IN THE MATTER OF PHILLIPS | Docket No. 91-96-SA
COLLEGE OF ATLANTA, |
| Student Financial
Respondent. | Assistance Proceeding
DECISION
Appearances: Leslie H. Wiesenfelder, Esq., Dow, Lohnes Albertson for Phillips College of Atlanta.
Renee Brooker, Esq., Office of the General Counsel, for the Office of
Student Financial Assistance Programs, United States Department of
Education.
Before: John F. Cook, Chief Administrative Law Judge
I. PROCEDURAL BACKGROUND.
A Final Audit Determination (FAD) was issued by the Chief, Audit Review Branch,
Division of Audit and Program Review, Office of Student Financial Assistance Programs
(SFAP)See footnote 1
1
of the U.S. Department of Education on September 23, 1991, to Phillips College of Atlanta (PCA or Phillips). PCA filed a request for review on November 13, 1991.
A Notice of Receipt of Request for Review and Prehearing Order was issued to the
parties and the parties filed, and the tribunal granted, several motions to modify the briefing
schedule. Thereafter, the parties filed briefs, exhibits, and a joint memorandum of stipulations of
fact, stipulations of law, issues of fact, and issues of law. An oral argument took place on
December 16, 1993.
II. ISSUES .See footnote 2
2
In accordance with 34 C.F.R. § 668.118 (b), is the final audit determination issued by the
designated Department official supportable, in whole or in part?
1. Finding No. 1.
Was PCA ineligible to participate in the GSL Programs from July 1, 1987 to April 1,
1990?
a. Were PCA's admissions representatives actually "commissioned salespersons" who
"promoted the availability" of GSLP and PLUS program loans to prospective or enrolled
students, as defined by 34 C.F.R. § 682.200?
b. Can an institution be declared ineligible to participate in the GSL Programs during a
previous time period under the procedures contained in 34 C.F.R. Part 668, Subpart H,
which ineligibility was due to its failure to meet the statutory definition of an eligible
institution, if that determination as to eligibility forms the basis for a final audit
determination?
c. Under 34 C.F.R. § 668.116(e)(1), can "OTHER ED records and materials" be
introduced after the 30 day period mentioned in § 668.116(e)(1)(v) if that evidence did
not exist until after this 30 day period has expired?
2. Finding No. 2.
Did PCA admit students during the 1987-88 award year who did not demonstrate the
ability to benefit from the program?
a. Does 34 C.F.R. § 600.11(b)(1) implicitly require that an institution must administer its
ability to benefit tests according to the guidelines prescribed by the developer of the test?
b. Did PCA time students who took the Wonderlic Personnel Test (WPT) at 12 minutes?
Finding No. 3.
Did PCA admit a student during the 1987-88 award year who did not demonstrate the
ability to benefit from the program in that she was allowed more time than is permitted for the
administration of the WPT?
Finding No. 4.
a. Was PCA's disbursement of Pell Grant funds in two payment periods instead of three a
violation of federal law?
b. Was PCA on the quarter system, or was it an institution without academic terms?
III. EXHIBITS.
A. SFAP'S EXHIBITS.
Ex. E-1. Inspector General Report on Review of Administration of Student Financial
Assistance Programs at Phillips College, Atlanta Georgia, dated June, 1991. (20 pp.).
Ex. E-2. Final Audit Determination Letter, dated September 23, 1991, from Ethelene R.
Hughey, Division of Audit and Program Review to Mr. Kenneth Humphrey. (10 pp.).
Ex. E-3. Request for Review of Final Audit Determination ACN 04-00018, from Leslie H.
Wiesenfelder, Esq., dated November 11, 1991. (20 pp.).
Ex. E-4. Affidavit of Ronald Wesley Rhoads, former Financial Aid Director of Phillips
College of Atlanta, dated November 7, 1991. (12 pp.).
Ex. E-5. Inspector General Workpapers Regarding Promotion of the Availability of the
Guaranteed Student Loan Programs at PCA. (25 pp.).
Ex. E-6. Letter re fraud at Atlanta College of Medical and Dental Careers from J. Sedwick
Sollers, III, Esq., King & Spaulding to Van Phillips, Office of Inspector General, dated January
27, 1992. (2 pp.).
Ex. E-7. Inspector General Workpapers Regarding Ability to Benefit Program at PCA.
(13 pp.).
Ex. E-8. Inspector General Workpapers Regarding Student Financial Aid File
Deficiencies, Payment Amounts and Periods. (29 pp. ) .
B. RESPONDENT'S EXHIBITS.
Ex. R-1. Final Audit Determination.
Ex. R-2. OIG Draft Audit Report.
Ex. R-3. Affidavit of Ronald Wesley Rhoads.
Ex. R-4. AICS materials; excerpt from AICS Directory of Educational Institutions.
Ex. R-5. College's Ability to Benefit policies.
Ex. R-6. AICS Ability to Benefit Guidelines.
Ex. R-7. Collection of student records relating to Finding No. 2.
Ex. R-8. February 13, 1989 letter from E.F. Wonderlic & Associates, Inc. to Regional
Inspector General for Audit, Atlanta Georgia; Wonderlic Personnel Test Manual.
Ex. R-9. Collection of student records relating to Finding No. 3.
Ex. R-10. Affidavit of Donovan Mack Woodside, Jr.
Ex. R-11. Affidavit of Benjamin F. McPherson.
Ex. R-12. Excerpts from OIG's workpapers.
Ex. R-13. Federal Register Notice dated February 5, 1971.
Ex. R-14. Collection of SFAP documentation relating to nonstandard term institutions.
Ex. R-15. Student records; excerpt from Phillips Colleges, Inc.'s Financial Aid Manual.
Ex. R-16. Summary list of students cleared by Phillips College of Atlanta under the ability
to benefit finding and the grounds therefor.
Ex. R-17. Supplemental Declaration of Ernest C. Canellos.
Ex. R-18. Letter dated March 11, 1992 from the law firm of King & Spalding to the
Regional Inspector General for Investigations, Atlanta, Georgia.
Ex. R-19. SFAP's Motion to Strike Exhibits and Limit
Proceedings in the Matter of Hellenic College, Docket No. 91-77SP .
Ex. R-20. Opposition of Hellenic College to SFAP's Motion to Strike Exhibits and Limit
Proceedings in the Matter of Hellenic College, Docket No. 91-77-SP.
C. RULINGS AS TO RECEIPT OF EXHIBITS IN EVIDENCE.
1. SFAP'S OBJECTIONS TO EXHIBITS.
Except as noted below, SFAP has no objection to the authenticity or admissibility of Ex.
R-1-2 and R-4-14. These exhibits will be accepted into evidence.
At page 9 of its reply brief, SFAP states that "the documents that PCA submits on behalf of [[student name], [student name], [student name], and [student name]] is [sic] untimely submitted under 34 CFR 668.116 and cannot be admitted by this Tribunal." The documents
contained in Ex. R-9 were submitted with PCA's request for review and therefore were timely
submitted under § 668.116(e)(1)(ii). The documents contained at Ex. R-12-8-10 and Ex. R-15-2
are "ED audit reports and audit work papers for audits performed by the United States Education
Department Office of Inspector General." § 668.116(e)(1)(i). Since these documents were
submitted with PCA's initial brief, they were timely submitted in accordance with § 668.116(e)(2).
SFAP suggests that this tribunal accord no weight to the affidavit of Ronald Rhoads,
contained in Ex. R-3. The weight to be accorded the Rhoads affidavit will be discussed in the
opinion.
SFAP objects to the admissibility of Ex. R-15, on the basis that these documents were not
timely submitted by PCA. Ex. R-15-2 is an "ED audit report[] and audit work paper E] for audits
performed by the United States Education Department Office of Inspector General" under §
668.116(e)(1)(i). Since this document was submitted with PCA's initial brief, it was timely
submitted in accordance with § 668.116(e)(2). Both in its briefs and at the oral argument, counsel
for PCA stated that Ex. R-15-5-7 "are documents from the IG work papers relating to finding
number four." Tr. at 56; Resp. Initial Br. at 43 (n.20), 62-63. As such, they also were "ED audit
reports and audit work papers for audits performed by the United States Education Department
Office of Inspector General" under § 668.116(e)(1)(i). Since these documents were also
submitted with PCA's initial brief, they were timely submitted in accordance with § 668.116(e)(2).
The documents contained at Ex. R-15-1 and Ex. R-15-3-4 relate to students for whom SFAP has
withdrawn any claims for liability. Therefore, these exhibits are now moot.
Additionally, SFAP objects to Ex. R-16 and the contents of the chart, on the basis that it
reflects the conclusions of counsel for PCA characterizing the evidence against the College and
therefore is not evidence, but merely argument. This exhibit is a summary chart of PCA's evidence
and exhibit references. Ex. R-16 will be admitted into evidence.
2. RESPONDENT'S OBJECTIONS TO EXHIBITS.
PCA does not object to the authenticity or admissibility of the following SFAP Exhibits
subject to the express caveats that (l) the College is not agreeing that they are admissible for the
truth of the statements made therein but only as evidence that the statements were made, and (2)
the College is objecting to all handwritten notations and marginalia (except signatures).
Ex. E-1-1-20
Ex. E-2-1-10
Ex. E-5-18-20
Ex. E-7-1-9
Ex. E-8-l-10
At the oral argument, SFAP replaced Ex. E-5-18-20 and E-7-69 with pages that were
identical in every way, except that they did not contain the handwritten notations and marginalia.
