oversight

Technical Career Institutes, Inc.'s Administration of the Federal Pell Grant and Federal Family Education Loan Programs

Published by the Department of Education, Office of Inspector General on 2008-05-19.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         UNITED STATES DEPARTMENT OF EDUCATION
                                OFFICE OF INSPECTOR GENERAL
                                                                                                                       Audit Services
                                                                                                               New York Audit Region



                                                            May 19, 2008

                                                                                                    Control Number
                                                                                                    ED-OIG/A02H0007

Dr. James Melville
President & Chief Executive Officer
Technical Career Institutes, Inc.
320 West 31st Street
New York, NY 10001-2789

Dear Dr. Melville:

This Final Audit Report, entitled Technical Career Institutes, Inc.’s Administration of the
Federal Pell Grant and Federal Family Education Loan Programs, presents the results of our
audit. The purpose of the audit was to determine whether Technical Career Institutes, Inc. (TCI)
administered the Pell Grant and Federal Family Education Loan (FFEL) programs in accordance
with the Higher Education Act of 1965, as amended (HEA), and applicable Federal regulations.
Specifically, we examined (1) institutional and program eligibility (excluding the 90/10 rule), (2)
student eligibility, (3) award calculations and disbursements, and (4) return of Title IV funds.
Our review covered the period from July 1, 2005, through June 30, 2006.



                                                      BACKGROUND 



TCI, located at 320 West 31st Street in New York City, is a proprietary, single-campus college
that provides higher education and technical education services. In 1909, TCI opened as the
Marconi Institute. In 1974, the name of the college was changed to TCI. On June 30, 2005, TCI
was acquired by EVCI Career Colleges Holding Corporation, which also owns Interboro
Institute and Pennsylvania School of Business.

TCI is accredited by the Middle States Commission on Higher Education and currently offers
associate degrees in the following areas: (1) Business and New Media Technology, (2) Computer
and Electronics Technology, and (3) Climate Control Technology. TCI also offers certificates
for shorter programs. Educational programs are provided on a standard-term calendar measured
in semester credit hours. TCI’s academic calendar consists of three 15-week semesters: fall,
spring, and summer. The enrollment in each of the semesters is about 3,000 students.



 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                   excellence and ensuring equal access.
Final Report
ED-OIG/A02H0007                                                                         Page 2 of 41

TCI participates in the following Title IV, HEA, programs: Pell Grant, Federal Supplemental
Educational Opportunity Grant, FFEL, William D. Ford Federal Direct Loan (Direct Loan),
Federal Perkins Loan, and Federal Work-Study. During the period of July 1, 2005, through June
30, 2006, TCI received a total of $20,541,317 in Title IV funding, which included $10,572,764
in Pell Grants and $8,881,954 in FFEL.



                                      AUDIT RESULTS 



We determined that TCI met requirements in the HEA and regulations for institutional
(excluding the 90/10 rule), program, and student eligibility and for award calculations.
However, our review disclosed that (1) TCI improperly paid $440,487 to FFEL lenders to pay
off its students’ loans and prevent their default; and (2) TCI had internal control deficiencies in
the administration of Title IV programs during the period under review.

In its comments on the draft report, TCI did not concur with our Finding No. 1 or its
recommendations. TCI did not concur with most of Finding No. 2 and its recommendations: it
concurred with two exceptions identified in the finding. TCI’s comments are summarized at the
end of each finding.

Except for personally identifiable information (that is, information protected under the Privacy
Act of 1974, 5 U.S.C. § 552a), the entire narrative of TCI’s comments is included as an
Attachment to this report. Because of the voluminous nature of and the inclusion of personally
identifiable information in the attachments to the College’s comments, we have not included
them with the Attachment. Copies of the attachments to TCI’s comments, less the personally
identifiable information, are available on request.

FINDING NO. 1 – TCI Improperly Paid Lenders to Reduce Its Cohort Default
Rates.

TCI improperly paid $440,487 to FFEL lenders to pay off its students’ loans and to prevent their
default. TCI’s FFEL and Direct Loan Programs Default Reduction Measures (default prevention
policy), implemented at TCI as of October 2005, states that for—

       First term Title IV withdrawals with loans
           1.	 A federal refund is calculated at the time of withdrawal
           2.	 Timely refunds are made to federal programs in the order regulated by the
                Department of Education
           3.	 If the student fails to return to school the following term, TCI fully refunds
                all FFELP/FDSLP [FFEL and Direct Loan programs] loan funds that
                remain on the student’s account (spring withdrawals are reviewed in the
                fall)
           4.	 Students with balances due on account are sent notification to complete
                payments plans with the school
           5.	 Students not completing payment plans with the school are sent to an
Final Report
ED-OIG/A02H0007                                                                                      Page 3 of 41

                 outside collection agency approximately 150 days from the end date of
                 their last term

TCI paid the lenders $440,487 to pay off the FFEL loans received by 301 students who withdrew
during their first semester at TCI. 1 For 5 of the 13 students in our random sample of withdrawn
students, TCI paid the lenders $6,889 to pay off the FFEL amounts earned by these students. 2
TCI then attempted to collect the loan amounts from its students by entering into repayment
plans scheduled to begin 150 days after the end of the students’ last semester at TCI. None of
the five students in our sample made payments within 150 days. TCI marked the students’
accounts as delinquent and sent the debts to an outside collection agency.

Pursuant to 34 C.F.R. § 668.22(e)(2), 3 a borrower is entitled to the applicable percentage of loan
funds earned prior to his or her withdrawal:

        The percentage of title IV grant or loan assistance that has been earned by the
        student is—
                (i) Equal to the percentage of the payment period or period of enrollment
        that the student completed . . . as of the student's withdrawal date, if this date
        occurs on or before completion of 60 percent of the . . . [p]ayment period or
        period of enrollment for a program that is measured in credit hours; or
                                            . . . . . . .

               (ii) 100 percent, if the student's withdrawal date occurs after completion of
        60 percent of the . . . [p]ayment period or period of enrollment for a program that
        is measured in credit hours . . . .

In addition to denying an entitlement to students, by making payments on loans to prevent
students’ defaults, TCI’s default prevention policy results in loans that must be considered in
default for purposes of calculating TCI’s cohort default rate:

    •	 Pursuant to Section 435(m)(2)(B) of the HEA, “A loan on which a payment is made by
       the school, such school’s owner, agent, contractor, employee, or any other entity or
       individual affiliated with such school, in order to avoid default by the borrower, is
       considered as in default for purposes of this subsection.”

