vargas' statement
and, more to the point, that the institution throughout the award years at issue had always
designated a capable individual to administer its FFEL program. In support of its position,
Universidad submitted the sworn affidavit of Dr. Diaz-Vargas attesting to the fact that he was
never the director of finance or any way ever directly responsible for finance at Universidad.
Dr. Diaz-Vargas stated that his position with Universidad was initially as general administrator,
and later as administrative vice-president. In each capacity, according to Dr. Diaz-Vargas, he
had no direct responsibility for the institution's finances.
SFAP persists in its claim that Dr. Diaz-Vargas maintained direct responsibility for the
administration of FFEL programs, and, in that capacity, insisted that Universidad could not be
held responsible for program violations. In support, SFAP offers the declaration of Yessyka
Santana, a SFAP program reviewer, who states, without explanation, that she believes that Dr.
Diaz-Vargas was the official responsible for the administration of FFEL programs at
Universidad. In addition, Ms. Santana states that Dr. Diaz-Vargas told her at the exit interview
that Universidad would not pay any liabilities assessed by SFAP as a result of the program
See footnote 5
34 C.F.R. § 668.14 requires institutions that participate in Title IV programs to
designate a capable individual to be responsible for administering all Title IV programs in
which the institution participates. Under the regulation, in addition to other factors, an individual
is considered capable if the individual is certified by the state in which the institution is located,
if the state requires certification of financial aid administrators, and if the individual has previous
experience and documented success in administering Title IV programs properly. While Dr.
Diaz-Vargas' alleged statement to Ms. Santana, if true, unquestionably would exhibit a lack of
understanding of the nature of an institution's fiduciary responsibility in administering FFEL
program funds, that statement, alone, could not warrant a determination that Dr. Diaz-Vargas is
incapable of administering the institution's Title IV programs. Section 668.14 sets out several
factors which, when analyzed together, could indicate whether an individual was capable of
administering Title IV programs. There is simply no regulatory basis to conclude that the
statement attributed to Dr. Diaz-Vargas sufficiently demonstrates that Dr.Diaz-Vargas was not
competent to oversee the administration of Title IV programs. Accordingly, I find that SFAP's
allegation, that Universidad failed to designate a capable individual to administer the FFEL
program, is unsupported by the evidence in the record.
To be eligible to receive Title IV funds, a student must maintain satisfactory academic
progress in his or her course of study. 20 U.S.C. § 1091(a)(2) and 34 C.F.R. § 668.7(a). To
ensure that a student can meet this obligation, an institution must establish, publish, and apply
reasonable standards for measuring satisfactory academic progress. 34 C.F.R. § 668.14.
According to SFAP, at the time of the program review, Universidad did not present program
reviewers with evidence that the institution had established and published a satisfactory academic
progress policy. Although the institution subsequently presented evidence to this tribunal
meeting this requirement in this proceeding, SFAP cautions the tribunal from finding that the
institution was in compliance with the law during the award years at issue. According to SFAP,
Universidad's policy was clearly manufactured after the program reviewers had completed
their onsite program review.
The evidence Universidad submits is a copy of its 61 page booklet on student regulations.
This booklet contains the institution's satisfactory academic progress policy. The publication
date indicated on page 61 is February 1995. Although the institution offers no explanation for
why it submitted the February 1995 booklet, as opposed to submitting one that existed during the
award years at issue, it does not strain credulity to assume that the institution submitted the
currently available booklet. Consequently, I do not find the institution's evidentiary submission
defective or somehow lacking probative value. More important, the February 1995 publication
predates the issuance of the notice of termination and fine, which was issued in July 1995. In
that regard, it is unclear to me why SFAP persists in alleging that Universidad failed to produce
any evidence that the institution has a satisfactory academic progress policy, while at the same
time giving short shrift to the publication submitted in this proceeding.
See footnote 6 Accordingly, I find that
Universidad produced evidence demonstrating that the institution established and published a
satisfactory academic progress policy. SFAP did not meet its burden of proof in establishing
that the policy did not exist during the award years at issue.