Tr. at 6-7. All of these exhibits are accepted into evidence.
PCA admits the authenticity and admissibility of the following exhibits:
Ex. E-3-1-20
Ex. E-4-1-12
Ex. E-5-3
Ex. E-5-6-9
Ex. E-5-13-15
All of these exhibits are accepted into evidence.
PCA admits to the authenticity but not the admissibility of Ex. E-5-1. Ex. E-5-1 will be
accepted into evidence, but is considered to have little probative value because it is not dated.
PCA objects to the admissibility and authenticity of the handwritten notations and
marginalia on the following SFAP exhibits:
Ex. E-5-12
Ex. E-5-16-17
Ex. E-7-10-13
Ex. E-8-11-15
At the oral argument, SFAP replaced Ex. E-5-12, E-5-16-17, E-710-13, E-8-12-13, and E-8-15
with pages that were identical in every way, except that they did not contain the handwritten
notations and marginalia. The tribunal will accord no weight to the
handwritten notations and marginalia contained at Ex. E-8-11, 14. All of these exhibits are
accepted into evidence.
PCA objects to Ex. E-5-2, E-5-4, E-5-5, E-5-10, and E-5-ll in their entirety. These
exhibits will be accepted into evidence, although the fact that they do not contain a date on their
face may affect their probative value.
PCA objects to Ex. E-5-16 as irrelevant. As will be discussed in the opinion, this exhibit is
relevant to the decision.
Therefore, Ex. E-5-16 is accepted into evidence.
PCA objects to Ex. E-5-21-23 and E-5-24-25. Additionally, PCA objects to Ex.
E-8-16-29. At the oral argument, counsel for SFAP indicated that SFAP is withdrawing Ex.
E-5-21-25 and E-8-1629. Therefore, these exhibits will not be accepted into evidence.
PCA has objected to the letter contained in Ex. E-6 on the basis that it was not timely
submitted. For the reasons discussed infra in footnote 12, the tribunal agrees. Therefore, Ex. E-6
will not be accepted into evidence.
IV. FINDINGS OF FACT AND OPINION.
A. STIPULATIONS OF FACT.See footnote 3
3
1. The Department's Office of Inspector General for Region IV ("IG") conducted an
Audit of Administration of Federal Student Financial Assistance Programs at the College.
Fieldwork was conducted from July 25, 1990 through August 9, 1990. (Ex. E-15).See footnote 4
4
2. The Department's Division of Audit and Program Review issued a Final Audit
Determination on September 23, 1991, with respect to the issues addressed in the audit. (Ex.
E-2).
3. By letter dated November 12, 1991, The College appealed the Final Audit
Determination and requested a hearing on the record. (Ex. E-3).
4. In Finding No. 1 of the September 23, 1991 Final Audit Determination (Ex. R-1)
issued by OSFA for the 1987-88, 1988-89 and 1989-90 award years, OSFA contends that the
College was ineligible to participate in the Guaranteed Student Loan and PLUS Programs from
July 1, 1987 to April 1, 1990 because it employed commissioned salespersons who allegedly
"promoted the availability" of Guaranteed Student Loans and PLUS Program loans (hereinafter
collectively referred to as "GSLs"). (Ex. R-1-3).
5. AICS is the accrediting agency for a number of schools owned by Phillips Colleges,
Inc., including Phillips College of Atlanta. (Ex. R-4-12-13).
6. The OIG workpapers state:
The [Institutional Model] application was a means to collect all of the information needed
to complete the subsequent paperwork, enrollment agreement, and Federal SFA
applications, including applications for Guaranteed Student Loan/Stafford loans. Phillips
college has since stopped the practice of allowing Admissions Representatives to
complete the Institutional Model Application.
(Ex. R-12-7).
7. OSFA does not question the College's eligibility to participate in the GSL program prior
to July 1, 1987 or after April 1, 1990, but rather claims it was ineligible during the interim. (Ex.
R-1-3).
8. Exhibit 6 is a January 27, 1992 letter from J. Sedwick Sollers III, Esquire, of the law
firm of King &Spalding to the OIG in Region IV, Atlanta, Georgia, in which, as counsel for
Phillips Colleges, Inc. ("PCI"), PCI was "voluntarily disclos(ing)
allegations of fraud at Atlanta College of Medical and Dental Schools." (Ex. E-6).
9. The Final Audit Determination states that only $24,686 of the $59,994 repayment
liability is sought under Finding No. 2 because the balance of $35,258 is sought under Finding No.
1. (Ex. R-1-5).
10. OSFA has disallowed $32,702 in Title IV aid awarded to 10 students on various
specified grounds. The Final Audit
Determination states that only $15,093 of the $32,702 repayment liability is sought under Finding
No. 3 because the balance of $17,609 is sought under finding No. 1. (Ex. R-1-6-7).
11. OSFA claimed that [student name] received $350 more in Pell Grant funds than was
correct. The College does not dispute this conclusion.
12. [student name] was selected for verification; however, since the College did not
obtain any documentation to verify her income, the College does not dispute OSFA's conclusion
that she was overawarded $1,050. 34 C.F.R. § 668.54(b)(2).
13. The College cannot dispute the conclusion of OSFA that the disbursement of
$1,692.96 to [student name] was incorrect.
14. Because the College no longer can locate the ATB test for [student name], and
because his Enrollment Agreement reflecting his score is unsigned by anyone, the College cannot
dispute OSFA's claim that $899 was improperly awarded to him.
15. In Finding No. 4, OSFA asserted that the College
"improperly disbursed Pell Grants to students who were not fulltime students and disbursed Pell
Grants in two disbursements when program regulations required three disbursements." (Ex.
R-1-8).
16. In fact, in response to a question posed to OSFA's Region V as to whether a school
may be allowed to retroactively formalize in writing its definition of academic year for GSL
purposes and reconstruct student awards to establish that all GSL applications were certified
properly (Ex. R-14-9), Region V responded on October 5, 1988 as follows:
A school may change its definition of an academic year, assuming it complies with the
regulatory definition cited above. However, the new definition may not be applied
retrospectively. Therefore, a school may not retrospectively calculate student awards
using a new definition of academic year in order to eliminate an institutional liability.
(Ex. R-14-10).
17. Effective July 1, 1991, at the insistence of OSFA, a change to operate a three-payment
system was made by all schools owned by Phillips Colleges, Inc. See Ex. R-10-3-5 and Ex. R-11.
18. Both of the catalogs OSFA uses as exhibits, i.e., the 1988 and 1989-90 catalogs,
expressly refer to the College's "Mini-Quarters". See Ex. E-8-15 and E-8-13.
19. OSFA routinely provides guidance to its own employees as well as to the institutions
who participate in one or more Title IV HEA programs and the general public.
20. Under Finding No. 4, the Final Audit Determination also concluded that the College
"improperly disbursed Pell Grant funds to students who were not full time students. . ." (Ex.
R-1-8).
21. The February 1991 Draft Audit Report states that "[t]hroughout our audit period,
Phillips employed a system of using 5-week Mini-Quarters to enroll students prior to the start of
regular quarters. Phillips allowed students to enroll in a 5-week Mini-Quarter in which they
attended each class for 2 hours a day. The students only enrolled for two classes, totaling 8 credit
hours, during the Mini-Quarter. Phillips catalog for 1988 states, 'During a Mini-Quarter, eight (8)
credit hours is considered full time.'" (Ex. R-2-16).
B. OPINION AND ADDITIONAL FINDINGS OF FACT.
1. Admissions Representatives.
SFAP claims that PCA's admissions representatives were actually commissioned
salespersons who promoted the availability of the Guaranteed Student Loan Programs,See footnote 5
5
thereby rendering the College ineligible during the audit period. SFAP Initial Br. at 3-5; SFAP Reply Br.
at 3-5.
PCA argues that commissioned salespersons employed by PCA at no time promoted the
availability of Guaranteed Student Loans. According to the College, "promoting the availability"
is a term defined by regulation. PCA claims that its commissioned salespersons were not
"promoting the availability" of Guaranteed Student Loans and that Finding No. 1 is based on an
illegal and unenforceable expansion of the term "promoting the availability". In addition, PCA
claims that Finding No. 1 violates both the College's right to due process and the General
Education Provisions Act (GEPA). The College further contends that SFAP's finding is the
equivalent of an institutional eligibility termination that can only legally be accomplished through a
limitation, suspension or termination action under Subpart G. Furthermore, PCA insists that AICS
standards are irrelevant to any issue in this case. Resp. Initial Br. at 3-38. PCA also argues that
SFAP has misconstrued Ex. E-6 and that this exhibit is inadmissible under SFAP's stated position
regarding the rules governing this proceeding. As a result, according to the College, the weight to
be given the Rhoads affidavit is unaffected by Ex. E-6. Resp. Reply Br. at 5-24.
Both parties agree that the relevant regulation applicable to this finding is 34 C.F.R. §
682.200. SFAP Initial Br. at 3; SFAP Reply Br. at 3; Resp. Initial Br. at 3-4; Resp. Reply Br. at 5.
During the audit years in question, the regulation stated, in pertinent part:
School:
. . . .
