UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
In the Matter of Docket No. 95-92-SP
Financial Assistance Proceeding
Appearances: Mr. Glen Bogart, Higher Education Compliance
Consulting, Birmingham, Alabama, for Respondent.
S. Dawn Robinson, Esq., Office of
the General Counsel, United States
Department of Education, Washington, D.C., for Student Financial Assistance
Before: Frank K. Krueger, Jr., Administrative Judge.
On April 24, 1995, the Student Financial Assistance Programs (SFAP), U.S. Department of Education (ED), issued a Final Program Review Determination for the period of July 1, 1991, through June 30, 1993. In Finding 1, SFAP found that Parks College was operating an unauthorized program in violation of 34 C.F.R. § 668.7 (1991), in which it enrolled students without high school diplomas or the equivalent in order for those students to qualify for acceptance into the armed services. SFAP assessed liability for $499,043 in unauthorized Pell Grants, Supplemental Educational Opportunity Grants (SEOG), Perkins Loans, and Federal Family Education Loans (FFEL). Parks College contests this finding, arguing that the alleged program at issue was a part of its fully-accredited Associate of Science in Business
Administration program. In Finding 2, SFAP found that Parks College failed to adequately
document the independent status of students receiving Title IV assistance, for an assessed
liability of $41,523 in Pell and SEOG grants and Perkins Loans, and $36,802 in FFELs. In
Finding 3, SFAP assessed a liability of $9,754 in Pell and SEOG funds and Perkins Loans, and
$56,043 for FFELs, for improper calculation of student refunds. Parks College does not dispute
the factual allegations made by SFAP concerning Findings 2 and 3, but does assert that it should
be allowed to use the actual loss formula, rather than buying out the student loans at issue from
their present holders. In Finding 12, SFAP assessed liability for $12,795 for disbursement of
Pell Grants to three students before they completed the required number of hours in a payment
period. Parks does not contest this finding, but asserts that $9,754.09 of the assessed amount is
included in the Pell Grant liabilities assessed in Finding 3. In Finding 13, SFAP found that Parks
College certified one student as eligible when she exceeded the amount of time allowed by the
college's satisfactory academic policy for completion of her program for a liability of $758 in
Pell Grant money and $6,640 in FFELs. Parks disputes this finding, contending that SFAP did
not take into account that the student in question had been part-time for a number of
As discussed below, I find in favor of Parks College on Findings 1
and 13. In addition, I
find that there is no duplication of Findings 3 and 12, and that Parks College may use the actual
loss formula to satisfy its liability under Finding 2. Since Finding 3 deals with money to be
credited to loan accounts to correct improper calculation of refunds, the application of the actual
loss formula does not apply.
SFAP contends that the 6-BA program was a separate program which was not approved by Park College's accreditation agency or authorized to participate in the Federal student aid
programs. SFAP contends that the fact that "6-BA" students signed enrollment agreements for
the 24 credits in the business administration program only, and that the student records for these
students often contained the notation "6-BA," is evidence that the program was separate and
should have received separate accreditation and approval. Parks College, on the other hand,
argues that these students were enrolled in the regular Associate of Science in Business
I find Respondent's argument persuasive. The students enrolled in
the "6-BA program"
were taking regular courses in the A.S. Business Administration program. Although the stated
intent of the students in matriculating at the college was to earn six college credits in order to
qualify for entrance into the military, they were under no obligation to take only
six credits and could go on to
earn an A.S. degree in the Business Administration. The students could also enter
the military as planned, and apply the six college credits toward earning the A.S. degree after
discharge from the military, or apply the six credits at any other college or university, just like
any other student in the Business Administration program. The fact that the "6-BA" students
signed enrollment agreements which committed them to paying for only six courses is
inconsequential. The fact that some of the students had their files noted as "6-BA" is likewise
inconsequential. Both are simply notations of the students' intent to take only six courses in
Business Administration, a fully accredited and approved program. On the basis of the record,
one cannot conclude that there was any apparent difference between the "6-BA" students and
other student enrolled at Parks College, or any difference between the courses they were taking
and the courses taken by other students in the Business Administration program.
In its brief SFAP contended for the first time that the 6-BA students were not eligible to participate in the Federal student assistance programs because "most (if not all) of them were not high school graduates." See SFAP Brief, p.4. This contention must, of course, be rejected since there are other ways in which a student may qualify for Federal financial assistance -- the student may have a GED, or the student may be admitted on the basis of an ability-to-benefit test.See footnote 1 1 There are several student catalogs in the record, and they indicate that Parks admitted any student into its program that had a high school diploma or a GED. The catalogs further state that other "promising students" are admitted after passing an admission test and undergoing an additional interview and counseling. Such an admittance test would, presumably, meet the requirement that
a student not having a high school diploma or the equivalent be given an ability-to-benefit test.