    •	 Pursuant to 34 C.F.R. § 668.183(c)(1)(iii), “[A] borrower in a cohort for a fiscal year is
       considered to be in default if . . . [b]efore the end of the following fiscal year, you or your
       owner, agent, contractor, employee, or any other affiliated entity or individual make a
       payment to prevent a borrower’s default on a loan that is used to include the borrower in
       that cohort.”



1
  We identified a total of 1,502 students who withdrew from TCI during the period under review. 

2
  Our original sample for the return of Title IV funds included 30 withdrawn students: 13 students who had FFEL 

loans and/or other Title IV funding, and 17 students who did not have FFEL loans but had other Title IV funding. 

3
  Unless otherwise specified, all C.F.R. citations are to the July 1, 2005, volume. 

Final Report
ED-OIG/A02H0007                                                                                        Page 4 of 41

According to TCI officials, TCI implemented its default prevention policy because it had
problems with its cohort default rates in prior years, and it wanted to reduce its cohort default
rates to maintain its Title IV eligibility. For fiscal years (FYs) 1992 through 1995, TCI’s cohort
default rates exceeded 25 percent. Based on these rates, TCI would have lost its eligibility to
participate in the FFEL and Direct Loan programs if it had not prevailed in its appeals. TCI
instituted its default prevention policy in November 1994. 4

As a result of TCI’s payments on its student’s loans, TCI’s students were denied access to the
FFEL loan funds to which they were entitled. This could have harmed the students by damaging
their credit (when their outstanding balances were referred to outside collection agencies) and by
denying the students access to the terms of FFEL Program loans, including grace periods, low-
cost repayment plans, deferments, forbearances, cancellations, and other benefits.

TCI’s payments on its students’ loans may have made its cohort default rate calculations
incorrect for all fiscal years after FY 1994, and TCI may have retained its eligibility for Title IV
programs improperly. We found the calculation of TCI’s FY 2005 official cohort default rate
was incorrect, because the borrowers for whom TCI made loan payments to prevent defaults, as
per 34 C.F.R. § 668.183 (c)(1)(iii), should have been considered to be in default for purposes of
TCI’s cohort default rates calculation. However, the student borrowers were not included in the
numerator of TCI’s cohort default rate calculation based on these loans, and only two of these
borrowers were included in the denominator of the calculation. 5

Recommendations

We recommend that the Acting Chief Operating Officer for Federal Student Aid (FSA) require
TCI to―

1.1	     Stop making payments to lenders on students’ loans for the purpose of preventing their
         default;

1.2	     Identify all of the students for whom it made such payments on or after July 1, 2005;

1.3	     Rescind all collection agency referrals for the affected students;

1.4	     Direct the collection agencies to retract any negative reports made to credit agencies
         concerning the affected students; and

1.5	     Inform the affected students of its improper practice and of their rights and recourses
         under the HEA and all applicable consumer laws.



4
  For FY 1995, TCI’s original cohort default rate was 33.4 percent, but after an appeal it was revised to 24.7 percent.
5
  The two students were included in TCI’s cohort default rate calculation for FY 2005. However, both of the
students began and ended their TCI attendance in FY 2006, and the dates their loans were made were consistent with
dates for loans to students who were included in TCI’s FY 2006 cohort default rate. Neither student should have
been included in TCI’s FY 2005 cohort default rate calculation. Instead, both students should have been included in
the FY 2006 cohort default rate calculation.
Final Report
ED-OIG/A02H0007                                                                      Page 5 of 41

We recommend that the Acting Chief Operating Officer for FSA―

1.6	   Recalculate TCI’s cohort default rate for FY 2005, including the borrowers for whom
       TCI made payments as defaulted for the purposes of the calculation, and take appropriate
       action under 34 C.F.R. Part 668, Subpart M;

1.7	   In TCI’s cohort default rate calculations for FYs 2006 and 2007, include as defaulted the
       borrowers for whom TCI made such payments; and

1.8	   Consider limiting, suspending, or terminating TCI’s participation in the Title IV, HEA
       programs, under 34 C.F.R. Part 668, Subpart G, based on TCI’s practice of making
       payments on its students’ FFEL Program loans.

TCI Comments

TCI did not concur with our finding or recommendations. TCI disagreed with our finding for the
following reasons:

1.	 TCI’s payments cannot be considered improper because they do not meet the criteria in 34
    C.F.R. § 668.183(c)(1)(iii): they were not payments made “to prevent a borrower’s default on
    a loan that is used to include the borrower in [a] cohort.” For a loan to be included in a
    cohort, the loan must have entered repayment during the cohort year (34 C.F.R. §
    668.183(b)(1)). A FFEL Stafford loan enters repayment on the date following the end of its
    grace period, which is never less than six months after the borrower stops attending (34
    C.F.R. §§ 682.200(b) and 682.209(a)(3)(i)). All of TCI’s payments were made less than six
    months after students stopped attending, so the loans did not enter repayment, and TCI’s
    payments on the loans did not affect TCI’s cohort default rate calculation.

2.	 TCI’s students were not denied FFEL funds to which they were entitled. Disbursements of
    FFEL loans were made to the students before they withdrew, and as such, the disbursements
    complied with requirements in 34 C.F.R. § 668.22(e). Each student in the OIG sample “was
    disbursed the Title IV aid that he or she had earned during the period of enrollment and each
    student knowingly and voluntarily acknowledged and consented to TCI’s default prevention
    policy.”

3.	 TCI’s default prevention practices were no more harmful to students than defaulting on a
    FFEL loan. For example, students are charged fixed or variable rates of interest on their
    FFEL loans, but TCI did not charge interest. TCI does refer delinquent accounts to a
    collection agency after 150 days have passed and in-house collection has not been
    productive, but the collection agencies used by TCI are “not authorized to send reports of any
    sort to credit reporting bureaus.” The only time that a student might be subject to a negative
    credit report would be when a seriously delinquent account is referred to a third-party
    collection agency for litigation and a judgment is obtained. Such a referral does not cause
    more harm to the student than he or she would suffer after default on a FFEL loan, and “TCI
    does not believe that any such reports have been made since July 1, 2005.” The report cites
    no evidence that any student suffered any harm, so its findings are purely speculative.
Final Report
ED-OIG/A02H0007                                                                           Page 6 of 41

4.	 According to Chapter 2.1 of the Department’s Cohort Default Rate Guide, loans that are fully
    refunded or cancelled within 120 days of disbursement are not included in a school’s cohort
    default rate calculation. Regardless of whether the loans meet the criteria 34 C.F.R.
    § 668.183(c)(1), loans for three of the five students in the report’s sample were returned
    within 120 days and, as such, would not be included in TCI’s cohort default rate calculation.

