UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
In the Matter of Docket No. 96-131-SP
Center for Advanced Studies on Puerto Rico Student Financial
and the Caribbean, Assistance Proceeding
Respondent. PRCN: 199520200062
SFAP also determined that Respondent improperly certified FFEL applications because
of incorrect calculations concerning the estimated family contributions and costs of attendance
for loan applicants and its failure to include other financial aid which the applicants received.
According to SFAP, Respondent was unable to provide documentation for the source of its
calculations or with a copy of the student budgets used for certifying the FFEL applications. At
the request of SFAP, Respondent recalculated all of its FFEL applications using correct
information, and determined that it over awarded FFEL funds to nine students (numbers 10, 11,
13, 16, 20, 22, 35, 36, and 55). Using a cohort default rate of 5.7 percent, SFAP estimated the
actual loss to ED for these loans at $7,317. In its brief, Respondent protested the use of the 5.7
percent default rate and noted that its most recent rate is 3.2 percent. SFAP accepted the lower
rate and recalculated the amount due as $6,747.
A. Failure to Secure Financial Aid Transcript.
In order to ensure that students do not receive more Federal financial assistance than they
are entitled, and that the students are not in default on other Federal loans incurred while
attending other institutions, one of the conditions for participating in the Title IV programs is that
a participating school obtain financial aid transcripts from institutions which a student previously
attended. 34 C.F.R. § 668.19 (1992, 1993, 1994). Under the regulations, an institution should
not release FFEL proceeds to a student until it receives all financial aid transcripts (id. at
668.19(a)(3)(i.v.)); the institution may not hold FFEL proceeds for more than forty-five days
pending the receipt of a financial aid transcript (id. at 668.19(a)(4)(i)); and if the financial aid
transcripts are not received within the forty-five days, the loan proceeds must be returned to the
lender (id. at 668.19(4)(i)). Notwithstanding, Respondent disbursed FFEL proceeds to student
#23 without receiving her financial aid transcript from the University of Alaska.
Respondent argues that it has requested the financial aid transcript in question and that the University of Alaska is not responsive. On May 29, 1997, Respondent submitted a sworn statement by student # 23 stating that she never received any financial assistance from ED while a student at the University of Alaska. This statement does not satisfy the regulatory requirement that FFEL proceeds not be released to a student until a financial aid transcript is received from all previous postsecondary institutions attended by the student. Acceptance of sworn statements by student-aid applicants in lieu of financial aid transcripts could lead to misrepresentation on the part of the applicants.
Respondent also argues that it provides important and quality educational services and
that it cannot afford to satisfy the SFAP liability determination; therefore, any liability should be
waived under 34 C.F.R. § 682.609(c) (1996). Section 682.609(c) provides that the Secretary [of
Education] may waive the right to require repayment of funds or repurchase of loans by a school
if, in the Secretary's judgement, the best interest of the United States so requires. Although the
Secretary may waive repayment, it is not clear whether the hearing official may do so. See 34
C.F.R. § 668.117 (d)(1) (1996). The hearing official's responsibilities are quasi-judicial and
limited to making findings of fact and conclusions of law and, as such, should not engage in the
executive function of waiving or settling claims. Cf. French Fashion Academy, 69 Ed. Law Rep.
1358, 1359 (U.S. Dept. of Ed. 1990). Moreover, even if the hearing official had the authority to
waive a liability determination supported by law and fact, I would not waive Respondent's
liability because it is not in the best interest of the United States to do so. Although Respondent
represents that payment of the liability determination would result in a financial hardship to the
school, possibly jeopardizing its continued ability to operate, and that it provides excellent
educational services, there is nothing in the record to support these claims except the self-serving
statements by its counsel and president. In addition, under the Title IV programs, participating
schools act as fiduciaries for ED and certify Federal loans with minimal control by ED. See 34
C.F.R. § 668.82 (1992, 1993, 1994). Thus, it is absolutely essential that participating schools
follow the SFAP disbursement rules precisely and disburse FFEL funds only to those applicants
entitled to the funds under the Title IV regulations. See Emperor's College of Traditional
Oriental Medicine, Docket No. 96-48-SP, U.S. Dept. of Educ. (July 12, 1996), at 2-3. Failure to
insist on precise compliance could result in widespread abuse and possible fraud.