(3) A school that employs or uses commissioned salespersons to promote the availability
of the GSLP or the PLUS Program is not eligible to participate in those programs. For this
purpose
(i) A "commissioned salesperson" is one who receives compensation in any form
or amount that is related to, or calculated on the basis of, student applications for
enrollment, student enrollments, or student acceptances for enrollment; and
(ii) "Promote the availability" means providing prospective or enrolled students
with application forms, names of eligible lenders, or other information designed to
encourage persons to finance their education with a GSLP or PLUS Program loan. This
term does not include providing general financial aid information to prospective or
enrolled students.
34 C.F.R. § 682.200(b) (1987-1989).
The regulation states clearly that a school that uses or employs commissioned salespersons
to promote the availability of the GSLP or PLUS programs is not eligible to participate in the
GSLP or PLUS programs. The definition of "commissioned salesperson'' is quite broad, applying
to anyone who receives compensation in any form or amount that is related to or calculated on
the basis of student applications for enrollment, student enrollments, or student acceptances for
enrollment. The definition of "promote the availability" is similarly broad, providing several
examples of prohibited conduct, but also prohibiting " providing . . . other information designed to
encourage persons to finance their education with a GSLP or PLUS Program loan." Thus, other
than "providing general financial aid information to prospective or enrolled students", a school
cannot provide any information designed to encourage persons to finance their education with a
GSLP or PLUS Program loan. This prohibited conduct includes, but is not limited to, providing
prospective or enrolled students with application forms or names of eligible lenders.
The OIG audit stated as follows:
Phillips was ineligible to participate in the GSLP until April 1, 1990, because until that time their admissions representatives, who were commissioned salespersons, promoted the availability of GSLP student loans. Such promotion included completing the students'
Determination of Dependency Status and the Institutional Model Application,See footnote 6
6
and collecting the information needed to complete prospective students' applications for
Federal financial aid. Such practices were in violation of Federal regulations and
accrediting agency standards. Phillips' students received over $2.8 million in SLS and
GSLP funds during the period these promotion practices occurred.
. . .
Promotion of the availability of the GSLP by commissioned admission representatives
invalidated Phillips' eligibility to participate in the GSLP. Because Phillips was not eligible
to participate, its students were not eligible to receive $623,384 in SLS and $2,218,985 in
GSLP loans guaranteed for the period July 1, 1987 through September 30, 1989. In
addition, the respective loans the students received were not eligible for the applicable
interest and special allowance paid by ED.
Ex. E-1-7-8 (footnote added).
However, PCA argues that institutional eligibility cannot be adjudicated under the
procedures contained in 34 C.F.R., Part 668, Subpart H, and can be adjudicated only under the
procedures contained in Subpart G of that same part. The tribunal must disagree. 34 C.F.R. §
668.111(c)(1) states, in pertinent part, as follows:
(c) This subpart [Subpart H] does not apply to proceedings governed by Subpart G of this part or to a determination that
(1) An institution fails to meet the applicable statutory definition set forth in
sections 435, 481, or 1201 of the HEA, except to the extent that such a determination
forms the basis of a final audit determination or a final program review determination;
34 C.F.R. § 668.111(c)(1) (emphasis added).
Section 435 of the HEA is contained in the U.S. Code at 20 U.S.C. § 1085. That statute
defines the term "eligible institution'' and, among other things, states the following:
Subject to subsection (n), the term "eligible institution" means
(A) an institution of higher education;
(B) a vocational school; or
(C) with respect to students who are nationals of the United States, an institution outside the United States which is comparable to an institution
of higher education or to a vocational school and which has been approved
by the Secretary for the purpose of this part,
except that such term does not include any such institution or school which employs or
uses commissioned salesmen to promote the availability of any loan program described in
section 1078(a)(1). 1078-1, or 1078-2 of this title at that institution or school.
20 U.S.C. § 1085(a)(1) (1988) (emphasis added).See footnote 7
7
20 U.S.C. §§ 1078(a)(1), 1078-1, and 1078-2 describe the GSLP and PLUS programs.
Therefore, under 34 C.F.R. § 668.111(c)(1), Subpart H does not apply to a determination
that an institution fails to meet the statutory definition of an eligible institution set forth in 2G
U.S.C. § 1085, except to the extent that such a determination forms the basis of a final audit
determination. Conversely, Subpart H does apply to a final audit determination that an institution
fails to meet the statutory definition of an eligible institution because it employs or uses
commissioned salesmen to promote the availability of GSLP or PLUS program loans. Such is the
case here, since that determination as to eligibility forms the basis for the final audit determination
in Finding No. 1.
In making this determination, no action is being taken such as is contemplated in a
termination proceeding under Subpart G. Rather it is a determination of eligibility only for the
purpose of deciding whether or not the institution validly participated in GSL, PLUS, and SLS
Programs and thereby has an audit liability.
As a result, Subpart H is properly applicable to this case, and PCA has the ultimate burden
of proving that the disallowed expenditures were proper or that the institution complied with
program requirements.See footnote 8
8
In accordance with 20 U.S.C. § 1085, the College must demonstrate that it did not employ or use commissioned salesmen to promote the availability of GSLP or PLUS
program loans.
In a February 20, 1990 memorandum to presidents and directors of AICS-Accredited
[Phillips] CollegesSee footnote 9
9
, Mr. James McEllhiney, Director of Academic Affairs, Phillips Colleges, Inc., stated that "it has been determined that two steps of the current One-Stop Shopping process are
clearly in violation of the AICS Accreditation Criteria." Ex. E-5-16.See footnote 10
10
Mr. McEllhiney then advised the presidents and directors:
Two changes must be made in the One-Stop Shopping process:
1. Admissions representatives may no longer participate in the completion of the model aid application and the gathering of financial data used to determine
financial aid awards.
2. Admissions representatives may no longer report back the results of the preliminary award determination to the prospective student.
Ex. E-5-16 (emphasis in original). This memorandum demonstrates that, at least until February
20, 1990, admissions representatives at Phillips Colleges were participating in the completion of
the model aid application, gathering financial data in order to determine financial aid awards, and
reporting the results of the preliminary award determination back to prospective students.
Regarding the AICS Accreditation Criteria that Mr. McEllhiney had stated that Phillips
Colleges were in violation of, he continued:
The elements of the Accreditation Criteria which impact these activities are those which
prohibit "an employee who receives a commission and/or an employee who is also
involved in recruiting . . . from collection of data needed to make the (financial aid)
determination."
Ex. E-5-16. This language suggests that Phillips Colleges admission representatives were
receiving commissions, although the "and/or" language indicates that they were at least involved
in recruiting. In any event, they were performing at least one of these roles while also collecting
data needed to make the financial aid determination.
Mr. McEllhiney further stated:
We are not suggesting that gathering model application data and determining a preliminary
financial aid award be discontinued. This is an integral part of our successful One-Stop
Shopping procedure. Rather, we are saying that gathering the model application data and
communicating the Preliminary financial aid award must be done by a salaried employee
(with no commission or bonuses based on enrollments) who is not directly involved in
recruiting.
Ex. E-5-16 (emphasis added). This statement indicates that commissioned salespersons were, in
fact, gathering the model application data and communicating the preliminary financial aid award
to prospective students. All of these statements were contained in an internal memorandum of
Phillips Colleges, Inc.
Other exhibits contained in Ex. E-5 confirm the statements made in the McEllhiney
memorandum as well as the descriptions contained in the OIG audit and the FAD. The statements
in the November 6, 1987 Financial Aid Manual for Phillips Colleges, Inc. reveal that admissions
representatives completed application forms for prospective students. For example, within the
section entitled "Enrollment Procedures", the Financial Aid Manual stated:
In conversations prior to the student's initial interview with the Admissions Office,
the Admissions Representative requests that the prospective student bring certain relevant
items (tax forms. W-2's, etc.) which are essential to the calculation of eligibility for federal
financial aid.
During the admissions interview, the prospective student is assisted in completing
the Institutional Model Application by the Admission Representatives. This application
and related documents collect all the information needed to complete the subsequent
paperwork, enrollment agreement, and federal aid applications.
While the prospective student is in the testing process, the Admissions
Representative gives the Financial Aid Office the completed paperwork. The Financial Aid
Office then computes the student's eligibility for federal financial aid and prepares a
tentative method by which the student can meet the cost of tuition and books. This
method includes any federal funds for which the student is eligible and/or interest free
installment payments to the college.
The Admissions Representative then obtains the results of the testing. At this point
a final determination of the student's program can be made and the method by which the
student can pay for the pro-tram may be presented. The enrollment agreement and the
requests for transcripts are signed at this time. All completed forms are then given to the
financial aid office.
While the Admissions Representative is concluding this portion of the interview,
the Financial Aid Office is completing the necessary paperwork in preparation for financial
counseling.
Ex. E-5-12 (emphasis added). The charts defining the
responsibilities of the admissions representatives and the financial aid office, contained at Ex.
E-5-14-15, further confirm that the commissioned admissions representatives were intricately
involved in the promotion of the availability of GSLP and PLUS program loans.
This procedure employed by Phillips Colleges such as PCA was in direct violation of the
prohibition in § 682.200 against using commissioned salespersons to promote the availability of
GSLP and PLUS program loans. As the evidence discussed supra indicated, the College used
commissioned salespersons, which were called
"admissions representatives". See Ex. E-5-16. Moreover, these commissioned salespersons
promoted the availability of GSLP program loans by providing prospective students with
application forms. Ex. E-5-16; Ex. E-5-12-15; Ex. E-5-7-9.See footnote 11
11
It appears evident that the commissioned salespersons were doing much more to promote
the availability of GSLP program loans than simply ''providing general financial aid information to
prospective or enrolled students", as allowed by 34 C.F.R. § 682.200, although the boundary
between this permissible activity and all other prohibited activities is not entirely clear.