5.	 If the loans on which TCI made payments were included in its cohort default rates, the
    change to the rates would not cause a loss of eligibility. According to its calculations, TCI’s
    cohort default rates for FYs 2002 through 2005 would not have exceeded the 25 percent
    threshold if those loans were included as defaulted, and TCI did not expect its cohort default
    rates for FYs 2006 or 2007 would exceed 25 percent.

6.	 TCI’s default prevention plan was properly implemented, administered, and sanctioned by
    the Department and TCI’s guaranty agency, New York Higher Education Services
    Corporation (HESC). During an April 1999 program review, the Department analyzed TCI’s
    default prevention policy and did not communicate any concerns. HESC reviewed TCI’s
    default prevention plan in 1996, 1998, and 1999, and consistently found that it complied with
    the Department’s cohort default rate regulations.

TCI disagreed with our recommendations for this finding, but stated that it has suspended
making payments to FFEL lenders as part of its default prevention policy and that it has ceased
referring students’ accounts to collection agencies or for litigation. TCI acted in “good faith and
substantial reliance” on guidance provided by the Department and HESC, and stated that it
would be inappropriate to take any adverse action against TCI, as provided in Recommendation
1.8.

OIG Response

We have considered TCI’s comments, but have not revised our finding or recommendations.
Our responses to each of TCI’s comments are below:

1.	 For cohort default rate purposes, the definition of “repayment” cited by TCI is not applicable
    to loans that are repaid in full before the borrower would have otherwise entered repayment.
    Pursuant to 34 C.F.R. § 668.182(f)(3), the loans that TCI repaid in full are considered to have
    entered repayment on the dates that TCI made the payments for the borrowers:

           For the purposes of this subpart, a loan is considered to enter repayment on
           the date that a borrower repays it in full, if the loan is paid in full before the
           loan enters repayment under paragraphs (f)(1) or (f)(2) of this section.

   As such, there is no exception to the requirements in Section 435(m)(2)(B) of the HEA or 34
   C.F.R. § 668.183(c)(1)(iii), quoted in our finding, for schools that pay off a student’s loan
   fully within 180 days of the student’s last date of attendance.

2.	 TCI misses the point when it responds that it made initial FFEL disbursements to students
    during the term and that those funds were earned by students. TCI denied students FFEL
    funds when it revoked those disbursements by repaying the students’ loans in full: its
Final Report
ED-OIG/A02H0007                                                                                       Page 7 of 41

    students were not allowed to use funds that they had earned and to which they were entitled,
    under 34 C.F.R. § 668.22, to pay for their educational expenses. Pursuant to 34 C.F.R.
    § 682.101(b)—

             Institutions of higher education, including most colleges, universities,
             graduate and professional schools, and many vocational, technical schools
             may participate as schools, enabling an eligible student or his or her parents to
             obtain a loan to pay for the student’s cost of education.

    TCI compounded the denial when it employed collection agencies to collect charges from
    students that had previously been satisfied with FFEL funds.

    TCI claims that its students “knowingly and voluntarily acknowledged and consented to
    TCI’s default prevention policy,” but TCI’s comments provide no evidence that it allowed
    any student to receive a FFEL loan without authorizing TCI to return the loan funds. Our
    audit did not identify any such students. Further, the authorizations TCI’s students were
    required to sign did not provide a method for students to refuse to authorize TCI’s return of
    their loan funds, and TCI’s written default reduction measures did not include any procedures
    for cases in which students refused to sign an authorization.

3.	 TCI’s terms of repayment were not as generous as those for repayment of a FFEL loan. As
    the most substantive example, under TCI’s terms of repayment, a borrower was considered to
    be in default if he or she did not begin making payments within 150 days after he or she
    ended attendance. It takes about 600 days for a borrower to default on a FFEL loan after the
    student ends attendance. 6 All of the students in our sample defaulted on their obligations
    under TCI’s loan terms; it is much less likely that they would have defaulted under the terms
    for FFEL program loans.

    TCI’s assertion that its collection agencies were not authorized to report to credit reporting
    bureaus until an account was referred for litigation and a judgment was obtained is not
    confirmed by the attachments it provides with its comments. Of the six agreements that TCI
    provided, only one limited reporting to a credit bureau in the manner described by TCI in its
    comments. Regardless, our Recommendation 1.4 would not require any action by TCI for
    borrowers who were not subject to negative credit reporting: if no borrowers were referred to
    credit bureaus, TCI would not need to take any action under that recommendation.

4.	 The Department’s Cohort Default Rate Guide does not support TCI’s assertion that the loans
    it repaid in full within 120 days of disbursement must be considered as cancelled and
    excluded from the cohort default rate calculation. The Cohort Default Rate Guide provides
    separate instructions for the treatment of loans that were repaid in full, without reference to
    the date that the loans were repaid (they are included in the calculation), and for loans that
    were cancelled within 120 days of the disbursement date (they are excluded from the

6
 For most borrowers, default occurs after 6 months in a grace period, then 60 days during which the lender
schedules the first payment, then 270 days of delinquency on the loan by the borrower, and after that, an average of
about 90 days for the default claim to be filed and paid (34 C.F.R. §§ 682.200(b), 682.209(a)(2) and (3), and
682.406(a)).
Final Report
ED-OIG/A02H0007                                                                        Page 8 of 41

   calculation). The agreement for repaying a FFEL loan (the promissory note) is an agreement
   between the borrower and the lender. Unless the school determines that its certification of
   the student’s eligibility is incorrect (or a return to Title IV calculation is required under 34
   C.F.R. § 668.22), it does not have any standing to cancel the loan: only the student or the
   lender can cancel the loan because they are the only parties to the agreement. Since TCI has
   provided no evidence that the students or lenders initiated cancellations of the loans, or that
   the borrowers were ineligible for the amounts they received, the repayment by the school
   must be considered payment in full of the loan, not a cancellation.

5.	 It is unclear whether TCI’s recalculation of its cohort default rates excluded loans that TCI
    repaid within 120 days of the student’s last date of attendance, considering them to be
    cancelled. If TCI excluded those loans, its recalculations are inaccurate (see our response to
    TCI’s fourth comment). We cannot comment on other potential inaccuracies in TCI’s
    recalculation because TCI did not provide support for the numbers it used.

