The Consequences of a Failure to Meet Timing Deadlines in the Administration of Title IV Funds

Milton Kerstein Milton L. Kerstein

In a recent matter, an SFAP assessment of liability was upheld by a Department of Education Administrative Judge pertaining to a proprietary school of higher education, which required the School to reimburse $71,742 to the Department of Education.

On July 27, 2009, the proprietary school was issued a Final Audit Determination (FAD) by the Office of Federal Student Aid (FSA), US Department of Education (ED).  The FAD sought the return of $71,742 in federal funds arising from two findings:  the first in the amount of $70,938 and the second in the amount of $804.

The first  alleged that the school failed  to provide to the Department’s Common Origination and Disbursement, Direct Loan and School Participation Team the necessary documentation and information to substantiate Federal Pell Grant & Federal Direct Loan funds drawn down by the school between 2007 and 2009.  FSA currently allows three funding methods under which a school requests funds from the Department:

  • The advance payment method;
  • The reimbursement payment method; and
  • The cash monitoring payment method.

The Department has sole discretion in determining the funding method a school uses to request FSA program funds.

Under the advance payment method (most common), the school must substantiate each drawdown of Pell and Direct Loan funds with actual disbursements submitted to and accepted by the COD system within 30 days.  If ED believes that a school should be monitored more closely, it will assign them to either the reimbursement or cash monitoring payment method.  Under both methods, the school must credit eligible students’ accounts or make cash disbursements to eligible students before it may submit a request to ED for reimbursement.  When requesting the reimbursement, the school may or may not need to provide additional documentation, depending on the method assigned.

The second finding alleged that the school failed to provide evidence that it refunded Title IV funds to a student who properly owed a refund documented in the audit report.  Per both Regulation and sub-regulatory guidance, a school must pay any credit balance directly to the student or parent as soon as possible, but no later than 14 days after:

  • The date the balance occurred on the student’s account, if the balance occurred after the first day of class of a payment period, or
  • The first day of classes of the payment period if the credit balance occurred on or before the first day of class of that payment period.

FSA will allow a school to hold credit balances only if it obtains a voluntary authorization from the student (or parent, in the case of PLUS Loan).

The School appealed the FAD filed by FSA on January 27, 2010.  An Order Governing Proceedings was issued on February 26, 2010, pursuant to which the School was required to file a brief and exhibits by March 5, 2010.  Upon receipt of the school’s briefs and exhibits, FSA’s briefs and exhibits were due by April 9, 2010.  The school did not file a brief and on April 20, 2010, FSA filed a Motion for Default Judgment.  An Order to Show Cause was issued, which required the school to show cause and provide the judge reason to not issue a judgment against them for failure to prosecute their appeal by May 13, 2010.  The school did not comply with this order.

After examining the FAD and noting the school’s failure to comply with time limits and orders issued pursuant to this proceeding, Judge Richard I. Slippen concluded that the school failed to carry its burden of proof.  The FAD was affirmed and the liability was upheld, requiring the School to pay $71,742 to the Department of Education.

For current Title IV practitioners, this case offers a very fundamental caution.  It is imperative that the financial aid administrator meet all time sensitive deadlines in terms of both the administration of the Title IV funds and those associated with the appeal process should SFAP allege a violation of the Title IV regulations.

If you have any comments or questions, you may contact Milton L. Kerstein, Esq. via email at or by telephone at 617-965-9698.  This article was written with the assistance of Colleen King of the Higher Education Assistance Group, Inc.