Nonetheless, there can be little doubt, on this record, that PCA was violating the explicit
prohibition in § 682.200 against providing prospective students with application forms. In
addition, many of the activities of PCA's Admissions Representatives appear "designed to
encourage persons to finance their education with a GSLP or PLUS Program loan." § 682.200
("the Admissions Representative requests that the prospective student bring certain relevant items
(tax forms, W-2's, etc.) which are essential to the calculation of eligibility for federal financial
aid"; "The Admissions Representative then obtains the results of the testing. At this point a final
determination of the student's program can be made and the method by which the student can pay
for the program may be presented"). Ex. E-5-1215. See also Ex. E-5-16; Ex. E-5-7-9. These
activities go well beyond the permissible activity of "providing general financial aid information to
prospective or enrolled students". PCA was impermissibly providing specific financial aid
information to prospective students.
PCA, which has the ultimate burden of persuasion in this Subpart H proceeding, has offered only the affidavit of Mr. Ronald Wesley Rhoads to refute the evidence offered by SFAP. Ex. R-3-1-8; Ex. E-4-1-8. Although the tribunal rejects, on procedural grounds, SFAP's attempt
to discredit Mr. Rhoads,See footnote 12 12 the tribunal does not find this affidavit to be persuasive because it
conflicts with all of the other evidence relating to this finding. In the affidavit, Mr. Rhoads states
as follows:
I have carefully reviewed the September 23, 1991 letter to Kenneth Humphrey, President
of the College, and specifically the finding related to commissioned sales persons. Given
my role as an Admissions Representative of the College, my roles later as its Financial Aid
Director and Director of Student Services, and my personal knowledge of the College's
policies, I can and do state that during the entirety of the time covered by the audit
conducted by the Office of Inspector General of the U.S. Department of Education, the
College's Admissions Representatives did not provide prospective or enrolled students
with application forms, names of eligible lenders or other information designed to
Encourage prospective students to finance their education with a Guaranteed Student loan
or PLUS Program loan.
Ex. R-3-4; Ex. E-4-4.
Mr. Rhoads further stated:
The Admissions Representative did not then or at any time give the student any financial
aid application forms to fill out. . . . Admissions Representatives could and would say only
that financial aid was available to those who qualified and that it was the Financial Aid
Office which would determine who was qualified and for what.
Ex. R-3-6; Ex. E-4-6.
These statements directly contradict the evidence outlined supra and contained in the
College's own corporate policy statements and internal memoranda. Moreover, despite the
voluminous nature of PCA's submissions, the College has provided no affidavits or evidence
whatsoever other than the affidavit supplied by Mr. Rhoads. Therefore, PCA has not satisfied its
burden of persuasion on this issue.
PCA also argues that Finding 1 is based upon an illegal and unenforceable expansion of
the term "promoting the availability". The College cites SFAP's February 1991 Draft Audit
Report, where SFAP states:
The 1987-88 "Questions and Answers" published by the Region IV Office of Student
Financial Assistance (OSFA) expanded the definition of "promote the availability." The
OSFA stated, "We have determined that this prohibition extends to providing need
analysis documents to students and to assisting students or their families in completing
those forms."
Ex. R-2-8. PCA then notes that the OIG workpapers referred to this "expanded" definition of
"promoting the availability'' as the basis of Finding 1. These workpapers stated as follows:
DOCUMENTATION OF THE PROMOTION OF THE AVAILABILITY OF THE
GSLP CRITERIA VIOLATED BY PHILLIPS COLLEGE
PURPOSE: To display the criteria concerning the promotion of the availability of the
GSLP that was violated by Phillips College
SOURCE: 1987-1988 Questions and Answers published by the Region IV Office of
Student Financial Assistance pages 48 and 49
SCOPE: Obtained the pertinent Questions and Answers from Cannon Myers, Program
Specialist, via John Moore ED OIG Auditor
CONCLUSION: According to Region IV, OSFA promotion of the availability of the
GSLP includes providing needs analysis documents to students and to assisting students or
their families in completing those forms. Phillips' admission representatives violated this
criteria by completing the Institutional Model Application and Determination of
Dependency Status, therefore making Phillips College ineligible to participate in the
GSLP. The admissions representatives also violated accrediting agency criteria.
Ex. R-12-1.
As stated earlier, the tribunal agrees that § 682.200 could have been drafted better. The
regulation states that the only permissible activity for commissioned salespersons is to "provid[e]
general financial aid information to prospective or enrolled students." It is not entirely clear as to
what constitutes "providing general financial aid information". Certainly, informing prospective
students that financial aid is available would be allowed. How much more, if anything, that these
commissioned salespersons can do, without constituting "promoting the availability" of GSLP
program loans, is questionable. Nevertheless, the regulation is very explicit in its prohibition of
certain activities. One of these expressly prohibited activities is "providing prospective or enrolled
students with application forms." This prohibition uses the words "application forms" and does
not limit itself to any specific types of federal application forms. The plain language of the
regulation prohibits "providing prospective or enrolled students with application forms." This
applies to any application forms. The evidence discussed supra illustrates that PCA was violating
this express prohibition. In addition, the intent of the regulation is evident in its catchall
prohibition against providing "other information designed to encourage persons to finance their
education with a GSLP or PLUS Program loan."
Thus, while the line between permissible "providing general financial aid information" and all other prohibited activities is unclear, it is clear that the activities of PCA's commissioned salespersons in collecting tax forms, W-2s, and other documents necessary to collect all the information needed to complete the subsequent paperwork, enrollment agreement, and federal aid applications; completing the Independent Model Application; and presenting "the method by
which the student can pay for the program'', violated the prohibition against promoting the
availability of GSLP and PLUS program loans contained in § 682.200. See Ex. E-5-12-15; Ex.
E-5-16; Ex. E-5-7-9. The College cannot argue that these activities constituted "providing general
financial aid information."See footnote 13
13
In other words, while the regulation may contain a grey area, the activities of PCA's commissioned salespersons were well within the sphere of prohibited activities.
This finding does not depend upon any "expanded" definition of the phrase "promoting the availability", but rests solely upon the language of § 682.200. The tribunal must make the ultimate determination as to whether the activities of PCA's commissioned salespersons violated the prohibition against "promoting the availability'' found in § 682.200. Therefore, whether or not SFAP "expanded'' the definition of the regulation is irrelevant, because the tribunal holds that Finding 1 is based upon the plain language of the regulation, as written, and that PCA has violated that regulation, as written.See footnote 14 14 Accordingly, the College's due process and GEPA arguments
concerning the "secret" and "unpublished" nature of the prohibitions contained in § 682.200 are
rejected.
In conclusion, PCA has not satisfied its burden of persuasion on this issue. Therefore, the
tribunal upholds Finding 1 of the FAD. PCA violated 34 C.F.R. § 682.200 because its
commissioned salespersons promoted the availability of GSLP and PLUS program loans.
The FAD requests PCA to refund $2,842,369 to lenders as follows: $2,218,985 in GSLP
loans and $623,384 in SLS loans. The method and calculations used by SFAP to determine these
amounts are contained at Ex. E-5-18-20. PCA must refund these amounts as requested in the
FAD less credits as described in the Order set forth in Section VII of this decision, infra. PCA
also must determine the improper loan amount from October 1, 1989 to April 1, 1990 and refund
this amount to lenders as well. The College also must refund to the Department of Education all
interest and special allowance paid on these loans.
2. Ability-to-benefit tests.
SFAP argues that PCA violated the ability-to-benefit regulations. SFAP Initial Br. at 5-6;
SFAP Reply Br. at 5-7.
PCA claims that it appropriately determined the ability of its students to benefit from the
program in which the students enrolled. PCA argues that SFAP has created categories of
deficiencies that do not exist in the statute or regulations and are both legally and factually
unsupported. Resp. Initial Br. at 38-49; Resp. Reply Br. at 24-25.
34 C.F.R. Part 600 contains regulations concerning institutional eligibility under the
Higher Education Act of 1965, as amended (HEA). This includes the HEA, Title IV programs. §
600.2 stated that an "eligible institution" includes:
(a) An institution of higher education, as defined in § 600.4;
(b) A proprietary institution of higher education. as defined in § 600.5;
(c) A postsecondary vocational institution, as defined in § 600.6; and
(d) A vocational school, as defined in § 600.7.
34 C.F.R. § 600.2 (1988-1989) (emphasis added).See footnote 15
15
Therefore, in order to be an "eligible institution" an institution must be one of these types of schools and satisfy the requirements of the
regulation referred to for that particular type of institution.
During the audit period, PCA was a proprietary institution of higher education.See footnote 16
16
The definition of a proprietary institution of higher education is contained in § 600.5. § 600.5(b) stated
as follows:
(1) A proprietary institution that admits as regular students persons who do not
have a high school diploma or its recognized equivalent and who are beyond the age of
compulsory school attendance in the State in which the institution is located, shall
consistently apply standards and procedures for determining, in accordance with § 600.11,
whether these students have the ability to benefit from the education or training it offers.
(2) An institution must be able to demonstrate, upon request of the Secretary. that
each regular student that it admitted who did not have a high school diploma or its
recognized equivalent satisfied the institution's standards under paragraph (b)(1) of this
section.