   However, cohort default rate calculations must be accurate, regardless of their effect on a
   school’s eligibility under 34 C.F.R. § 668.187, because cohort default rates are used for many
   other purposes. For example, if a school’s three most recent cohort default rates are less than
   ten percent, the school may deliver loan proceeds in a single installment or choose not to
   delay the delivery of the first installment of a loan for first-time, first-year borrowers (34
   C.F.R. § 682.604(c)(5)(i) and (c)(10)(i)), and if a school’s most recent cohort default rate is
   less than five percent, an eligible home institution may deliver loan proceeds in a single
   installment to a student studying abroad (34 C.F.R. § 682.604(c)(10)(ii)). If TCI’s
   recalculations of its cohort default rates were accurate, TCI’s eligibility for these benefits
   would be affected.

6.	 The 1999 FSA program review report cannot be used as approval of TCI’s practice. The
    report did not include any reference to TCI’s default prevention policy and stated that “[t]he
    absence of statements in the report concerning the institution’s specific practices must not be
    construed as acceptance, approval, or endorsement of those specific practices and
    procedures.”

   The report of a 1998 compliance review by HESC, provided by TCI as an attachment to its
   comments, may appear to find that the default management plan was compliant. The report
   stated, “The following report does not identify any areas of regulatory non-compliance. TCI
   has implemented a complete default management program resulting in decreases in the
   cohort default rate.” However, the report did not directly state that TCI’s practice of
   repaying borrowers’ loans was in compliance with regulations, and the report provided a
   disclaimer that stated—

           Although the review was thorough, it cannot be assumed to be all-inclusive.
           Absence of statements in the report concerning TCI’s specific practices and
           procedures must not be construed as acceptance, approval, or endorsement of
           those specific practices and procedures.
Final Report
ED-OIG/A02H0007                                                                                      Page 9 of 41

    Regardless of guidance that TCI may or may not have received, HESC does not have the
    authority to issue policy interpretations for the Department. We must rely on the HEA and
    the Department’s regulations as criteria for our audit.

As to TCI’s comment that it would be inappropriate to take an adverse action as provided in
Recommendation 1.8, the Acting Chief Operating Officer for FSA is responsible for determining
whether such an action is appropriate.

FINDING NO. 2 – TCI’s Administration of Title IV Programs Needs Improvement.

Our review disclosed internal control deficiencies in TCI’s administration of Title IV programs
during the July 1, 2005, through June 30, 2006, audit period. TCI had an Office Procedure
Manual that consisted of memoranda dated October 18, 2001, through November 7, 2003.
However, this manual lacked adequate written policies and procedures pertaining to the internal
operations in the administration of Title IV programs, specifically for the calculation and timely
return of Title IV funds, the proper disbursement of Pell Grant funds, and the accurate and timely
updating of the Common Origination and Disbursement (COD) System. 7

Pursuant to 34 C.F.R. § 668.16(b)(4), “The Secretary considers an institution to have . . .
administrative capability if the institution . . . [h]as written procedures for or written information
indicating the responsibilities of the various offices with respect to the approval, disbursement,
and delivery of Title IV, HEA program assistance and the preparation and submission of reports
to the Secretary . . . .”

TCI did not have adequate written policies and procedures because TCI did not believe it needed
them. According to TCI officials, TCI's personnel had sufficient institutional knowledge and did
not need formal written policies and procedures for the return of Title IV funds, Pell Grant
disbursements, and updates to COD.

As a result of its inadequate internal controls over the administration of Title IV programs, TCI
placed the $20,541,317 in Title IV funds that it received during July 1, 2005, through June 30,
2006, at risk of being misused.

TCI incorrectly calculated the return of Title IV

We reviewed files for 30 withdrawn students and found that TCI incorrectly determined the
withdrawal date used in the return of Title IV calculations. We found that, for 15 of 30 randomly
sampled students (50 percent), TCI did not return $5,445 of Title IV funds, due to incorrect
withdrawal dates. TCI did not return $4,682 for 14 students who unofficially withdrew and $763
for one student who was terminated: 8
7
  The Final Audit Report, ED-OIG/A09G0030, entitled Technical Career Institutes' Verification of Applicant
Information Submitted on the Free Application for Federal Student Aid (FAFSA), determined that TCI had policies
and procedures in place that ensured FAFSA information was verified in accordance with applicable laws and
regulations. TCI’s written policies and procedures, as included in its college catalog and internal memoranda, were
adequate for its administration of its verification process, but were not adequate for the requirements reviewed
during our audit or for TCI’s general administration of the Title IV programs.
8
  The student was terminated due to incomplete immunization requirements.
Final Report
ED-OIG/A02H0007                                                                                    Page 10 of 41

    •	 For the 14 students who unofficially withdrew, TCI—
       - Administratively withdrew, before the mid-point of the payment period, 4 students
           who were absent from all classes for three consecutive weeks. TCI incorrectly
           determined the withdrawal date for these students by using the processing dates for
           their withdrawals, which were one to four days after the actual withdrawal dates. As
           a result, TCI did not return $341 in Title IV funds. 9
       - For 9 students, incorrectly determined the return of $3,538 in Title IV funds because
           it did not use the mid-point as the withdrawal date.
       -	 For 2 students, incorrectly determined the return of $803 in Title IV funds because it
           did not use the last date of attendance after the mid-point (which was less than 60
           percent) as the withdrawal date. Instead, TCI used the last date of attendance, plus
           three weeks, per its policy.
    •	 For the terminated student, TCI used the date that it processed the change of the student’s
       status in its database, and not the date when the termination decision was signed by the
       school’s official. As a result, TCI did not return $763 in Title IV funds.

TCI’s institutional policy regarding unofficial withdrawals states, “If a student is absent from all
classes for three consecutive weeks, the College administratively withdraws the student from the
institution. . . . For federal Title IV refund purposes, the withdrawal date of an unofficial
withdrawal is the date the College administratively withdraws the student from classes.”
Though this policy indicates that TCI administratively withdraws a student on the date that is
three weeks after the student last attended class, in practice TCI uses the date that the withdrawal
is processed weekly in its database. Since TCI’s policy to determine a student’s withdrawal date
conflicts with its practice, it is not in compliance with regulatory requirements.

