UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
In the Matter of Docket No. 95-152-ST
ALMA'S BEAUTY COLLEGE, Student Financial Assistance Proceeding
Appearances: Squire Padgett, Esq., Washington, D.C., for the Respondent.
Rene.e Brooker, Esq., Office of the General Counsel, United States Department of Education, Washington, D.C., for the Student Financial Assistance Programs.
Before: Frank K. Krueger, Jr., Administrative Judge.
This is a proceeding arising under Subpart G of the regulations governing the student
financial assistance programs, 34 C.F.R. § 668.81, et seq., and Title IV of the Higher Education
Act of 1965, as amended. On October 19, 1995, the Student Financial Assistance Programs
(SFAP), U.S. Department of Education (ED), issued to Respondent, Alma's Beauty College
(Alma's) of Detroit, Michigan, a notice of its intent to terminate Alma's eligibility to participate
in the various Title IV programs because of excessive default rates. Alma's offers several
courses of study, including programs in cosmetology, barbering, and manicuring. It has
participated in the Federal student loan programs since March 3, 1982.
Alma's timely requested review of this action by letter of October 30, 1995. Pursuant to my order of January 18, 1996, trial memoranda and other materials were submitted by the parties in preparation for an oral hearing. On February 21, 1996, however, counsel for Respondent withdrew his request for an oral hearing and counsel for both parties agreed that this matter could be decided on the basis of their submissions. Based upon the materials submitted, I find that Respondent has maintained impermissible cohort default rates, lacks administrative
capability, failed to show that it diligently implemented a default reduction program, and,
therefore, is terminated from participating in the various Title IV programs.
Pursuant to 34 C.F.R. § 668.17(a)(1994), the Secretary may initiate a termination action
against an institution under 34 C.F.R. § 668. Subpart G, if an institution's cohort default rate
exceeds certain threshold levels set forth at §§ 668.17(a)(1)(i) and (ii). Specifically, the
regulation provides that a Subpart G proceeding may be initiated to limit, suspend, or terminate
the participation of an institution in the Title IV program if,
(i)The institution's Federal Stafford loan and Federal SLS
cohort default rate exceeds 40 percent for any fiscal year after
1989 and has not been reduced by an increment of at least 5
percent from its rate for the previous fiscal year (e.g., the 50-
percent rate was not reduced to 45 percent or below); or
(ii)The institution's Federal Stafford loan and Federal SLS cohort default rate exceeds--
(A) 60 percent for fiscal year 1989;
(B) 55 percent for fiscal year 1990;
(C) 50 percent for fiscal year 1991;
(D) 45 percent for fiscal year 1992; or
(E) 40 percent for any fiscal year
after fiscal year 1992.
If the hearing official presiding over a Subpart G default rate proceeding finds that such rates
were, indeed, excessive and without the necessary ameliorative reductions made, the hearing
official is compelled to assign the sanction sought by the Department unless the institution can demonstrate that it fully implemented the default reduction measures set forth at 34 C.F.R. § 668,
Appendix D. 34 C.F.R. § 668.90(a)(3)(iv)(1994).
Moreover, for an institution to begin or continue participation in any Title IV program, it
must demonstrate that it is capable of adequately administering such a program under the
standards set forth at 34 C.F.R. § 668.16 (1994). Among the criteria used in determining
whether an institution is demonstrating administrative capability is the requirement that the
institution have a cohort default rate in the Federal Stafford Loan and Federal Supplemental
Loans for Students (SLS) programs of less than 25 percent for each of the three most recent
fiscal years for which the Secretary has determined the institution's rate. 34 C.F.R. §
668.16(m)(1)(i)(1994). Ed has published the cohort default rates of participating institution
Alma's cohort default rates under the Stafford and SLS programs are as follows:
FISCAL YEAR DEFAULT RATE DATE ASSIGNED
1987 83.7 9/1/89
1988 55.9 3/29/90
1989 61.0 5/28/92
1990 63.3 7/29/92
1991 53.2 8/12/93
1992 53.2 8/11/94
See ED Exhibits 6-9. Respondent has presented no direct evidence to refute these rates or
evidence, per se, to show that its rates were within the permissible scope. See Alma's Br. at 3-
4.See footnote 1
Clearly, the rates presented are consistently in excess of the thresholds permitted.