34 C.F.R. § 600.5(b) (1988-1989) (emphasis added).See footnote 17 17 Therefore, a proprietary institution that
admits ability-to-benefit students must comply with the standards and procedures contained in §
600.11 and must be able to demonstrate to the Secretary that it has done so for each
ability-to-benefit student that it has admitted.
§ 600.11 requires institutions that admit as regular students persons who do not have a
high school diploma or its equivalent to determine, at the time of admission, whether those
students have the ability to benefit from the education or training that the institution offers.
Institutions can determine this in one of three ways, to wit:
(1) Administering to the person a nationally recognized, standardized, or industry
developed test, subject to criteria of the institution's accrediting agency or association, that
measures the applicant's aptitude to successfully complete the educational program for
which the student has applied) or
(2) Determining that the person has the capability to successfully complete a GED
preparation program by the end of the first year of the course of study or prior to the
student's certification or graduation from the program of study, whichever is earlier) or
(3) Placing the person, after counseling or failure to meet the institution's
admission's [sic] testing requirement, in an institutionally prescribed program or course of
remedial or developmental education not to exceed one academic year or its equivalent.
34 C.F.R. § 600.11(b)(1)-(3) (1988-1989).See footnote 18
18
Accordingly, proprietary institutions can satisfy the ability-to-benefit requirements in any
of three different ways. Nonetheless, whichever method the institution chooses, it "must be able to
demonstrate, upon request of the Secretary, that each regular student that it admitted who did not
have a high school diploma or its recognized equivalent satisfied the institution's
[ability-to-benefit] standards . . . ." § 600.5(b)(2).
Since PCA chose to administer an ability-to-benefit test to students who did not have a high
school diploma or its equivalentSee footnote 19
19
, the College must comply with the requirements of § 600.11(b)(1) by administering to these students "a nationally recognized, standardized, or industry
developed test, subject to criteria of the institution's accrediting agency or association, that
measures the applicant's aptitude to successfully complete the educational program for which the
student has applied . . ." PCA's accrediting agency, AICS, stated the following in a 1988
memorandum entitled "Ability-To-Benefit Update and Clarifications":
27. How do the AICS Standards for admitting ability-tobenefit students fit into the Federal requirements for ATB students?
A. The AICS Standards mandate that an institution admitting students who do not have a high school diploma or equivalent must demonstrate the student's ability to
benefit from the training offered by the institution. "Such ability-to-benefit
determination shall include, as a minimum, the administration of a validated test
and academic and career advising."
Ex. R-6-4 (emphasis added). Through the use of the word "validated", AICS requires member
institutions to administer their ability to benefit tests in accordance with the standards prescribed
by the test's developer.See footnote 20
20
Therefore, the tribunal must determine whether PCA complied with § 600.11(b)(1) by
administering its ability-to-benefit tests in accordance with the standards prescribed by the test's
developer.
The auditors stated as follows:
In all, we found 32 students who did not demonstrate the ability to benefit from the
institution's education or training program. Some ability to benefit tests had multiple types
of deficiencies, and the deficiencies included:
-- No ability to benefit tests in file, (7) instances
-- Tests in file had two types of markings on the answers; erasures showed changes to correct answers, (5) instances
-- Tests in file were not standardized, i.e., the WPT or the P.A.R. test; and did not meet the requirements of the regulations, (3) instances
-- Enrollment Agreements stated that students took 15 minutes to take the WPT, a
12 minute test, (6) instances
-- Students did not make the minimum passing score of "10" on the WPT, (6) instances
-- Students attempted many more questions than the average attempted during a 12 minute test; students took more than 12 minutes to complete the test, (5) instances
-- A test was improperly graded to give a passing score, (1) instance
-- Students achieved only the minimum WPT score of "10"; a score that was too low to show ability to benefit according to the test publisher, (2) instances
Ex. E-1-9-10.
SFAP lists these 32 students at Ex. E-7-1-3. In response, PCA has created a chart with the
names of these 32 students, the alleged deficiencies, the reasons for which the College believes it
has "cleared" 24 of these students, and the exhibits documenting these reasons. Ex. R-16.
However, through its December 10, 1993 letter and its statements at the oral argument,
SFAP has withdrawn all claims of liability against PCA for the following fifteen students: [student name], [student name], [student name], [student name], [student name], [student name], [student name], [student name], [student name], [student name], [student name], [student name], [student name], [student name], and [student name]. Tr. at 5-6.
Moreover, at the oral argument, PCA conceded liabilities for seven students as follows:
Student Total SFA Pell
[student name] $4515 2100
[student name] 1066 1050
[student name] 8495 2200
[student name] 954 954
[student name] 1917 1050
[student name] 1008 0
[student name] 4515 2100
$9454
Tr. at 7-9, 44.
Therefore, the only students in Finding No. 2 that remain in dispute are the following: [student name], [student name], [student name], [student name], [student name], [student name], [student name], [student name], [student name], and [student name]. In its December 10, 1993 letter, SFAP indicated that the issue as to students [student name], [student name], [student name], and [student name] was whether or not these students were given 15 minutes to take a 12 minute test. In that same letter, SFAP indicated that the issue as to students [student name], [student name],
[student name], [student name],See footnote 21
21
[student name], and [student name] was whether or not these students were given unlimited time to take a 12 minute test. In addition, at the oral argument, the
parties stated that the sole remaining issue relating to these ten students is whether or not PCA
allowed them excess time (either 15 minutes or an unlimited amount of time) to take the
Wonderlic Personnel Test (WPT). Tr. at 59-60, 87-89.
The auditors stated as follows:
Phillips also allowed students 15 minutes to take the 12 minute test. According to
Wonderlic & Associates, "A school could elect to administer the WPT on a 15 minute
basis, but this would require them to develop an entirely new set of normative and
distribution statistics. In any event, careless attention to the discipline of uniform test
administration will invalidate the test results."
Ex. E-1-10. At the oral argument, counsel for both parties agreed that the record contains no
documents, other than the OIG charts and the FAD, indicating that PCA students were allowed
15 minutes to take the WPT. Tr. at 50-53.
In a February 13, 1989 letter from Eliot R. Long, Vice President, E.F. Wonderlic
Personnel Test, Inc. (Wonderlic), to M. Bruce Nestlehutt of OIG, Wonderlic discusses timing of
the WPT as follows:
Administering the WPT on an un-timed basis is appropriate in certain cases. Directions for
un-timed administration and scoring are provided in the Manual. Un-timed administration
is appropriate, for example, when the applicant has dyslexia or other disabilities preventing
fluid working of the test items. Un-timed administration is only an approximate of the
timed score and should be limited to special circumstances.
. . .
Valid test score/criterion relationships depend on standardized test administration and scoring procedures. This means that all individuals take the same test (or separate forms of the same test), under the same conditions, and that it be scored in the same manner. A school could elect to administer the WPT on a 15 minute basis, but this would require them to develop an entirely new set of normative and distribution statistics. In any event, careless attention to the discipline of uniform test administration will invalidate the test
results.
We would expect that instances of students answering all 50 questions would arise from
their guessing at the answers. In studies where we have administered tests on an un-timed
basis, we find most modest ability individuals "giving up" well before they complete all the
test items. If the school test administrator is encouraging students to complete all test
items by guessing at them during the timed 12 minute period, this will most likely result in
lower test scores. The time spent guessing at the later items on the test would be more
profitably used working on the earlier items. The WPT is not very susceptible to guessing.
. . .
The adult population average is 29 items attempted and 21 answered correctly. The
difference, 29 minus 21 or 8 items incorrect, include [sic] both incorrect answers and
items left blank interspersed among answered items. A higher number of incorrect items
usually indicates guessing, which, as mentioned above, usually works to the disadvantage
of the test taker.
Ex. E-7-11-12 (emphasis added).
This evidence indicates that in order to be valid, the WPT normally should be administered
with a 12 minute time limit. However, the test can be administered using a longer time limit, or
even on an untimed basis, under certain narrowly-defined circumstances. If the test is given with a
longer time limit or no time limit at all, the results must be considered only an approximate of and
less reliable than the results obtained from administering the test with a 12 minute time limit.
Moreover, the school must develop an entirely new set of normative and distributive
characteristics. When the test is administered with the standard 12 minute time limit, some test
takers may be able to answer all 50 questions by guessing at some of them. Nonetheless, the
average adult will attempt to answer 29 questions.
Here, there is no evidence in the record indicating that any of PCA's students who took
the WPT suffered from dyslexia or other disabilities that prevented fluid working of the test items.
Nor is there any evidence that the College developed its own set of normative and distributive
characteristics and used such in its appraisal of the test results.
In order to prove that the College administered the WPT with the 12 minute time limit,
PCA offers the affidavit of Ronald Wesley Rhoads. Mr. Rhoads states:
6. On more or less a daily basis during the period when the Wonderlic Test was the test
being used at the College, I personally observed that test being given to prospective
students at the College.
7. Each and every time I observed the Wonderlic Test being given, the tests were timed,
and the students' tests were collected at the end of the 12 minutes allotted for the test. To
my knowledge, the College never administered the Wonderlic Test on an untimed basis.