According to 34 C.F.R. § 668.22(c)(1)—

        [F]or a student who ceases attendance at an institution that is not required to take
        attendance, the student’s withdrawal date is —
                (i) The date, as determined by the institution, that the student began the
        withdrawal process prescribed by the institution;
                (ii) The date, as determined by the institution, that the student otherwise
        provided official notification to the institution, in writing or orally, of his or her
        intent to withdraw;
                (iii) If the student ceases attendance without providing official notification
        to the institution of his or her withdrawal . . . the mid-point of the payment period
        (or period of enrollment, if applicable) . . . .”

Volume 5 of the 2005-2006 Federal Student Aid Handbook (FSA Handbook) states—

        If a school administratively withdraws a student (e.g., expels, suspends, or cancels
        the student’s registration) who has not notified the school of his or her intent to
        withdraw, the last possible date of withdrawal for the student is the date the

9
  One student was counted twice in our calculation of students for whom TCI did not return Title IV funds due to
incorrect withdrawal dates. This student withdrew from two semesters during our review period, and TCI
miscalculated the return of Title IV twice.
Final Report
ED-OIG/A02H0007                                                                                     Page 11 of 41

        school terminates the student’s enrollment. However, an institution may not
        artificially create a withdrawal date for such a student that is beyond the midpoint
        of the period by simply choosing to withdraw the student after the midpoint. Of
        course, if the school can document that the student continued his or her attendance
        past the midpoint, the school may use a later date.

Under 34 C.F.R. § 668.22(c)(3), “[A]n institution that is not required to take attendance may use
as the student’s withdrawal date a student’s last date of attendance at an academically related
activity provided that the institution documents that the activity is academically related and
documents the student’s attendance at the activity.”

For circumstances beyond the student's control, 34 C.F.R. § 668.22(c)(1)(iv) provides that the
student’s withdrawal date is—

        If the institution determines that a student did not begin the institution's
        withdrawal process or otherwise provide official notification (including notice
        from an individual acting on the student's behalf) to the institution of his or her
        intent to withdraw because of illness, accident, grievous personal loss, or other
        such circumstances beyond the student's control, the date that the institution
        determines is related to that circumstance.

Return of unearned Title IV funds was untimely

TCI did not always return Title IV funds timely for students who withdrew. For 2 of 30 sampled
students who withdrew, unearned Title IV funds were not returned within the required
timeframe. These returns were 1 and 118 days late. 10

Pursuant to 34 C.F.R. § 668.22(j)(1), “An institution must return the amount of title IV funds for
which it is responsible . . . as soon as possible but no later than 30 days after the date of the
institution's determination that the student withdrew . . . .”

Incorrectly Disbursed Pell Grant Funds

TCI did not verify student enrollment status before making a second disbursement of a Pell
Grant for 1 of the 30 students in the sample we used to test compliance with eligibility and
disbursement requirements. This student’s second Pell Grant disbursement for the 2005-2006
Award Year was calculated based on full-time enrollment. It should have been based on half-
time enrollment because (1) the student was enrolled in a noncredit or reduced credit remedial
course leading to a high school diploma or the recognized equivalent as part of his full-time
course load, and (2) the student registered for an additional class not required in his program of
study. 11

10
  TCI miscalculated the return of Title IV funds for one of the two untimely returns.
11
  New York State High School Equivalency Diploma and TCI degree requirements for Ability-to-Benefit students
entering Fall 2004 state that for a student majoring in Industrial Electronics Technology (IETC), HIS-103 American
History I was not a degree courses but it counted as a noncredit or reduced credit remedial course leading to a high
school diploma or the recognized equivalent. COM204, Intro to Java Programming, was not an approved course for
Final Report
ED-OIG/A02H0007                                                                                    Page 12 of 41

Pursuant to 34 C.F.R. § 668.20(c)(1)—

        In determining a student's enrollment status under the Title IV, HEA programs . . .
        an institution may not take into account any noncredit or reduced credit remedial
        course if . . . [t]hat course is part of a program of instruction leading to a high
        school diploma or the recognized equivalent of a high school diploma, even if the
        course is necessary to enable the student to complete a degree or certificate
        program . . . .

Pursuant to 34 C.F.R. § 690.80(b)(1)—

        If the student’s enrollment status changes from one academic term to another term
        within the same award year, the institution shall recalculate the Federal Pell Grant
        award for the new payment period taking into account any changes in the cost of
        attendance.

TCI should have reduced the student’s scheduled Pell Grant disbursements from $2,025 to
$1,012, to reflect the student’s half-time, six credits, eligibility for Title IV. As a result, TCI
over-awarded the Pell Grant for 1 of 30 students in our sample by $1,013.

Pell Grant Data Reported Incorrectly to COD

TCI incorrectly reported $8,368 in Pell Grant data to COD for 12 of 4,083 Pell Grant recipients.
When we compared the Pell Grant disbursement information provided to us by TCI to
information in COD, we found that data did not match for 12 students. This occurred because
TCI did not capture and reconcile the errors identified by EDExpress, which rejected or adjusted
some transactions. 12 Eleven of the twelve students’ Pell Grants were rejected (totalling $8,268)
and one student’s Pell Grant was adjusted by $100 due to a data entry error. These changes were
not reported to COD timely, and as a result, subsequent Title IV funds may have been
inappropriately awarded.

Pursuant to 34 C.F.R. § 690.83(b)(1)—

        An institution shall report to the Secretary any change in enrollment status, cost of
        attendance, or other event or condition that causes a change in the amount of a
        Federal Pell Grant for which a student qualifies by submitting to the Secretary the
        student's Payment Data that discloses the basis and result of the change in award
        for each student.




the IETC degree program, and it was not a noncredit or reduced credit remedial course leading to a high school

diploma or the recognized equivalent. 

12
   EDExpress is the financial aid management software provided free of charge by ED, which TCI used to

administer its Pell Grant funds. 

Final Report
ED-OIG/A02H0007                                                                       Page 13 of 41

The Department provided reporting deadline dates for the 2005-2006 award year in its notice
published in the Federal Register on June 7, 2005 (70 FR 33134):

       [A]n institution is required to submit disbursement information no later than the
       earlier of:
       (a) 30 calendar days after the institution makes a disbursement or becomes aware
           of the need to make an adjustment to previously reported disbursement data;
           or
       (b) October 2, 2006.

As of November 27, 2007, after discussion with TCI officials, the COD data for 8 of the 12
students had been updated. Data for the four remaining students had not been adjusted.