However, the record is silent on whether the "6-BA" students were being given an admission
test, and whether such test was approved by ED. Although the Respondent has the burden of
proof in an audit appeal proceeding, see 34 C.F.R. § 668.116 (d) (1994), this issue
has never been raised by SFAP. Thus, the absence of evidence on this issue cannot be construed
II. Finding Number 13: Alleged Award of Title IV Aid to
Student Not in Compliance with College's
Satisfactory Academic Progress Policy.
SFAP found that Parks College had certified a student as eligible
for the FFEL and Pell
programs when the student had taken longer than the one and one-half times the program length
to complete her program allowed by the college's satisfactory academic progress policy. Parks
counters that the student in question was not in violation of its satisfactory academic progress
policy as the student was enrolled on a part-time basis for several semesters. Parks introduced
into the record the transcript for this student in support of its position. The evidence does appear
to demonstrate that the student was part-time for several semesters, and completed her program
of study within the required period. SFAP contends that, '[a]t a minimum, Parks has not
contested the liabilities assessed for money provided to the student when she was attending less
than half-time." SFAP Brief, p. 14, footnote 16. However, SFAP does not demonstrate how the
liabilities for Finding 13 were assessed, or even that the student at issue received Federal
assistance when she was part-time or whether that was in violation of the regulations. Thus, I
have concluded that Parks College has no liability under this finding.
I agree that it is appropriate to use the actual loss formula to
determine the monetary
amount of liability owed ED for the unauthorized FFELs under Finding 2. The regulations do
not specify how specific liability for unauthorized FFELs should be calculated. The only loss to
ED for such loans is interest subsidies and special allowances paid by ED for those loans, and
any sums provided by ED to cover repayment defaults on those loans. Since defaulting students
will not be identified for several years, a reasonable method to estimate the actual loss to ED is
multiply a default rate for loans made in a prior year by the total amount of the unauthorized
loans covered by Finding 2.
SFAP contends that the 1992 cohort default rate should be used
when calculating the
actual loss formula. Parks College contends that, since the 1992 rate is under appeal, it would be
more appropriate to use the estimated 1993 rate. SFAP argues that the estimated 1993 rate
should not be used as it is not a final rate. Respondent appears to want its cake and eat it too. It
argues that the 1992 rate is not final because it is on appeal, and yet also argues the estimated
1993 rate should be used, although that rate is not yet final. Since Parks has not put into the
record what the estimated 1993 rate is, and since the 1992 rate appears to be as reasonable as the
1993 rate since neither rate deals with the actual loans included in this case, I have adopted the
1992 rate.See footnote 2
Respondent's liability for Findings 2 and 3 is as follows:
Finding 2: $41,573 -- Owed ED for unauthorized Pell Grants,
SEOGs, and Perkins Loans.
36,802 -- Owed ED for estimated defaulted loans.
Finding 3: $9,754 -- Owed ED as refunds for Pell Grants, SEOGs,
and Perkins Loans.
56,042 -- Owed to students or lenders of FFELs for refunds improperly calculated.
2. SFAP's Finding 1 is not supported by the law and evidence.
Parks College was in full
compliance with all applicable regulations, including 34 C.F.R. §§ 668.7 and 668.8
and thus it has no liability to ED concerning the admittance of students into its Business
Administration program for the limited purpose of securing the requisite number of college
credits to qualify for acceptance into the military service.
3. The student covered by SFAP's Finding 13 was in full
compliance with the
satisfactory academic policy of Parks College; thus, Parks has no liability under this
4. SFAP's Findings 2, 3 and 12 are upheld, as Parks College admits
respect to Finding 2, it is appropriate to estimate the monetary liability due ED by using the 1992
cohort default rate, the only final rate contained in the record of this case. As a result of these
violations, Parks College must reimburse ED $55,277 for unauthorized Pell and SEOG grants
and Perkins Loans covered by Findings 2, 3, and 12, and pay ED $15,345 for estimated losses to
ED to cover defaulted payments for unauthorized FFEL loans covered by Finding 2. Parks must
also pay $56,042 to students and lenders of FFEL loans to cover refunds which were not given to
the students covered by SFAP Finding 3.
November 7, 1995 Frank K. Krueger, Jr.
S. Dawn Robinson, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Ave., S.W.
Washington, D.C. 20202-2110