8. I am aware that the Office of Inspector General ("OIG") of the U.S. Department of
Education has questioned whether several students were allowed 15 minutes to take their
tests based on notations made-on the Enrollment Agreements for those students. In each
of those instances the Admissions Representative was Ethel Hodge, who I knew
personally. I do not believe that those references can be construed to mean what the OIG
has construed them to mean for two reasons. The first reason is because Ms. Hodge did
not administer those tests herself. The second reason is because, as I have stated, to my
knowledge, the College never administered the Wonderlic Test so as to permit a student
more than 12 minutes.
Ex. R-3-2-3; Ex. E-4-2-3.See footnote 22
22
SFAP also notes that several of these students answered as many as 43, 47, 48, 49, or 50
questions, implying that this is evidence that these students were given excess time to complete
the exam. Ex. E-7-1-2. As noted previously, the average adult attempts to answer 29 questions on
the WPT. Since the number of questions answered by these students is somewhat higher than
would be expected among the average adult population, this suggests the possibility that they
were not timed at 12 minutes. Nonetheless, the significance of these numbers is inconclusive
because SFAP has not provided evidence indicating that an unusually high number of PCA
students who took the WPT attempted such large numbers of questions or that PCA students on
average attempted a significantly higher number of questions on the WPT than 29, the average for
the adult population generally. As discussed supra, Wonderlic has stated that "We would expect
that instances of students answering all 50 questions would arise from their guessing at the
answers." Ex. E-7-11. The evidence suggests the possibility that some students were not timed,
but does not appear strong enough to support a finding to that effect, especially in light of the
Rhoads affidavit.
Based upon all of the evidence, the tribunal finds that PCA has satisfied its burden of
persuasion as to the issue of whether or not it administered the WPT within the 12 minute time
limit. Accordingly, there is no liability for SFA funds disbursed to the ten students that remain in
issue under Finding No. 2.
The total amount of Title IV funds disbursed to the seven students whom PCA could not demonstrate that it had properly admitted under the ability to benefit regulations is $22,470. However, both the OIG audit and the FAD indicated that a portion of the funds sought under Finding No. 2 had already been included in Finding No. 1. Ex. E-l-11; E-2-5; R-1-5. Since Finding 1 required PCA to return SLS and GSLP funds disbursed during the period from July 1, 1987 through September 30, 1989, and to determine and refund the amount of GSLP loans disbursed from October 1, 1989 to April 1, 1990, the FAD subtracted these amounts from the
total amount sought under Finding 2. Ex. E-1-8, E-1-11, E-2-3, E-2-5.See footnote 23
23
Therefore, as relates to the seven students under Finding No. 2 for whom PCA has conceded liability, the tribunal will
deduct the amount of SLS and GSLP funds from the amounts of Title IV funds that are listed at
Ex. E-7-1-3 as having been disbursed to those students. The sum of the remaining amounts is
$9,454.See footnote 24
24
Accordingly, the tribunal concludes that PCA's total liability under Finding No. 2 is $9,454.
3. Documentation for SFA disbursements.
SFAP argues that PCA's student aid files contained deficiencies in support for awards.
SFAP Initial Br. at 7-8; SFAP Reply Br. at 7-9.
PCA responds that Finding No. 3 is legally and factually unsupported. Resp. Initial Br. at
49-55; Resp. Reply Br. at 25.
The auditors stated as follows:
Phillips improperly disbursed Title IV SFA benefits both to students who were not
eligible, and through error and failure to comply with ED and accrediting agency criteria.
We noted deficiencies in the files of 10 students, from a statistical sample of 32 from 1,796
students, that should have precluded disbursing SFA to these students. The 10 students
received a total of $32,702 in SFA that was improperly disbursed.
Ex. E-1-12. The auditors and the FAD required PCA to refund $15,093 for these 10 students,
noting that the remaining $17,609 of the $32,702 in questioned costs for these students had
already been requested under Finding 1.
Initially, the tribunal notes that PCA has conceded liability for four of these ten students.
Specifically:
OSFA claimed that [student name] received $350 more in Pell Grant funds than
was correct. The College does not dispute this conclusion. Stip. of Fact No. 11.
[student name] was selected for verification; however, since the College did not
obtain any documentation to verify her income, the College does not dispute OSFA's
conclusion that she was overawarded $1,050. 34 C.F.R. § 668.54(b)(2). Stip. of Fact No.
12.
The College cannot dispute the conclusion of OSFA that the disbursement of
$1,692.96 to [student name] was incorrect. Stip. of Fact No. 13.
Because the College no longer can locate the ATB test for [student name], and
because his Enrollment Agreement reflecting his score is unsigned by anyone, the College
cannot dispute OSFA's claim that $899 was improperly awarded to him. Stip. of Fact No.
14.
PCA also discusses these four students at pages 51-54 of its initial brief. See also Tr. at 9-10.
In addition, through its December 10, 1993 letter to counsel for PCA, which was
submitted to the tribunal at the oral argument, SFAP has withdrawn all claims against PCA for the
following five students: [student name], [student name], [student name], [student name], and
[student name]. Tr. at 5-6, 9 - 1 1 .
Therefore, the only student in issue under Finding No. 3 is [student name]. Tr. at 5-6,
9-11.
SFAP claims that PCA improperly disbursed $1,008 in Title IV funds to student [student name]. The auditors based this claim on a number of reasons, including that [student name]'s ATB
test contained two types of markings, was incorrectly graded, and reveals that the student
attempted 47 questions, indicating that excess time was given. Ex. E-8-1, 4. The auditors also
alleged that [student name] claimed zero income for 1986, yet PCA did not attempt to verify this,
despite the fact that she was not claimed by her parents as a dependent. The auditors challenged
[student name]'s claiming her unborn child on her Pell Grant application in October 1987 as a
dependent. Ex. E-8-4.
However, at the oral argument, counsel for SFAP indicated that its claim against the funds
disbursed to [student name] has been narrowed to the sole issue of whether or not excess time was
given on the WPT, because the student attempted to answer 47 questions. Tr. at 58-61, 88-89.
The tribunal rejects the argument that [student name] was given excess time based on the number of
questions she attempted for the same reasons that this argument was rejected in the discussion as
to Finding 2.
Therefore, SFAP's challenges relating to this student must fail. Accordingly, PCA is not
required to refund the challenged Title IV funds disbursed to [student name].
The total amount of Title IV funds disbursed to the four students for whom PCA has
conceded liability is $3,991.96. Again, however, both the OIG audit and the FAD indicated that a
portion of the funds sought under Finding No. 3 had already been included in Finding No. 1. Ex.
E-1-14; E-2-7; R-1-7. Since Finding 1 required PCA to return SLS and GSLP funds disbursed
during the period from July 1, 1987 through September 30, 1989, and to determine and refund the
amount of GSLP loans disbursed from October 1, 1989 to April 1, 1990, the FAD subtracted
these amounts from the total amount sought under Finding 3. Ex. E-1-8, E-1-14, E-2-3, E-2-7.
Therefore, as relates to the four students under Finding No. 3 for whom PCA has conceded
liability, the tribunal will deduct the amount of SLS and GSLP funds from the amounts of Title IV
funds that are listed at Ex. E-8-1-5 as having been improperly disbursed to those students. The
sum of the remaining amounts is $1,400.See footnote 25
25
Accordingly, the tribunal concludes that PCA's total liability under Finding No. 3 is $1,400.
4. Calculation and payments of Pell Grants.
a. Payment periods.
SFAP alleges that the audit determination shows that PCA used incorrect payment periods
for Pell Grants. SFAP Initial Br. at 8; SFAP Reply Br. at 9-12.
PCA claims that as a non-standard term institution, it was entitled to disburse Title IV
funds in two equal payments during the audit period. The College asserts that it violated no
statute or regulation and is entitled to be treated by SFAP as SFAP treated other similarly situated
schools. PCA further contends that it has improperly been denied the "safe harbour'' of SFAP's
policies. According to PCA, any liability that the College may have as a result of its payment
periods must be limited. Resp. Initial Br. at 55-74. Resp. Reply Br. at 25-29.
34 C.F.R. § 690.3(a) applies to the Pell Grant program and, during the relevant years,
stated in pertinent part:
(a) Payment period for an institution that has academic terms:
(1) Except as noted in paragraph (a)(2) of this section, for an eligible program that
uses semesters, trimesters, quarters or other academic terms, the payment period is the
semester, trimester, quarter or other academic term.
34 C.F.R. § 690.3(a) (1987-1989).See footnote 26
26
34 C.F.R. § 690.63 also pertains to the Pell Grant program. During the years covered by
the audit, it stated, in pertinent part:
(a) At an institution using semesters, trimesters, quarters, or other academic terms
and measuring progress by credit hours, a student's Pell Grant for each payment period is
calculated by
(1) Determining his or her enrollment status for the term;
(2) Based upon that enrollment status, determining his or her annual award from
the Payment Schedule (full-time students), or one of the Disbursement Schedules
(part-time students), as appropriate; and
(3)(i) Dividing the amount determined in paragraph (a)(2) of this section by the
number of terms in the academic year unless the terms of an institution are not of equal
length; or
(ii) If the terms of an institution are not of equal length, multiplying the amount
determined in paragraph (a)(2) of this section by the following fraction:
The length of the term in question
The length of the academic year
34 C.F.R. § 690.63(a) (1987-l989).
During the years in issue, for institutions that measured academic progress in credit hours
and used a semester, trimester, or quarter system, an academic year was defined as "A period of
time in which a full-time student is expected to complete the equivalent of at least two semesters,
two trimesters, or three quarters . . . ." 34 C.F.R. § 690.2(a); 34 C.F.R. § 668.2 (19871989).
