UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
In the Matter of Docket No. 97-172-ST
MICHIGAN BARBER SCHOOL,
Paul G. Freeborne, Esq., Office of the General Counsel, U.S. Department of Education, Washington, D.C., for the Student Financial Assistance Programs.
Before: Frank K. Krueger, Jr., Administrative Judge.
Since SFAP has made a final determination that Respondent's cohort default rate for
fiscal year 1994 exceeded 40 percent, under the regulations implementing Title IV, I have no
discretion but to order termination from all of the Title IV programs, including the Pell Grant
program. See 34 C.F.R. § 668.90(a)(3)(iv) (1997); Palm Beach Beauty & Barber School, Docket
No. 97-102-ST, U.S. Dept. of Educ. (Oct. 23, 1997); Aladdin Beauty College,See footnote 22 Docket No. 97-
108-ST, U.S. Dept. of Educ. (Dec. 15, 1997) (on appeal to Secretary of Education); Academy for
Career Education, U.S. Dept. of Educ. (Feb. 2, 1998) (on appeal to Secretary of Education); Jon
Louis Schools of Beauty, Docket Nos. 96-108-ST & 97-19-ST, U.S. Dept. of Educ. (April 3,
1998), p. 15-16; Trend Beauty College, Docket No. 97-173-ST, U.S. Dept. of Educ. (April 28,
In 1995, when it strengthened its regulations concerning schools with high FFEL cohort
default rates, the Department suggested that such action was necessary to protect students and
Federal taxpayers from unscrupulous institutions that participate heavily in the loan programs
but do not provide quality educational services to those students, 60 Fed. Reg. 49,181 (Sept. 21,
1995), and that use promises of job training and placement to entice students to enroll and then . . . fail to provide worthwhile services, 60 Fed. Reg. 61,762 (Dec. 1, 1995). Respondent has
proffered a number of persuasive exhibits, however, which indicate that it is not the type of
institution that was intended to be targeted by the regulations. Consequently, if my termination
order is appealed, I recommend that the Secretary remand the case for a full evidentiary hearing
to consider the evidence proffered by Respondent and to subject the evidence to cross-
examination and rebuttal.See footnote 33 I also recommend that, at the conclusion of the hearing, I be charged
with the responsibility of preparing findings of fact and a recommended decision on what, if any,
action should be taken by the Secretary concerning Respondent's high cohort default rates.
For fiscal year 1994, Respondent's cohort default rate was 56.4 percent, with 23 students in repayment and 10 in default. The actual default rate was 43.5 percent, but since Respondent had less than 30 students in repayment, SFAP calculated its final determination using a three- year average. For fiscal year 1993, the three-year average rate was 61.4 percent; the actual rate was 76.2 percent, with 21 students in repayment and 16 in default. For fiscal year 1992, Respondent's three-year average rate was 51.3 percent; the actual rate was 45.5 percent, with 11 students in repayment and 5 students in default. Exhibit ED-2.
Respondent states that it has not certified any FFELs since July 1996. Declaration of
Darryl L. Green, Exhibit R-2, p. 3, ¶ 8. Under the Title IV statute, a school's participation in the
FFEL program ends after notification by the Department that its cohort default rate for each of
the three most recent fiscal years is 25 percent or greater. 20 U.S.C.A. § 1085(a)(2) (Supp.
1998). By letter dated September 16, 1996, Respondent lost its eligibility to participate in the
FFEL program pursuant to this statutory provision. Id. at 8, # 23; Declaration of Tara A. Porter,
Exhibit ED-3, p. 4, ¶ 11.
Respondent is owned and operated by a nonprofit corporation which has been licensed
and in good standing by the State of Michigan since at least 1974. Respondent's Executive
Officer and President of the Board of Trustees states that the school has existed as a nonprofit
corporation and has been run by his family since 1947. The records maintained by the State of
Michigan do not go back that far. Declaration of Forrest F. Green, Jr, Exhibit R-1, p. 1, ¶ 3 and
Attachment B. Respondent has an enrollment of approximately 200 students, 99 percent of
whom are African Americans and approximately 25 percent are women. Exhibit R-1, p. 2, ¶ 5.
There are only four licensed barber schools in the State of Michigan; Respondent is the only
licensed barber school in the City of Detroit. Exhibit R-1, p. 2, ¶ 7 and Attachment B.
According to Respondent's Financial Aid Director since 1987, he has never advertised the
availability of Federal student loans, and discourages students from seeking loans since most of
Respondent's students can manage their tuition and living expenses through Pell Grants and part-
time employment. Respondent did not approve any FFELs unless the student strongly insisted
on his or her need for the funds. Exhibit R-2, p. 4, ¶ 12.
Nevertheless, the students themselves were well aware that federal
loans were available, so that some students would insist on
receiving the [FFEL] for which they were eligible. There were
many, many cases in which I told students they should not apply
for a . . . loan but they came back a second, third or fourth time to
demand such a loan. There were times when I approved loans
because the student had an emergency need for the funds for living
expenses that had nothing to do with paying their tuition at
Michigan Barber. I can recall a handful of students who needed
the loans to pay their rent to avoid eviction or respond to other
Id., ¶ 13.