As noted above, the excessiveness of the default rate bears directly on the second ground
asserted by SFAP in this matter. The issue of administrative capability is dictated by 34 C.F.R. §
668.16. See 34 CFR § 668.16(m)(1)(i). Therein, the Secretary determines that an institution is
administratively capable if it has a cohort default rate, as defined at 34 C.F.R. § 668.17, on loans
made under the Federal Stafford Loan and Federal SLS programs of less than 25 percent for each
of the three most recent fiscal years for which the Secretary has determined the institution's rate.
Alma's has clearly and consistently maintained such default rates at a percent well in excess of
the 25 percent noted. Therefore, it is obvious that Alma's must be found to lack administrative
capability, as defined under the governing regulations.
The sole question remaining is whether Alma's diligently implemented the appropriate
default reduction management plan pursuant to 34 C.F.R. § 668. Appendix D. The burden is
upon Alma's to demonstrate that it implemented such measures. 34 C.F.R. § 668.90(a)(3)(iv).
As a threshold matter. Alma's points out that the standards at Appendix D require diligent efforts to implement a default reduction program and that such language does not mean that they meet "absolute perfection." That assertion is correct. In its brief, at pages 5-11,
Alma's provides an online of the default reduction measures set forth at Appendix D and alludes
to some steps by which it has attempted to implement such measures.
Counsel for SFAP, however., correctly points out that Alma's relies solely upon trial
memorandum assertions and the documentary evidence submitted. Such documentation, SFAP
correctly notes, "is, largely, nothing more than standard documentation demonstrating minimum
compliance with Title IV requirements--documentation that is required of all participating
institutions." SFAP Reply Br. at 2-3. A far more persuasive argument, however, is that standing
by themselves, the memorandum's assertions and the exhibits submitted cannot here carry
Respondent's burden without more; oral testimony is needed to make the link between the
representative exhibits and the assertions that certain functions were regularly and pervasively
implemented. Inasmuch as Alma's withdrew its request for an oral evidentiary hearing, wherein
witness testimony might have been presented to substantiate its assertions, there is little weight
that I can lend to Alma's argument and conjecture as the record currently stands.See footnote 2
First, Appendix D, Section I, contains measures to reduce defaults by dropouts. The
eight measures set forth range from student screening processes, counseling, and reduction of
withdrawal rates to the implementation of a pro rata refund policy and delaying certification of
first time borrower's loan applications. Alma's submitted representative samples and a brief
argument regarding progress reports maintained to monitor student progress, letters to students
warning them that they would be dropped from the Pell/GSL program if a certain average was
not maintained, and the implementation of a day care center. See Respondent's Br. at 5-6;
Respondent's Exhibit Sec. 1, Nos. 3, 3A, 9A; Respondent's Exhibit Sec. 1, Nos. 1A, 4, 9A, and
Respondent's Exhibit Sec. 1, No.5. Such documentation alone, however, fails to directly address
or link Alma's efforts to the eight measures set forth in Section I.
Second, Appendix D, Section II, regards measures to reduce defaults related to difficulty
by students receiving loans of finding employment. Such measures include the expansion of an
institution's job placement program, attempts to improve its job placement rate and licensing
examination pass rate by working with its accrediting body, and establishing a liaison for job
information. Alma's limited exhibits, Respondent's Exhibit Sec. 1, Exhibit 1A; Sec. 2, Exhibits
1A, 2, 2A, 3, and 3A, reveal little as to such job placement efforts. Alma's submitted a
description of its placement program, a letter to the Michigan Employment Security Commission
requesting that an employment posting be made, one employer survey, and one graduate survey
to demonstrate its compliance with Section II. Such documents, without more, cannot meet the
Respondent's burden of establishing that Alma's efforts met the dictates of Section II.