Based upon these regulations, an institution that was on the quarter system would be required to
disburse Pell Grant payments three times a year. An institution that maintained, for example, six
terms of unequal length during its academic year would be required to disburse Pell Grant
payments six times a year. § 690.63(a)(3)(ii).
§ 690.3(a) applies to institutions that have "academic terms". The contents of this
regulation make it clear that examples of ''academic terms" include semesters, trimesters, and
quarters. Nonetheless, the regulation also allows for "other academic terms" in addition to
semesters, trimesters, and quarters.
34 C.F.R. § 690.2 contains general definitions used in Part 690. Unfortunately, the phrase
"academic terms" is nowhere defined. Black's Law Dictionary defines the word "term" as "A fixed
period; period of determined or prescribed duration. A specified period of time; e.g. term of lease,
court session, sentence. . . . " BLACK'S LAW DICTIONARY 1318 (5th ed. 1979).
During the years covered by the audit in question, § 690.3(b) was entitled "Payment
period for an institution that does not have academic terms". That section then defined the
payment period for students whose educational program is equal to, greater than, or less than one
academic year.
The parties have both acknowledged the fact that PCA adhered to the regulations
governing schools without academic terms. See SFAP Reply Br. at 11; Resp. Initial Br. at 55. The
issue, however, is whether PCA correctly adhered to the regulations governing schools without
academic terms, or whether in fact the College had academic terms and thus should have adhered
to the regulations governing programs that have academic terms. Put another way, the tribunal
must determine whether or not PCA had academic terms. The regulations make no distinction
between "standard'' and ''non-standard" academic terms. An institution with academic terms, even
if non-standard, would still come under the purview of § 690.3(a), since that section describes the
"Payment period for an institution that has academic terms" and applies to "other academic
terms's in addition to semesters, trimesters, and quarters. This reading is bolstered by the fact that
§ 690.3(b) is entitled, and thus applies only to, "institution[s] that [do] not have academic terms"
.See footnote 27
27
Accordingly, the only issue is whether or not the institution had academic terms. See 34 C.F.R. § 690.3.
The parties have submitted numerous exhibits on this issue, including Ex. E-8-12-15, which indicates that PCA's catalog stated that PCA was on the quarter system. PCA has submitted its 1987-88 Financial Aid Manual, which states that the colleges of the Phillips College system measure progress without standard academic terms. Ex. R-15-5-7. PCA has also submitted a 1979 internal Department memorandum discussing a Phillips College school whose catalog mentioned quarters, even though the school claimed that it did not have standard
academic terms. The memorandum stated that if the school does not have regular terms, it should
adhere to the regulation governing non-term schools, even though it publicizes in its catalog that
it does have quarters. Ex. R-10-12. Additionally, PCA has submitted various correspondence
between the Department and other schools during the past decade. Ex. R-14.
On June 4, 1993, Judge Ernest C. Canellos of the U.S. Department of Education issued an
initial decision in In the Matter of Edmondson Junior College, Docket No. 93-7-SP, U.S. Dep't of
Education (Decision, June 4, 1993). As counsel for both PCA and SFAP agreed at the oral
argument, the issue involved in Finding No. 4 of the instant case is essentially the same issue that
was involved in the Edmondson case. Tr. at 116, 127.See footnote 28
28
Edmondson Junior College was also owned by Phillips Colleges, Inc. (PCI), the parent company of PCA. Edmondson's catalog
indicated that the school had sessions divided into terms, but Edmondson disbursed Title IV funds
as a non-term school; the same is true for PCA in the instant case. After discussing the 1979
memorandum contained in Ex. R-10-12, the school's academic calendar and mini-terms, and PCI's
1988 Financial Aid Manual contained in Ex. R-15-5, Judge Canellos held that Edmondson was
free to choose whether it should be treated as a term or non-term school, that Edmondson chose
to be treated as a non-term school, and that Edmondson's listing of course start times in its
catalog did not alter the school's intention to practice as a non-term school. In reaching this
decision, Judge Canellos also noted that there was "no . . . proof that Edmondson purposely
deceived the public or unjustly benefitted from its use of the word 'term' in its catalog.
"Edmondson at 4. He also noted that by disbursing Title IV funds in two disbursements instead of
three, Edmondson may have saved federal money in some instances, an argument that PCA has
also raised in the present case.
The decision in Edmondson Junior College is not binding precedent in the instant case.
However, given the fact that counsel for both parties have acknowledged the essential
similarity between Edmondson and Finding No. 4 of the instant case, and as a result of the
reasoning in the Edmondson case, the tribunal will follow the result in Edmondson.See footnote 29
29
Accordingly, the tribunal finds that PCA has no repayment liability under the portion of
Finding 4 relating to the disbursement of Pell Grant funds in two payments instead of three, and
that PCA is not required to review the files of the 1290 students who dropped out during the
audit period.
b. Full-time students.
In its briefs, SFAP contended that PCA disbursed Pell grants to students who were not full
time students. SFAP Reply Br. at 12.
PCA responded that the College did not disburse any Pell Grant funds to students who
were not full time students. Resp. Initial Br. at 74-76; Resp. Reply Br. at 25-26.
At the oral argument, counsel for SFAP indicated that SFAP is withdrawing this portion of
Finding No. 4. Tr. at 78-79. Accordingly, the tribunal finds that PCA has no repayment liability
under the portion of Finding 4 relating to the disbursement of Pell Grants to students who
enrolled in PCA's Mini-Quarters.
V. DETERMINATIONS AS TO THE PROPOSED FINDINGS OF FACT AND
CONCLUSIONS OF LAW.
The College and SFAP have filed briefs. Such briefs, insofar as they can be considered to
have contained proposed findings and conclusions have been considered fully, and except to the
extent that such findings and conclusions have been expressly or impliedly affirmed in this
decision, they are rejected on the grounds that they are in whole or in part, contrary to the facts
and law or because they are immaterial to the decision in this case.
VI. CONCLUSIONS OF LAW.
In accordance with 34 C.F.R. § 668.118(b), the final audit determination issued by the
designated Department official is supportable, in part.
1. Finding No. 1.
PCA was ineligible to participate in the GSL Programs from July 1, 1987 to April 1, 1990.
a. PCA's admissions representatives were actually "commissioned salespersons" who
"promoted the availability" of GSLP and PLUS program loans to prospective or enrolled
students, as defined by 34 C.F.R. § 682.200.
b. An institution can be declared ineligible to participate in the GSL Programs during a
previous time period under the procedures contained in 34 C.F.R. Part 668, Subpart H,
which ineligibility was due to its failure to meet the statutory definition of an eligible
institution, if that determination as to eligibility forms the basis for a final audit
determination.
c. Under 34 C.F.R. § 668.116(e)(1), "other ED records and materials" cannot be
introduced after the 30 day period mentioned in § 668.116(e)(1)(v) even if that evidence
did not exist until after this 30 day period has expired.
2. Finding No. 2.
a. 34 C.F.R. § 600.11(b)(1) implicitly requires that an institution must administer its ability
to benefit tests according to the guidelines prescribed by the developer of the test.
b. As to the timing of the tests, PCA properly administered the Wonderlic Personnel Test
(WPT) within the 12 minute time limit.
c. However, PCA conceded liability as to seven other students for whom there was a
requirement to demonstrate an ability to benefit from the program.
Finding No. 3.
a. As to the timing of the WPT, PCA properly administered the WPT within the 12 minute
time limit.
b. However, PCA conceded liability as to four other students for whom there was a
requirement to demonstrate an ability to benefit from the program.
Finding No. 4.
a. PCA's disbursement of Pell Grant funds in two payment periods instead of three was not
a violation of federal law.
b. PCA was an institution without academic terms.
VII. ORDER.
Based on the foregoing findings of fact and conclusions of law, and all the proceedings
had herein, it is hereby:
ORDERED, That, as relates to Finding No. 1, PCA shall immediately and in the manner
provided by law reimburse applicable GSL/SLS lenders in the amount of $2,842,369 ($2,218,985
GSL and $623,384 SLS) less amounts repaid by students, amounts already refunded by PCA, and
amounts in cases where loans were not ever paid out. These amounts shall be arrived at by
cooperative action between the parties.
ORDERED, That, the case is remanded to SFAP, with the provision that PCA and SFAP
shall cooperate and endeavor to determine:
l) the amount of SLS and GSLP funds for the period October 1, 1989-April 1, 1990.
2) any amounts of loans repaid by students as to all loans from July 1, 1987-September 30,
1989 and October 1, 1989 April 1, 1990.
3) any amounts of loans refunded by PCA for those periods.
4) any amounts of loans that were never paid out as to the same periods.
ORDERED, That, based upon these amounts, PCA shall reimburse GSL and SLS lenders
an additional amount for the period October 1, 1989-April 1, 1990, less the amounts that should
be credited to PCA for amounts repaid by students, amounts already refunded by PCA, and
amounts in cases where loans were not ever paid out.
ORDERED, That, if the parties are unable to mutually agree to the correct figures as
referred to above, they may request a rehearing as to these issues.
ORDERED, That, as relates to Finding No. 2, PCA shall immediately and in the manner
provided for by law refund to the Department $9,454 in erroneous Pell Grant awards.