Again according to the Financial Aid Director, Respondent does not recruit students and
it only advertises in the Yellow Pages. Respondent claims a graduation rate in excess of 70
percent and a placement rate in excess of 90 percent. Over the past twelve years, 145 out of a
total of 1,502 students enrolled during this period received Federal student loans, which is less
than 10 percent of the student body. Of the 145 loan recipients, 112 graduated and 94 were
placed in barbering jobs. Of Respondent's remaining students, the great majority are dependent
on the Pell Grant program, with most of its students from poor and disadvantaged backgrounds
from the inner city of Detroit. Exhibit R-2, pp. 1-5.See footnote 44 Respondent claims that if it is terminated
from participation in the Pell Grant program it will be forced to close. Exhibit R-1, p. 3, ¶ 9 and
Exhibit R-2, pp. 2-3, ¶ 7. Respondent claims that it has a very strong record of compliance with
Title IV regulations and that, other than its high default rates, SFAP has not asserted any other
claims against the school. Exhibit R-2, p. 8, ¶ 14.
SFAP has not specifically disputed these assertions. Nevertheless, SFAP argues that
Respondent must be terminated from all Title IV programs, including the Pell Grant program,
based on Respondent's high cohort default rate. SFAP argues that [t]his type of action, which is
lauded by Congress, is necessary to protect unwitting students, as well as safeguard the
taxpayers, from further needless expenditure of tax dollars at an institution which continues to
act irresponsibly in its administration of the federal student loan programs. SFAP assumes that
high default rates are synonymous with a bad educational program. Much of Respondent's
proffered evidence indicates, however, that it is not acting irresponsibly in its administration of
the FFEL program and is providing an outstanding trade-school education. Respondent has a
very high graduation and placement rate. It does not advertise for students and it discourages its
students from seeking FFELs. Respondent submitted a sworn declaration from one of its
graduates who states that he is gainfully employed as a barber and that he received high quality
training from the Respondent. The declaration also states that he was discouraged from taking
out an FFEL by the school, but was given the loan at his insistence. The student also states that
he was counseled extensively concerning his obligations to repay the loan, but that he is in
default through no fault of the school.See footnote 55 Declaration of Donald A. Allen, Exhibit R-7.
Respondent submitted a number of additional declarations from its graduates testifying to the
fine training provided by the Respondent, that graduates generally have jobs offered prior to or
shortly after graduation, and that the jobs secured have enabled them to move off public
assistance. Exhibits R-3 - R-6. Respondent argues that the reason for the large number of
defaulting FFEL borrowers, in the face of high postgraduate employment of its students, is
because the borrowing students tended to be the neediest of its students. Respondent's Pre-
Hearing Brief, p. 14.
SFAP correctly notes that I lack any discretion but to order termination. The Secretary of
Education, however, has the discretion to decide not to terminate the Respondent. Under 34
C.F.R. § 668.90(a)(3)(iv) (1997), the hearing official must order termination if that is the
sanction sought by SFAP and SFAP has made a final determination that the Respondent's cohort
default rate for any given fiscal year exceeds 40 percent. That regulation states nothing
concerning the Secretary's authority. Under 34 C.F.R. § 668.17(a)(2) (1997), the Secretary
may initiate proceedings to terminate, suspend, or limit an institution's participation in all of
the Title IV programs because of a cohort default rate in excess of 40 percent. The use of the
word may denotes discretion. Obviously, if the Secretary can exercise discretion on whether to
initiate a Subpart G proceeding, and whether to seek termination, suspention, or limitation, the
Secretary may also exercise discretion when reviewing a decision before him on appeal from a
hearing official's mandatory termination order. Under 34 C.F.R. § 668.120 (1997), the Secretary
may modify, remand, or overturn the initial decision of the hearing official.
Frank K. Krueger, Jr.
Dated: May 5, 1998
A copy of the attached initial decision was sent by certified mail, return receipt requested, to the following:
Paul G. Freeborne, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110
Leslie H. Wiesenfelder, Esq.
Jonathon C. Glass, Esq.
Dow, Lohnes, & Albertson
Attorneys at Law
1200 New Hampshire Ave., N.W.
Washington, D.C. 20036-6802
Respondent's motion to stay is based on an appeal it has pending with SFAP concerning its continued ineligibility to participate in the FFEL program based on having three consecutive years with cohort default rates in excess of 25 percent. Under 34 C.F.R. § 668.17(c) (1997), a trade school may avoid ineligibility under exceptional mitigating circumstances by demonstrating to SFAP that it has a placement rate of 50 percent or higher and that it serves a population with a poverty rate of 70 percent or higher. Under 34 C.F.R. § 668.17(a)(5) (1997), if a school is able to demonstrate such exceptional mitigating circumstances, the Secretary ceases any limitation, suspention, or termination action against [the] institution. Respondent argues that, if its appeal for fiscal year 1995 is sustained, the Department must terminate this proceeding even though it is based on Respondent's cohort default rate for fiscal year 1994. I disagree with Respondent's interpretation. Section 668.17(a)(5) appears to be directed toward a limitation, suspention, or termination proceeding initiated by SFAP concerning a fiscal year covered by the exceptional mitigating circumstances appeal. Accordingly, Respondent's motion to stay is denied.