Aggregate Loan Limits

In this column, I have, in the past, emphasized the legal point that the financial aid professional and the institution have a fiduciary responsibility as it relates to the management of the Title IV programs. Simply put, this requires that the funds be managed with the highest standard of care. It is an affirmative burden which mandates that the financial aid professional and, by extension the institution, take whatever steps are necessary to insure that administration of the programs is in compliance with all applicable Title IV rules and regulations. A recent decision has come from Washington which dramatically underscores this point.

In October of 1999, the Student Financial Assistance Programs(SFAP) issued a Final Program Review Determination(FPRD) finding that the University of Birmingham and in particular its Shakespeare Institute(the Institution or College) was in non-compliance as it related to the management of its FFEL Program. Specifically, SFAP alleged that the Institution has certified 15 student loans on behalf of one student. The student had attended the Institution from September, 1996 through June of 1998 and had received $137,500 during this period of time in both subsidized and non-subsidized loans.

SFAP asserted that the Institution had an affirmative duty to both utilize correct information when it certified the loans and to monitor the aggregate amounts of loan that the student received during his attendance at the College. SFAP argued that this particular student was only eligible to receive an aggregate of $25,000 in subsidized Stafford Loans and $30,000 in unsubsidized Stafford Loans for the three years he was in attendance at the College. In fact, the student received $67,500 in subsidized and $70,000 in unsubsidized student loans. SFAP noted that the regulations prohibited an institution from knowingly certifying loans that were in excess of the maximum loan amounts and that, within the Program Participation Agreement signed by the College, the College agreed not to certify any loans which would qualify the student for loans in excess of the maximum amounts allowed by Title IV.

The Institution articulated a number of different defenses in support of its actions. As it relates to the issues presented in this articl e, the Institution argued that it had accurately provided the academic status and progress of the student. Further the Institution asserted that it had acted in good faith and in a manner consistent with the responsibilities imposed on schools by Title IV.

Interestingly, the College also asserted that the New Jersey guarantee agency, NJHESAA, had reviewed and approved and then guaranteed the loan. The institution argued that it was NJHESAA’s responsibility to monitor annual and aggregate loan amounts. The College, in addition, argued that the student was responsible since the student has received over $100,000 and this had to have violated the regulatory requirement that the student use the loan proceeds only for educational expenses.

Judge Richard I. Slippen ruled against the Institution citing 34 C.F.R. § 682.604(d), which provides that an institution may not certify loans where the school has reason to know that certification would result in the borrower exceeding the maximum loan amounts. The Judge rejected the “good faith” argument as well as the argument that NJHESAA or the student was responsible. The Judge noted that “Contrary to Birmingham’s arguments, as a fiduciary participating in the Title IV programs, it was required to conduct a review of these loan applications, its obligations did not end with a simple certification of attendance and progress.”