ORDERED, That, as relates to Finding No. 3, PCA shall immediately and in the manner
provided for by law refund to the Department $1,400 in erroneous Pell Grant awards.
John F. Cook
Chief Administrative Law Judge
Issued: February 28, 1994
Washington, D.C.
Furthermore, at the oral argument, PCA conceded liability for seven students that had
been included in Finding No. 2. Tr. at 7-9, 44. Additionally, PCA reiterated the fact that it has
conceded liability for four students that had been included in Finding No. 3. Tr. at 9-10.
Finally, SFAP narrowed the scope of some issues and withdrew other claims at the oral argument. Tr. at 58-61, 78-79, 87-89. All of these are specifically discussed infra.
34 C.F.R. § 668.116(e) governs the submission of evidence in a Subpart H hearing. That
regulation states as follows:
(e)(1) A party may submit as evidence to the administrative law judge only
materials within one or more of the following categories:
(i) ED audit reports and audit work papers for audits performed by the United
States Education Department Office of Inspector General.
(ii) Institutional audit work papers, records, and other materials, if the institution
provide [sic] those work papers, records, or materials to ED no later than the date by
which it was required to file its request for review in accordance with § 668.113.
(iii) ED program review reports and work papers for program reviews.
(iv) Institutional records and other materials provided to ED in response to a
program review, if the records or materials were provided to ED by the institution no later
than the date by which it was required to file its request for review in accordance with §
668.113.
(v) Other ED records and materials if the records and materials were provided to
the administrative law judge no later than 30 days after the institution's filing of its request
for review.
34 C.F.R. § 668.116(e)(1) (emphasis added). § 668.116(f) states, inter alia, that "The
administrative law judge shall accept only evidence that is both admissible and timely under the
terms of paragraph (e) of this section, and relevant and material to the appeal. . . ."
The Sollers letter submitted by SFAP does not fit under any of the first four categories of
evidence described in § 668.116(e)(1). It does qualify as an "[o]ther ED record [or] material''
under 668.116(e)(1)(v). However, that regulation plainly states that such evidence is admissible
only if it was provided to the administrative law judge no later than 30 days after the institution's
filing of its request for review. The regulation allows for no exceptions.
Here, PCA filed its request for review on November 13, 1991. The Sollers letter was not provided to the administrative law judge until May 11, 1992. This is well outside the 30 day
period allowed in § 668.116(e)(1)(v). As stated above, the regulation allows for no exceptions. Accordingly, the tribunal cannot admit Ex. E-6 into evidence, nor can the tribunal consider this letter in any way.
[T]he prohibition applies only to those institutions utilizing commissioned salesmen who promote
student loans. The Committee does not wish to restrict normal and ethical recruiting practices by
educational institutions. The restriction on promotion of loans is intended to elimination [sic]
active promotion, not simply the listing of loan availability in a catalogue or providing appropriate
information and counseling to a student regarding available student aid programs.
S. Rep. No. 94-888, 94th Cong., 2d Sess. 28 (1976). See also Resp. Reply Brief at 9. This language is in harmony with the statement in § 682.200 that "This term ['promote the availability'] does not include providing general financial aid information . . . ." Thus, the statement by the Commissioner of Education that "The provision to a prospective student of a brochure covering all Title IV Federal aid programs is permissible'' is also in harmony with the language of § 682.200. See 44 Fed. Reg. 53,903-53,904 (Sept. 17, 1979). See also Resp. Reply Brief at 24. Neither the language of the regulation, the legislative history, nor the Commissioner's statement can be construed to authorize commissioned salespersons to collect tax forms, W-2s, and other documents necessary to collect all the information needed to complete the subsequent paperwork, enrollment agreement, and federal aid applications; provide the Independent Model Application for students to use to effectively apply for federal financial aid; and then present the method by which the student can pay for the program.
It should further be noted that the activities that PCA claims constitute part of SFAP's
"expanded" definition of § 682.200 are also prohibited by the plain language of the
regulation itself. The regulation explicitly prohibits "providing prospective or enrolled students
with application forms", such as the model financial aid applications used by PCA's commissioned
salespersons. "Explaining financial aid awards to students" is a closer question, although it
appears to constitute more than "providing general financial aid information" and would thus be
prohibited as well. Therefore, SFAP's statement in the 1987-88 Questions and Answers that the
regulation prohibits providing need analysis documents to students and assisting students or their
families in completing those forms appears to be a reasonable interpretation of the regulation,
rather than an expansion of it.
In any event, there can be little doubt that the regulation prohibits providing the very
specific financial aid information (including individual financial aid calculations for each student)
that PCA's commissioned salespersons provided to prospective students.
(a) This part establishes general rules that apply to an institution that participates in any
student financial assistance program authorized by Title IV of the Higher Education Act of
1965, as amended (Title IV, HEA program).
(b) As used in this part, an "institution'' includes
. . .
(2) A proprietary institution of higher education as defined in § 668.4;
34 C.F.R. § 668.1 (1987).
standards for determining whether these students have the ability to benefit . . . ."
Nonetheless, the 1986 amendments to the HEA made the language now found in § 600.11
effective as of July 1, 1987.
The Higher Education Amendments of 1986 added the ability to benefit requirement as a
student eligibility criterion for continued aid. Section 407 stated:
(a) AMENDMENT--Part G of title IV of the Act (as redesignated by section 406) is amended to
read as follows:
. . .
(b) EFFECTIVE DATES--(1) Sections 483(e) and 484(d) of the Act as amended by this section
shall apply to student assistance awards for periods of enrollment beginning on or after July 1.
1987.
HEA § 407 (emphasis added).
Section 484(d), as amended, stated as follows:
(d) ABILITY TO BENEFIT--A student who is admitted on the basis of the ability to benefit
from the education or training in order to remain eligible for any grant, loan, or work assistance
under this title shall
(1) receive the general education diploma prior to the student's certification or
graduation from the program of study, or by the end of the first year of the course of
study, whichever is earlier;
(2) be counseled prior to admission and be enrolled in and successfully complete
the institutionally prescribed program of remedial or developmental education not to
exceed one academic year or its equivalent; or
(3)(A) be administered a nationally recognized standardized. or industry developed
test, subject to criteria developed by the appropriate accrediting association, measuring the
applicant's aptitude to complete successfully the program to which the applicant has
applied; and
(B) with respect to applicants who are unable to satisfy the institution's admissions
testing requirements specified in subparagraph (A), be enrolled in and successfully
complete an institutionally prescribed program or course of remedial or developmental
education not to exceed one academic year or its equivalent.
HEA § 484(d) (emphasis added).
HEA § 481(b) defined "proprietary institutions of higher education'' and stated, in
pertinent part:
Such term also includes a proprietary educational institution in any State which, in lieu of
the requirement in clause (1) of section 1201(a), admits as regular students persons who
are beyond the age of compulsory school attendance in the State in which the institution is
located and who have the ability to benefit (as determined by the institution under section
484(d)) from the training offered by the institution. . . .
HEA § 481(b) (emphasis added).
Therefore, the ability to benefit requirements for proprietary institutions of higher education embodied in the regulations at 34 C.F.R. §§ 600.2, 600.5(b) and 600.11, from 1988-1989, were effective as of the 1987-88 award year
award year. See supra note 17.
both legally and factually unsupported." The College goes on to state:
Neither 34 C.F.R. § 600.11 (1988) nor any other regulation or statute refers to the
categories of deficiencies which form the basis of Finding No. 1. For instance, no Title IV
statute or regulation contains a category of violation based on what the Office of Inspector
General ("OIG") auditor self-servingly describes as "Testing Irregularities," whatever that
means. Nor is it a violation of any statute or regulation for a student to erase an answer in
order to correct a mistake or because the student changed his or her mind.
Resp. Initial Br. at 39 (footnote omitted).
Nevertheless, a regulation requiring an institution to administer "a nationally recognized, standardized, or industry developed test, subject to criteria of the institution's accrediting agency or association, that measures the applicant's aptitude to successfully complete the educational program for which the student has applied" (see § 600.11(b)(1)) would be rendered meaningless if the institution did not have to administer its ability-to-benefit tests according to the guidelines prescribed by the developer of the test. The test would not "measure the applicant's aptitude to successfully complete the educational program for which the student has applied". Therefore, it is an inherent requirement of § 600.11(b)(1) that PCA must administer its ability-to-benefit tests according to the guidelines prescribed by the developer of the test. See Lauqhlin v. Riddle Aviation Co., 205 F. 2d 948, 949 (5th Cir. 1953) ("The implications and intendments of a statute are as effective as the express provisions.") See also Harnischfeger Corp. v. U.S. Environmental Protection Agency, 515 F. Supp. 1310, 1314 (E.D. Wis. 1981), and Rucker v. Wabash R.R. Co., 418 F.2d 146, 149 (7th Cir. 1969) for the principle that an administrative regulation, like a statute, is subject to the normal rules of statutory construction.
[student name] $2,100
[student name] 1,050
[student name] 2,200
[student name] 954
[student name] 1,050
[student name] 0
[student name] 2,100
TOTAL $9,454
[student name] $ 350
[student name] 1,050
[student name] 0
[student name] 0
TOTAL $1,400
(b) Payment period for an eligible program that does not have academic terms: (1) For a
student whose educational program is one academic year
(I) The first payment period is the period of time in which the student completes the first
half of his or her academic year (in credit or clock hours); and
(ii) The second payment period is the period of time in which the student completes the second half of that academic year.