Third, with regard to Appendix D, Section III, at various stages an institution is to
contact each student/borrower, urge the student to repay his or her loan(s) and emphasize the
consequences of default by means of telephone contacts and letters sent with the designation
"Forwarding and Address Correction Requested." The institution also is required to update its
records regarding the addresses, telephone numbers, and employers' addresses for each borrower
and ascertained at the time of admission information regarding family and references so as to
afford the institution a variety of ways to locate a student who later moves without notifying his
or her lender. Section III also spells out certain points to be made during counseling regarding
financial assistance. Alma's submitted several exhibits related to the above. Respondent
Exhibits 3-1 through 3-20. For the most part, these exhibits are intended to demonstrate the
types of written correspondence and records Alma's maintained pursuant to Section III. Such
evidence, however, cannot carry Respondent's burden alone. The samples submitted provide no
indication that such documentation was maintained on all student borrowers; indeed, the samples
submitted do not even consistently follow the same student, i.e. one complete file may have
proved more persuasive. Such evidence begs testimonial support to provide the necessary links
between samples and actual practice, from use with regard to two or three students to the entire
borrowing pool.See footnote 3
Finally, there is no evidence that the annual comprehensive self-evaluation described at
Appendix D, Section IV, was implemented, diligently or not, by Alma's. While it may be
assumed that such a process of review and reflection would be inherently a part of any
improvement program, without more, I cannot find that one was put forth.
Alma's further urges consideration of what it claims are mitigating circumstances based
on the school's large enrollment of students from disadvantaged economic backgrounds.
Respondent cites to 34 C.F.R. §§ 668.17(d)(ii)(A)(2) and (B)(1)(1994) as its basis for such
consideration. That consideration is outside of my purview.
The regulation cited is applicable as an appeal consideration only after notice of
termination from the Federal Family Education Loan (FFEL) program, a program including the
Stafford Loan Program and the SLS program. Alma's lost its eligibility to participate in the
FFEL program due to its high default rates on October 2, 1991. ED Exhibit 4. At that time,
however. Alma's chose not to appeal its termination from the FFEL program. Id., see also
Respondent's Trial Memorandum at 4. The issue now before me, however, involves an entirely
different process. This matter, to terminate Alma's from continuing to participate in any student
financial assistance programs authorized under Title IV for maintaining excessive cohort default
rates, is a different proceeding.See footnote 4
Therefore, I do not have the power or authority to review such equitable consideration.
In brief, the termination provisions of 34 C.F.R. § 668.17 and the Appendix D defense
operate to require that an institution with default rates like Alma's diligently implement the
measures listed in Appendix D; termination sanctions apply automatically to a school that fails to
diligently implement those measures. 54 Fed. Reg. 106, 24115 (June 5, 1989), see also 34
C.F.R. § 668.90(a)(3)(iv)(1994). Absent a valid Appendix D defense, the hearing official is
constrained to impose the sanction sought. Id.
ED has met its burden by setting forth its initial notice with substantiating evidence. At
that point, the burden shifter to Alma's to show that the default rates were in error. Respondent
has failed to demonstrate that the rates before me are incorrect or that Alma's falls within the
safety zone of permissible default rates. Respondent also had the burden to demonstrate that it
diligently implemented the provisions of Appendix D, which it failed to do. Therefore, I am
compelled to terminate the Respondent from participation in the Title IV, HEA programs.
FINDINGS AND CONCLUSIONS
1) Alma's Beauty College Maintained cohort default rates far in excess of the threshold
limits prescribed at 34 C.F.R. § 668.17.
2) Alma's Beauty College lacked administrative capability under the requirement set
forth at 34 C.F.R. § 668.16.
3)Alma's Beauty College failed to carry its burden of demonstrating that it diligently
implemented a cohort default reduction program pursuant to 34 C.F.R. § 668.90(a)(3)(iv).
4) Consideration of the mitigating factors noted at 34 C.F.R. §§ 668.17(d)(ii)(A)(2) and
(B)(1) is not available in a Subpart G termination proceeding.
ORDERED, that Alma's Beauty College is terminated from participating in the various
Title IV programs.
April 22, 1996
Frank K. Krueger, Jr.
S E R V I C E
A copy of the attached initial decision was sent by CERTIFIED MAIL, RETURN RECEIPT REQUESTED to the following:
Squire Padgett, Esq.
1835 K Street, N.W.
Washington, D.C. 20006
Rene.e Brooker, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110