UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
In the Matter of Docket No. 98-37-SF
HOLLYWOOD SCHOOL OF BEAUTY CULTURE & ADVANCED HAIR DESIGN,
The notice of intent to fine addresses funding data available for the 1995-96 award year,
and was sent on March 10, 1998. Preceding this notice, a standard Dear Colleague Letter (GEN-
96-17) was sent to all institutions reminding them of their obligations to submit the SSCRs to
NSLDS. The Department records indicate that this letter was sent to Hollywood on August 31,
1997. In addition, NSLDS sent an individual reminder to Hollywood on October 6, 1997. On
October 20, when SFAP still had not received communication from Hollywood, SFAP sent a
warning which stated that the school's failure to submit the SSCR reports to NSLDS could result
in administrative action. A separate warning letter was again sent on October 30. On October
31, NSLDS sent a second SSCR report followed by another set of reminder and warning letters
dated December 8, 22, and 29 respectively. SFAP alleges that despite these multiple
correspondences Hollywood still had failed to submit its SSCR to NSLDS as of May 6, 1998, the
date of SFAP's brief, which was more than 31 weeks beyond the initial due date of the report.
Under 20 U.S.C. § 1094 (c)(3)(B) and 34 C.F.R. § 668.84(a) the Department may fine an institution up to $25,000 for each violation of any provision of Title IV or any regulation or agreement implementing that Title. The amount of the fine reflects both the size of the institution as well as the gravity of the offense.See footnote 22 In this case, SFAP acknowledges that Hollywood is a small institution, but it contends that the school's failure to submit the SSCRs is a serious violation that impedes the government in effectively administering Title IV, HEA loan programs.See footnote 33
Since October 1990 Hollywood has employed Educational Management Consultants
(EMC), a servicer owned by Mary Clare. The school describes a series of communication
problems that existed between Hollywood and EMC during the period of October to December
1997. Beginning in October, Hollywood received a reminder letter from NSLDS which it
forwarded to EMC with instructions to submit the SSCR to NSLDS. When Hollywood received
no response from EMC the school simply assumed that the SSCR had been submitted as
instructed. Hollywood notes that subsequent to this time, there was little correspondence with
EMC and telephone conversations with Mary Clare were evasive. EMC contends that it
submitted the August SSCR, but that it was unable to provide electronic files to Hollywood .
Hollywood retained Mr. Gene Miller as the new servicer. His office received the first SSCR file on January 1, 1998. This SSCR was completed and submitted on March 14. An acknowledgment dated March 17, 1998, was sent to Hollywood. NSLDS issued and dated the final warning letter on March 2, 1998, followed by the notice of intent to fine on March 10, 1998.
Hollywood bases its appeal on the belief that the fine imposed by the Department is
unreasonable considering the brief time lapse between the last warning letter and the notice of
intent to fine. Hollywood states that it transmitted the SSCR before the school received the
notice of intent to fine. The school further states that it always has submitted the reports with due
diligence, but that because of circumstances beyond its control, the August 1997 SSCR was late.
Hollywood points to both its past record as well as the expeditious nature in which it submitted
the subsequent regular SSCR to rebut SFAP's allegations that Hollywood ignored its
responsibilities. As a result, the school seeks some mitigation in this matter.
In reviewing the foregoing evidence, it appears that a fine is an appropriate means of disciplining Hollywood for its regulatory non-compliance, although the amount should be less than that requested by SFAP. Clearly, Hollywood misunderstands the purpose of the Department's imposition of a fine for SSCRs submitted well past the directed date. SFAP relies on accurate and timelySee footnote 44 SSCRs because monitoring and auditing procedures are contingent upon receipt of this information. It matters not that only eight days passed between the final warning issued by NSLDS and the notice of intent to fine. The fine followed on the heels of nearly seven months of repeated reminders and warning letters that finally culminated in a notice of intent to fine. Hollywood's contention that it submitted an SSCR on March 14 and received an acknowledgment on March 17 cannot be reconciled with SFAP's assertion that the SSCR never was received and was more than 31 weeks late as of May 6. This discrepancy, however, does not alter the final analysis in this decision because based on either time computation the SSCR was submitted months beyond the initial due date of September 30, 1997. Hollywood does not deny receiving correspondence during the preceding months, nor does it assert that attempts were made to notify the Department of the problems it was having with its previous servicer (EMC). While Hollywood states that it relied on the good faith of the Department to assist the school in overcoming the reprehensible actions of a servicer who summarily ceased operations without properly advising the school, it does not indicate any initiative on the school's part to seek the advisement of the Department.
Title 34 C.F.R. § 668.82(b)(1) references the fiduciary responsibility in which the highest
standard of care and diligence in administering the programs and in accounting to the Secretary
of Education for the funds received is required. Hollywood was complacent in its monitoring of
EMC. The school assumed that no response from EMC regarding compliance with NSLDS's
latest report request was affirmation that the report had been submitted as required. Despite
subsequent lack of communication with EMC and Mary Clare's evasiveness, Hollywood did not
conduct proper follow-up with the servicer to ensure compliance, nor did the school notify the
Department of its difficulties.
The mitigation Hollywood seeks in this case cannot stem from the unreasonableness of
the Department's fine in general, but rather should originate from the size of the institution, the
lack of intentional noncompliance, and the totality of the circumstances including a strong past
record of compliance. Hollywood failed to submit the SSCR within the prescribed time of 30
days. As a result, the School violated 34 C.F.R. § 682.610(a) and 34 C.F.R. § 685.309(a) and
(b). While several cases resemble the noncompliance in this case, In re Pedigree Career
InstituteSee footnote 55 is most closely linked and supports applying a fine to the current violation.
In addition to the above-mentioned mitigating factors, monetary gain and actual cost in
interest to the Department may be assessed and used to compute the fine.See footnote 66 There is no evidence
of loss to the government in the form of improper interest payments. This does not, however,
negate the gravity or importance of timely SSCR filings since other loan reporting and financing
are relatedly at stake. The lack of evidence suggesting an actual loss, however, speaks to the
expediency of imposing a fine of a lesser amount than the $10,000 requested by SFAP.
Based on the facts of this case, a fine of $5,000 appropriately promotes efforts on the part of institutions to both initiate contingency plans should a servicer fail in its duties, as well as to establish better communication networks so that noncompliance does not continue unabated for nearly seven months. Hollywood did not intentionally refuse to comply, nor did it demonstrate a wanton disregard for regulatory requirements. Hollywood exercised poor judgment when it did not contact the Department directly and when it allowed indications that something was amiss in EMC's performance to go unnoticed. In short, Hollywood must implement a better monitoring system of the actions of its servicers because the ultimate responsibility lies with it, and prompt submission of SSCRs has large scale funding ramifications for both students and the Department.
Judge Richard O'Hair
Dated: June 10, 1998
Gene A. Miller, Educational Consultant
Hollywood School of Beauty Culture & Advanced Hair Design
7915 Menaul Boulevard, N.E.
Albuquerque, NM 87110
Jennifer L. Woodward, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110