Recommendations

We recommend that the Acting Chief Operating Officer for FSA require TCI to—

2.1	   Develop, implement, and ensure that its personnel adhere to written policies and
       procedures for the administration of Title IV programs;

2.2	   Return to the Department $6,458 ($5,445 in Title IV funds and $1,013 in Pell Grant
       funds) and applicable interest;

2.3	   Identify all students for whom TCI used an incorrect withdrawal date during the period
       July 1, 2004, to the present, recalculate the return of Title IV funds for those students in
       accordance with applicable regulations, and return any Title IV funds due to the
       Department or FFEL lenders, with all applicable interest;

2.4	   Identify all students to whom TCI disbursed Pell Grants for attendance in any noncredit
       or reduced credit remedial course that reduced enrollment from full-time status during the
       period July 1, 2004, to the present, recalculate Pell Grant disbursements for those
       students in accordance with applicable regulations, and return any Title IV funds due to
       the Department with all applicable interest; and

2.5	   Verify that data is reported correctly to COD.

TCI Comments

TCI did not concur with most of our finding. TCI concurred with Recommendations 2.4 and 2.5,
did not concur with Recommendation 2.3, and did not concur with parts of Recommendations
2.1 and 2.2. TCI’s comments on the finding are summarized below:

1.	 TCI did maintain written office procedures which explained its policies and procedures, and
    those written procedures were distributed to its staff. The OIG misinterpreted the comment
    provided in its report: TCI did not intend to imply that its staff was too knowledgeable and
    experienced to require written policies and procedures.
Final Report
ED-OIG/A02H0007                                                                        Page 14 of 41

2.	 TCI calculated the return of Title IV funds correctly. Though TCI’s catalog mistakenly
    described its policy as an “unofficial” withdrawal policy, TCI’s policy was to
    administratively disenroll students if they did not attend for 21 days. Under 34 C.F.R. §
    668.22(c)(1)(iv), these administrative withdrawals are considered “circumstances beyond the
    student’s control” and are treated as official withdrawals. TCI is required to use the date that
    it took action as the withdrawal date, rather than the 21st day the student was absent or the
    midpoint of the payment period, because 34 C.F.R. § 668.22(c)(1)(iv) specifies that the
    withdrawal date is “the date that the institution determines is related to that circumstance.”

   This rule is further supported by the quotation from the FSA Handbook provided in the OIG
   finding, which specifies that “the last possible date of withdrawal for the student is the date
   the school terminates the student’s enrollment.” The qualification provided in the quotation
   (that the “institution may not artificially create a withdrawal date . . . beyond the midpoint of
   the period by simply choosing to withdraw the student after the midpoint” [emphasis in
   original]) is not applicable. TCI did not use an “artificial” withdrawal date because “it
   implemented and observed a standard policy for all students throughout each payment
   period.”

   Since 2001, TCI has confirmed the compliance of its policy, verbally and in writing, with
   Department officials on at least three occasions. An official with the Department’s Office of
   Postsecondary Education confirmed the compliance of TCI’s policy by writing—

           If, as in your example, an institution has a policy that a student is considered
           to be withdrawn after he or she is absent for 21 consecutive days and the
           institution applies the policy consistently throughout the period to all students,
           an administrative withdrawal made in accordance with the policy that occurs
           after the midpoint would not be viewed as circumventing the use of the
           midpoint as the withdrawal date for an unofficial withdrawal.

3.	 The untimely returns of Title IV funds identified in the finding were within the Department’s
    compliance thresholds. Pursuant to 34 C.F.R. § 668.173(c)(2), “[t]he Secretary does not
    consider an institution to be out of compliance . . . if the institution is cited in any audit or
    review report because it did not return unearned funds in a timely manner for one or two
    students.”

4.	 TCI agreed that it made a Pell Grant overpayment of $1,013 and has returned that amount.
    After reviewing its policies and procedures, and performing an internal file review of 30
    additional students, TCI determined that the overpayment was an isolated incident due to a
    single instance of human error.

5.	 Except for supplemental data for one student, TCI has updated COD with accurate data for
    the 12 Pell Grant recipients identified in the finding. However, the error rate for this
    deficiency is 0.3 percent (12 / 4,083 = 0.3 percent), which is well within the 5 percent
    compliance threshold provided in 34 C.F.R. § 668.173(c)(2). TCI has implemented
    additional policies and procedures to verify that Pell Grant data is reported timely and
    accurately.
Final Report
ED-OIG/A02H0007                                                                       Page 15 of 41

For the reasons described above, TCI concurred with Recommendations 2.2 (for the return of
$1,013 only), 2.4, and 2.5, and did not concur with Recommendations 2.2 (for the return of
$5,445 only) and 2.3. In its comments on Recommendation 2.1, TCI stated that it will continue
to revise and add to its written office procedures, without concurring that its current written
policies and procedures are inadequate.

OIG Response

We have considered TCI’s comments, but have not revised our finding or recommendations.
Our responses to TCI’s comments on the findings and recommendations are provided below:

1.	 TCI did not provide any additional written policies or procedures to support its assertion that
    its written policies and procedures are adequate. We reported the statements of TCI’s
    officials as they were made to us. As such, we have no basis for revising our finding or
    recommendation for this issue.

2.	 Though TCI did provide documentation of written and verbal guidance received from
    Department officials that appears to support its policy, TCI’s practice did not comply with
    regulatory requirements for return to Title IV calculations in 34 C.F.R. § 668.22. In essence,
    TCI is asserting that, since its policy was to administratively withdraw students after they
    were absent for 21 days, the requirements in 34 C.F.R. § 668.22(c)(1)(iv) are applicable, and
    those in 34 C.F.R. § 668.22(c)(1)(iii) are not. Both paragraphs are included in this quotation:

               [F]or a student who ceases attendance at an institution that is not required
           to take attendance, the student’s withdrawal date is—
                                          .   .   .   .   .   .   .
               (iii) If the student ceases attendance without providing official notification
           to the institution of his or her withdrawal in accordance with paragraph
           (c)(1)(i) or (c)(1)(ii) of this section, the mid-point of the payment period (or
           period of enrollment, if applicable);
               (iv) If the institution determines that a student did not begin the
           institution’s withdrawal process or otherwise provide official notification
           (including notice from an individual acting on the student’s behalf) to the
           institution of his or her intent to withdraw because of illness, accident,
           grievous personal loss, or other such circumstances beyond the student’s
           control, the date that the institution determines is related to that circumstance
           ....

