Institutional Liability and Third Party Services

In a recent matter, an SFAP assessment of liability was upheld by a Department of Education Administrative Judge pertaining to Yuba College, requiring the College to reimburse $ 319,521.29 to the Department of Education.

Yuba College is a public institution of higher learning in California.

In January, 2008, telephone conferences were held between the Yuba College Dean of Financial Aid, the Vice President of Academic and Student Affairs, and representatives from the Department of Education. The conferences were to discuss the eligibility of Yuba College’s cosmetology program for Title IV funds. They were in lieu of an on-site survey.

A Program Review Report (PRR) was issued on 11/13/2009. In February, 2012, a Final Program Review Determination was issued finding that Yuba College disbursed Title IV funds to students in an ineligible program during the 06-07 and 07-08 award years. Yuba College was assessed a liability of $319,521.29.

Yuba College contracted with Sutter Beauty School to provide over 50% of the cosmetology program instruction. Sutter Beauty School was an ineligible institution. Federal regulations state that an ineligible institution may be considered eligible if it provides no more than 50% of the educational program.

Yuba College appealed the finding/liability based on: (1) It acted in good faith when it disbursed Title IV funds, (2) the students receiving the funds benefitted from the program, (3) Yuba immediately took corrective action when it learned of the ineligible disbursements, and (4) the liability assessed would significantly harm the Yuba Community College District.

Chief Justice Ernest Canellos issued the following ruling:

(1) Yuba College’s good faith belief that Sutter Beauty School was an eligible institution is irrelevant to the obligation to repay Title IV funds disbursed to students in an ineligible program. Federal regulations state that an institution which contracts with a third party to administer any aspect of a Title IV program remains responsible for compliance with the regulations.

(2) Although it is commendable that the students have been successful in their endeavors, Yuba College violated federal regulations and overstepped its authority when it disbursed Title IV funds to the students.

(3) Corrective actions taken after learning that the program was ineligible are also not relevant. Federal regulations state that compliance after the time period under review are immaterial and irrelevant to noncompliance during the time period under review when there is no dispute about the factual findings of the Final Program Review Determination.

(4) The tribunal does not have the authority to grant equitable relief.

Yuba College was ordered to pay the original liability amount of $319,521.29 to the Department of Education.

Of most significance to the financial aid professional is the Judge’s ruling that institutions remain responsible for compliance when they contract with a third party to provide services related to the Title IV Programs. All senior financial aid practitioners should inform senior administration that the financial aid administrator should be involved in the contracting of any third party to assist with the administration of the Title IV Programs.

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 is provided, with the assistance of Sherron Heller and Russ Romandini of The Higher Education Assistance Group, Inc., for general information purposes only and with the understanding that neither the authors or publisher are engaged in rendering legal advice or opinion. If legal advice is required, the services of a competent professional person should be sought.