WASHINGTON, D.C. 20202


In the Matter of                         Docket No. 97-173-ST






    The office of Student Financial Assistance Programs (SFAP) of the U.S. Department of Education (Department), on November 4, 1997, issued a notice of intent to terminate the eligibility of the Trend Beauty College (Trend) to participate in the student financial assistance programs authorized under Title IV of the Higher Education Act of 1965, as amended (HEA). 20 U.S.C. § 1070 et seq. and 42 U.S.C. § 2751 et seq. Trend wishes to continue participating in the Pell Grant, Supplemental Educational Opportunity Grant, Perkins Loan, and Federal Work-Study Title IV programs, and it filed a request for hearing on this matter.

    SFAP initiated this termination proceeding because Trend's Federal Family Education Loan (FFEL) Program's fiscal year 1994 cohort default rate of 57.1 percent qualifies it for termination from participation in all of the federal student financial assistance programs pursuant to the provisions of 34 C.F.R. § 668.17(a)(2).See footnote 11 This section of the regulation authorizes the Secretary of Education (Secretary) to initiate a proceeding under Subpart G to limit, suspend, or terminate the eligibility of an institution which has a cohort default rate that exceeds 40 percent for any fiscal year. SFAP explains that the Secretary's rationale for taking this stringent action against institutions which have such a large percentage of their students defaulting on their federally subsidized student loans is his determination that schools with high default rates are drains on the federal economy and that these schools should be held responsible for this expense. 53 Fed Reg. 180,36216 (September 16, 1988, proposed rule). Additionally, he is of the opinion that an institution's cohort default rate is a factor in the determination of the institution's ability to administer properly the Title IV, HEA programs. 34 C.F.R. § 668.16(m)(1). SFAP also notes a 1991 Senate Report, Abuses in Federal Student Aid Programs, (“Senate Report”), S.Rep. No. 58, 102d Cong., 1st Sess. (May 17, 1991) at 10, which concluded that “schools with high default rates victimize students by leaving them with huge debts and little or no education, and consequently result in those students being left in a worse position than when they started school.”

    Trend's fiscal year (FY) 1994 cohort default rate of 57.1 percent was based on an average calculation which was computed by finding the average of the percentage of current and former borrowers who entered repayment in FY 1992, FY 1993, and FY 1994 and defaulted before the end of the fiscal year immediately following the fiscal year in which they entered repayment. This “average” rate was applied because Trend had fewer than 30 borrowers entering repayment in FY 1994. 34 C.F.R. § 668.17(d)(1)(i)(B). Trend was notified of its FY 1994 cohort default rate on January 6, 1997, and simultaneously informed of its right to appeal this cohort default rate. Trend did not file an appeal of this rate and, therefore, the rate became final as of that date. An additional consequence of its failure to appeal is that it is thereafter prohibited from challenging that rate in any other proceeding before the Department. 34 C.F.R. § 668.17(i).

    In a termination proceeding initiated against an institution which has a cohort default rate exceeding 40 percent for any fiscal year, SFAP has the burden of showing that it has calculated a cohort default rate for the institution and that the rate exceeds 40 percent. If the institution exercises its right to request a hearing, the hearing official must find that the sanction sought by SFAP is warranted unless the institution can show, by clear and convincing evidence, that the cohort default rate is not the final rate determined by the Department and that the correct rate is 40 percent or less. 34 C.F.R. § 668.90(a)(3)(iv).See footnote 22 SFAP has clearly satisfied its burden here and Trend is subject to termination.

    Trend has not submitted any evidence suggesting that its FY 1994 rate is not final or is 40 percent or less, but it has submitted a number of explanations for its excessive cohort default rates. It forcefully argues that it is not guilty of perpetrating the ills which Congress and the Secretary seek to remedy by initiating termination proceedings against every institution which has cohort default rates in excess of 40 percent. To this end, it raises eight points which are summarized below:

    In conclusion, Trend cannot understand what federal funds will be saved by terminating its Title IV eligibility now, even though it ceased certifying loans five and one-half years ago. Furthermore, it projects that for calendar year (CY) 1996, because of the averaging method used for computing the rate, it will still have a cohort default rate of 37.5 percent, the same rate it has for CY 1995, even though it will have no students entering repayment.

    As compelling as some of these arguments may be, the regulations preclude the hearing official from considering any of them. 34 C.F.R. § 668.90(a)(iv). That section directs that the hearing official must find SFAP's prayer for termination of an institution's eligibility is warranted, unless the institution can show that the cohort default rate is not the final rate and that the correct rate is 40 percent or below. Trend has not shown that its cohort default rate for FY 1994 is not final or that the correct rate is 40 percent or below. Applying this criteria, Trend must be terminated.


    On the basis of the foregoing, it is hereby ORDERED that the eligibility of Trend Beauty College to participate in the student financial assistance programs authorized under Title IV of the Higher Education Act of 1965 be terminated.

                             Judge Richard F. O'Hair

Dated: April 28, 1998


A copy of the attached initial decision was sent by certified mail, return receipt requested to the following:

H.D. Allen
President, Trend Beauty College
#8 Eastgate Plaza
East Alton, IL 62024

Paul Freeborne, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110

Footnote: 1    1 Unless otherwise noted, all cited regulations are contained in 34 C.F.R. and refer to the 1997 edition.
Footnote: 2    2See also Academy for Career Education, U.S. Dept. of Education, Dkt. No. 97-124-ST (Feb. 20, 1998); Alladdin Beauty College #32, U.S. Dept of Education, Dkt. No. 97-108-ST (Dec. 15, 1997); Palm Beach Beauty & Barber School, U.S. Dept. of Education, Dkt. No. 97- 102-ST (Oct. 23, 1997).