FFEL Overaward

Alfred Adler Graduate School (The School), located in Hopkins, MN, operates as a graduate school of higher education that participates in the federal student aid programs authorized under Title IV of the Higher Education Act of 1965, as amended.

As a result of a Final Program Review Determination dated September 5, 2002, the United States Department of Education Office of Federal Student Aid (FSA) alleged the School disbursed a Federal Family Education Loan (FFEL) to a student exceeding the maximum loan amount allowed by $6049. FSA further alleged The School used FFEL funds to pay finance charges and late fees assessed by The School to the student’s account, incurring an addition FFEL liability of $1656.

For the period of time at issue, the maximum aggregate federal loan amount for graduate students could not exceed $138,500. FSA asserts that the school disbursed $9,869 in FFEL funds to a student who had already borrowed $178,989. The student was previously enrolled in a program at another school, for which she was eligible to borrow under the Health Education Assistance Loan (HEAL) program. That program allowed students to borrow in excess of $138,500. However, the student was not enrolled in such a program at Adler, and therefore was eligible for no more than the graduate student FFEL loan limit of $138,500.

The School argued that the student’s initial ISIR received June 11,1999 indicated that the total outstanding loan amount was $121,136, which was below the maximum aggregate borrowing amount of $138,500. The School asserted that after a subsequent ISIR was received on March 21, 2000, indicating an aggregate total borrowed of $178,989, they contacted the student to investigate the matter. The student argued that some of the loans appearing on the ISIR were duplicates. This fact, combined with reasoning that it was unlikely that the loan totals could have increased by such a great amount within such a short period of time led the School to rely on the initial ISIR data and disburse the current loan.

The School further asserted that it was only when a Financial Aid Transcript was received from a previously attended institution that it was determined that the student had borrowed in excess of the maximum allowable limit.

FSA asserts that since the school had the updated ISIR in its possession by March 23, 2000, prior to disbursement of the FFEL loan funds to the student on April 13, 2000, it should have used that information to determine loan eligibility. Further, FSA asserts that the fact that the School returned $3,850 of the loan funds to the lender on July 22, 2000 is an indication that the School acknowledged that the student was ineligible for the $9,869 loan.

The School returned to the lender only the FFEL funds that were used to pay tuition and fees. The School argued that it should not be required to repay the portion of FFEL the student received personally as part of a student refund and that the student was repaying the lender currently.

The School argued that they had the legal right to assess finance charges to students who had outstanding balances owed to the School. The School’s practice was to assess finance charges of 1% only to continuing students who had outstanding balances after 60 days of the school term had passed, and who had not yet applied for financial aid. The School argued that the practice of reversing small amounts of finance charges for financial aid recipients would be time consuming and burdensome.

Judge Richard I. Slippen found that, although nothing prohibits the school from assessing finance charges to students’ accounts, paying finance charges “was not an appropriate use of Title IV funds”. The Judge further found that the School was still liable for the remaining $6049 of the ineligible loan, regardless of the fact that the student was making repayment on the loan. Finally, the Judge found that the school had used an outdated ISIR to determine aid eligibility while it had an updated ISIR in its possession. The more current ISIR should have been used in place of the initial ISIR in determining loan eligibility.