B. Improper Certification of FFEL Applications.
A school must certify that the information it provides to a borrower in an FFEL
application is complete and accurate. 34 C.F.R. § 682.603(a) (1992, 1993, 1994). Among other
things, a school is required to certify a students's expected family contribution, the cost of
attending the institution, and any other financial aid received by the student. Id. at 682.603(d).
An institution is required to maintain a copy of the data used to determine a student's expected
family contribution and cost of attendance for five years after the student's attendance at the
school. Id. at 682.610(b) and (d).
SFAP found that, for a number of students in its sample, Respondent used cost of
attendance and family contribution figures which maximized the amount of FFEL funds for the
students and which appeared to have no basis in reality. When the reviewer requested that school
officials provide a copy of the backup documentation, the school was unable to comply. The
school was required to recalculate the FFEL proceeds for all its students and, as a result,
identified over awards totaling $27,913.
Respondent's only defense is that SFAP has never precisely identified the sections of the
regulations in which the SFAP calculations are required and that, again, the liability should be
waived as in the interest of the United States. As stated in the final program review
determination, Respondent is required to certify the accuracy of all information it is required to
provide on student FFEL applications and to maintain the backup data upon which the
information is based. See 34 C.F.R. §§ 682.200; 682.603; 682.610 (1992, 1993, 1994). The
FFEL applications require that the Respondent provide the student's expected family
contribution, the cost of attendance, and any other financial assistance received by the student.
When SFAP reviewed Respondent's applications it found that the information provided was
inaccurate. When SFAP requested the back-up data, Respondent was unable to comply. Thus,
Respondent was in clear violation of the above regulations, and, as noted in section A above, it is
not in the best interest of the United States to waive Respondent's liability.
Respondent may satisfy its liability for the FFELs at issue by paying ED the SFAP
calculated estimated loss for those loans. Respondent appears to question the authority of SFAP
to use the estimated loss formula and states that Respondent should be given the opportunity to
recover unauthorized FFEL funds from the students.See footnote 22 The estimated loss formula has been relied
on by SFAP as an alternative remedy to having a school purchase unauthorized loans.See footnote 33 This
tribunal has consistently held that this formula constitutes a fair calculation of the extent of ED's
losses where it has determined that an institution has improperly disbursed Title IV loans. See,
e.g., Christian Brothers, supra, note 3, and the many cases cited therein. .
Respondent may also satisfy its liability by purchasing the loans at issue and reimbursing
ED for any special allowances and interest payments made by ED for these loans.See footnote 44 In addition, it
may be at least theoretically possible for Respondent to satisfy its liability with respect to those
loans to those students for which it overestimated FFEL proceeds by purchasing that portion of
the FFELs for which the students were ineligible. See 34 C.F.R. § 682.609(a) (1996). However,
the individual promissory notes for these loans must be examined to ensure that such partial
purchase is possible. Again, if partial purchase is possible, Respondent must also reimburse ED
for any special allowances and interest payments paid on the excess portion of the loans.
a. Pay ED $7,914.
b. Purchase the loans for students 23, 10, 11, 13, 16, 20, 22, 35, 36, and 55, and
reimburse ED for special allowances and interest payments made for these loans.
c. Purchase the entire loan for student 23, and, if possible, purchase the excess portions
of the loans which were unauthorized for students 10, 11, 13, 16, 20, 22, 35, 36, and 55, and
reimburse ED for special allowances and interest payments made on all of the above loans.
Frank K. Krueger, Jr.
Dated: June 2, 1997
José A. Ortiz Daliot, Esq.
Counselors at Law
1719 Ponce De León Avenue
Santurce, Puerto Rico 00909-1905
Alexandra Gil-Montero, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110