UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
In the Matter of Docket No. 97-173-ST
TREND BEAUTY COLLEGE,
Renee Brooker, Esq., and Paul Freeborne, Esq., Office of the General Counsel,
United States Department of Education, Washington, D.C., for Student Financial
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
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
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.
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
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