   TCI relied on the requirements in 34 C.F.R. § 668.22(c)(1)(iv) as criteria for its policy, but
   the requirements in that paragraph are limited to “illness, accident, grievous personal loss, or
   other such circumstances beyond the student’s control.” By itself, a student’s cessation of
   attendance or decision to withdraw without notifying TCI is not a circumstance “beyond the
   student’s control,” and TCI has not documented that any of the withdrawals in question were
   the result of any “such circumstance” similar to those listed in the regulations. Since the
   requirements in 34 C.F.R. § 668.22(c)(1)(iii) are clearly intended for the unofficial
   withdrawals we identified, we used those requirements to evaluate TCI’s compliance.
Final Report
ED-OIG/A02H0007                                                                      Page 16 of 41

   Contrary to its assertion, TCI is not required to use as the withdrawal date the date that TCI
   took action to administratively withdraw a student. Neither of the citations provided by TCI
   limit its determination to the date it took action: 34 C.F.R. § 668.22(c)(1)(iv) specifies only
   that the date must be “related” to the circumstance (not necessarily the date the action was
   taken) and the FSA Handbook provides requirements for “the last possible date” (not the only
   possible date). Under 34 C.F.R. § 668.22(k), TCI is required to provide information to its
   students about its return to Title IV calculations. TCI’s catalog stated, “. . . if a student is
   absent from all classes for three consecutive weeks, the College administratively withdraws
   the student from the institution.” This statement does not describe any intervening period
   between the three-week absence and the student’s withdrawal date.

   TCI asserts that its practice did not “artificially create a withdrawal date,” as that phrase is
   used in the FSA Handbook, because TCI has “implemented and observed a standard policy
   for all students throughout each payment period.” Our finding does not depend on the
   “artificial” language in the FSA Handbook. The regulations at 34 C.F.R. § 668.22(c)(3) do
   not allow the school to use an unofficial withdrawal date later than the midpoint of the
   payment period unless it can show that the date is “the student’s last date of attendance at an
   academically-related activity.” A school may use a date after the midpoint only if the date is
   a day that the student actually attended, not a date chosen by the school.

3.	 The requirements that TCI cites from 34 C.F.R. § 668.173(c)(2) do not provide that, unless
    more than two exceptions are identified, a school is in compliance with requirements for the
    timely returns of Title IV funds. The criteria in 34 C.F.R. § 668.173(c)(2) are applicable
    only to compliance with requirements for refund reserve standards, not timeliness of returns.
    Our report does not find that TCI failed to comply with refund reserve standards.

4.	 TCI did not provide documentation to support its return of the $1,013 Pell Grant
    overpayment, so we have not changed our recommendation. If the Department can verify
    from its records that TCI has returned the $1,013, it will not need to require an additional
    payment.

As we discussed in our response to TCI’s third comment, the thresholds provided in 34 C.F.R.
§ 668.173 are only used to determine compliance with refund reserve standards. They cannot be
used to determine compliance with COD reporting requirements.



                  OBJECTIVES, SCOPE, AND METHODOLOGY 



Our audit objective was to determine whether TCI administered the Pell Grant and FFEL
programs in accordance with the HEA and applicable Federal regulations. Specifically, we
examined (1) institutional and program eligibility (excluding the 90/10 rule), (2) student
eligibility, (3) award calculations and disbursements, and (4) return of Title IV funds. Our
review covered the period from July 1, 2005, through June 30, 2006.
Final Report
ED-OIG/A02H0007                                                                   Page 17 of 41

To accomplish our audit objective, we―
   •	 Obtained an understanding of applicable Federal laws and regulations.
   •	 Reviewed TCI’s Compliance Audit Reports prepared by its Independent Public
       Accountant for the years ended September 30, 2005, and December 31, 2005; a program
       review report issued by FSA, dated April 3, 2000; and correspondence from TCI’s
       accrediting agency.
   •	 Reviewed TCI’s policies and procedures included in its college catalog; TCI’s Office
       Procedure Manual that included memoranda dated October 18, 2001, through November
       7, 2003; and various forms used by TCI’s Student Financial Services, Registrar, and
       Student Affairs Offices, applicable to its financial aid processes and gained an
       understanding of processes used to administer Title IV funds.
   •	 Interviewed TCI’s Vice President and Assistant Vice President for Student Financial
       Services, Director of Student Financial Services, Registrar and Assistant Registrar,
       Financial Aid Advisors, and other officials from TCI’s offices of Student Financial
       Services, Credentials and Testing, and Admissions.
   •	 Examined approvals and correspondence from the school’s accrediting and state 

       oversight agencies. 

   •	 Observed classes while in session and toured the institution’s facilities.
   •	 Gained an understanding of TCI’s accounting system for students enrolled in Title IV
       eligible programs.
   •	 Contacted and obtained information from TCI’s Independent Public Accountant and FSA
       officials from New York and Boston offices.

We relied upon computerized student Title IV data provided by TCI officials and computerized
information obtained from COD and NSLDS to select our student eligibility and disbursement
sample and our return of Title IV samples. We were able to match all Pell Grant recipients’
disbursement information provided by TCI with information obtained from COD, with the
exception of 12 students for whom we determined that TCI did not update COD records in a
timely manner.

FFEL information from NSLDS does not include any field to identify a loan with a specific loan
year or period. We could not perform a direct overall NSLDS loan match to the TCI supplied
Title IV loan information. However, based on the overall comparison between the NSLDS data
and the TCI loan information, the TCI listing appeared reasonably complete. As a result, we
used TCI’s supplied data for both Pell Grant and FFEL recipients.

We tested the accuracy of TCI’s supplied student data by comparing selected source records to
the TCI Pell Grant and FFEL recipient student files. We tested the completeness of the TCI Pell
Grant information by matching it to the information obtained from COD, with the exception of
the 12 students. We tested the TCI loan list completeness by comparing it to the NSLDS loan
listing. Based on the comparison, we concluded that the TCI Title IV listing was sufficiently
reliable for the purpose of our audit.

To evaluate TCI’s compliance with Title IV student eligibility, disbursement, and award
calculation requirements, we randomly selected 30 students from the universe of 4,559 students
who were awarded a total of $20,541,317 in Title IV funding. This included $10,572,764 in Pell
Final Report
ED-OIG/A02H0007                                                                      Page 18 of 41

Grants, $8,881,954 in FFEL, $1,032,532 in Federal Supplemental Educational Opportunity
Grants, and $54,067 in Federal Perkins Loans. We reviewed academic, financial aid, and
accounting files for the 30 students in our sample.

To evaluate TCI’s compliance with return of Title IV requirements, we reviewed files for a
sample of 30 withdrawn students. Twenty of the sampled students were randomly selected from
a universe of 710 students who withdrew and had a Title IV refund paid. The remaining 10
sampled students were randomly selected from a universe of 792 students that TCI identified
from its electronic database as students who withdrew from the institution during our audit
period but had no returns of Title IV funds paid.