SFAP proposes to terminate Universidad from participation in Title IV programs because
the institution fails to satisfy the general standards for administrative capability. To participate in
Title IV programs an institution must demonstrate that it is capable of administering Title IV
programs. Based on the evidence presented, I am persuaded that SFAP has met its burden of
proof by showing that the institution's administrative defects were so egregious as to warrant the
conclusion that the institution lacks the capability of administering Title IV programs properly.
The evidence shows that Universidad failed to maintain loan applications, need analysis
documents, and statements of educational purpose, and failed to develop adequate systems for
establishing student eligibility and loan counseling. At best, the institution appears to have had a
rather lackadaisical approach to fulfilling its obligation to administer its Title IV program
properly. Accordingly, I find that the seriousness of the defects in Universidad's administration
of the FFEL program warrants the termination of the institution's eligibility to participate in
Title IV programs.
SFAP also proposes to fine Universidad $95,000. Under Section 487(c)(2)(B)(i) of the
Higher Education Act of 1965, as amended by Section 451(a) of the Education Amendments of
1980, Pub. L. 96-374, 94 Stat. 1367 (to be codified at 20 U.S.C. ' 1094(c)(2)(B)(i)), the Secretary
"may impose a civil penalty upon an institution of not to exceed $25,000 for each violation of
Title IV. Noting that I have determined that the ultimate sanction of termination is appropriate in
this case, and recognizing that the imposition of termination is a significant sanction in and of
itself, I find that the imposition of a fine is inappropriate. In this regard, it is noteworthy to
recognize that many of the defects in the institution's administration of Title IV programs were
not shown to be the result of fraud or intentional wrongdoing, but, instead, the result of the
institution's apparent negligence and mismanagement of its FFEL program. More important, the
small size of the institution mitigates the level of punishment that should be imposed in this case.
On the basis of the foregoing findings of fact and conclusions of law, it is hereby
ORDERED that Universidad Eugenio Maria de Hostos' eligibility to participate in programs
authorized under Title IV of the Higher Education Act of 1965, as amended, is terminated.
Ernest C. Canellos
Dated: January 6, 1997
A copy of the attached document was sent to the following:
Arcadio J. Reyes, Esq.
1150 Connecticut Avenue, N.W.
Washington, D.C. 20036
Paul Freeborne, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110
Subsequent to the issuance of the notice, SFAP reduced the proposed fine from
$120,000 to $95,000.
34 C.F.R. § 668.14 (1993) was substantially revised and redesignated as 34 C.F.R. § 668.16, effective April 29, 1994. The revised regulation strengthened the administrative
capability standards. 59 Fed. Reg. 9526, 9545 (February 28, 1994). Further technical changes to
Section 668.16 were made effective July 31, 1995. Although the parties cite Section 668.16
throughout their submissions, the notice states that the termination and fine action is based upon
the institution's administration of Title IV programs during the 1992-93 and 1993-94 award
years, periods during which Section 668.16 and its accompanying revisions were not effective.
Consequently, the stricter administrative capability standards do not govern the dispute in this
proceeding. Unless otherwise specified, citations to the regulation governing the standards for an
institution's administrative capability are to the 1993 regulation set forth at 668.14.
SFAP raises several allegations in the notice that are either unfounded or simply
dropped during the course of this proceeding. For example, in support of the allegation that
Universidad failed to complete or maintain student status confirmation reports, SFAP notes that a
former student of Universidad is suspected of committing fraud in the Title IV program. SFAP
makes no attempt to support this allegation through its submissions, yet calculates its proposed
fine, in part, on the basis of this suspected fraud. Clearly, this is inappropriate.
Notably, the institution points out that it has subsequently adopted a system for meeting
these important administrative requirements.
Apparently, Dr. Diaz-Vargas' statement emanated from allegations contained in the
program review report concerning loan applications that may have been forged by some or one of
Universidad's former students. In Dr. Diaz-Vargas' view, the institution was not responsible for
the alleged forgeries.
Notably, SFAP does not argue that the policy contained in the booklet does not meet the
substantive requirements of a satisfactory academic progress policy. Nor do I find such an