We performed our fieldwork at TCI’s location in New York, New York. We held an exit
conference with TCI officials on November 14, 2007. We conducted this performance audit in
accordance with generally accepted government auditing standards. Those standards require that
we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and conclusions based on our
audit objectives.



                            ADMINISTRATIVE MATTERS



Statements that managerial practices need improvements, as well as other conclusions and
recommendations in this report, represent the opinions of the Office of Inspector General.
Determinations of corrective action to be taken, including the recovery of funds, will be made by
the appropriate Department of Education officials in accordance with the General Education
Provisions Act.

If you have any additional comments or information that you believe may have a bearing on the
resolution of this audit, you should send them directly to the following Education Department
official, who will consider them before taking final Departmental action on this audit:

                              Lawrence A. Warder
                              Acting Chief Operating Officer
                              Federal Student Aid
                              U. S. Department of Education
                              Union Center Plaza
                              830 First Street, NE, Room 112G1
                              Washington, DC 20202

It is the policy if the U. S. Department of Education to expedite the resolution of audits by
initiating timely action on the findings and recommendations contained therein. Therefore,
receipt of your comments within 30 days would be appreciated.
Final Report
ED-OIG/A02H0007                                                                     Page 19 of 41

In accordance with the Freedom of Information Act (5 U.S.C. § 552), reports issued by the
Office of Inspector General are available to members of the press and general public to the extent
information contained therein is not subject to exemptions in the Act.

                                             Sincerely,

                                             /s/
                                             Daniel P. Schultz
                                             Regional Inspector General
                                               for Audit

Attachment
Final Report
ED-OIG/A02H0007                               Page 20 of 41




                  Attachment: TCI Comments

Final Report
ED-OIG/A02H0007                                                                       Page 21 of 41




                               RITZERT           & LEYTON
                               A PROr:rSSIONAL CORPORATION

                               ATTORNEYS AT LAW
                               11350 RANDOM HILLS ROAD      SUITE 400
                                      FAJRFAX, VIRGINIA 22030
 Peter S. Leyton               703.934.2660 VOICE    703.934.9840 FAX         703-934-9826 Direct
A LSO ADMITTED IN                                                       pleyton@ritzert-Ieyton.com
WASHINGTON, D.C.



                                        March 12,2008

VIA ELECTRONIC MAIL (daniel.schultz@ed.gov)

Daniel P. Schultz
Regional Inspector General for Audit
United States Department of Education
Office of Inspector General
32 Old Slip, 26 th Floor
Financial Square
New York, NY 10005

         Re: Draft Audit Report Technical Career Institutes, Inc. 's (TCl's) Administration
         of the Federal Pelf Grant and Federal Famify Education Loan (FFEL) Programs,
         Control Number ED-OfGIA02H0007

Dear Mr. Schultz:

       This Firm, as you know, represents Technical Career Institutes, Inc. ("TCI") and
is providing the following response to the above referenced Draft Audit Report on Tel's
behalf. Tel appreciates your courtesy and that of your team in the handling of this
matter, including the extension provided to Tel to file this response.

OIG DRAFT FINDING NO.1 - TCI IMPROPERLY PAID LENDERS TO REDUCE ITS
COHORT DEFAULT RATES.
        1.1 OIG Draft Finding: TCI's Payments to FFEL Lenders Should Cause the
        Loans to Be Deemed in Default for the Purposes of the Default Rate
        Calculation.
TCI RESPONSE: TCI DID NOT IMPROPERLY PAY LENDERS TO REDUCE ITS
COHORT DEFAULT RATES.
         Tel's payments to FFEL lenders do not constitute "a payment to prevent a
borrower's default on a loan that is used to include the borrower in that cohort for the
purposes of calculating TCl's cohort default rate. A borrower in a cohort for a particular
fiscal year is considered to be in default if, "[b]efore the end of the following fiscal year
[the fiscal year subsequent to the year in which the borrower entered repayment], [an
institution or an institution's] owner, agent, contractor, employee, or any other affiliated
entity or individual make a payment to prevent a borrower's default on a loan that is
used to include the borrower in that cohort." 34 C.F.R. § 668.183(c)(1 )(iii) (emphasis
added).
Final Report
ED-OIG/A02H0007                                                                   Page 22 of 41




 Mr. Daniel P. Schultz
 Re: Draft Audit Report of Technical Career Institutes, ACN: A02H0007
 March 12, 2008
 Page 2 of 21

        The specific type of loan(s) a student borrower obtains determines whether that
particular borrower must be included as part of a particular cohort. 34 C.F.R.
§ 668.183(b )(1). This regulation provides that a student becomes part of a cohort if he
or she obtains any Federal Stafford loan, Federal SLS loan. Direct Subsidized
loan. Federal Consolidation loan. or Federal Direct Consolidation loan that enters
repayment during the fiscal year in question. kl (emphasis added). Therefore. in order
to be included in a particular cohort the borrower must have: (a) taken out one of the
loans identified in 34 C.F.R. § 668.183(b)(1) and (b) have that loan enter repayment
during a particular fiscal year that corresponds to the cohort in question.

        The five (5) students identified in the Draft Audit Report with respect to this
finding took out Stafford loans. For Stafford loans, a borrower enters repayment on the
date following the end of the grace period for the loan. 34 C.F.R. § 682.200(3)(b).
Although the grace period for a Stafford loan may vary depending upon the loan's rate
of interest. it is never less than six (6) months (180 days) from the date the borrower
ceases his or her enrollment on at least a half-time basis . 34 CF.R. § 682.209(a)(3)(i).

        In this case, payments made by TCI to the students' FFEL lender(s) occurred
earlier than 180 days from the withdrawal date of each of the five identified students.
Therefore. none of the loans associated with these students had entered repayment at
the timeTCI transferred funds to the lender(s). Because none of the loans had entered
repayment at the time TCI returned these funds . the loans involved are not loans "used
to include the borrower in that cohort." The OIG draft finding. in reliance upon 34 C.F.R.
§ 668.183(c)(1 )(iii), is in error and without merit. TCI 's actions were lawful. The legal
effect of TCI's repayment of the loans of the five (5) identified students is that these
loans should not be deemed in default and factored into TCI's cohort default rate. The
practical effect is that these loans should be treated as if they had not existed for
purposes of the cohort default rate calculation.
       1.2  OIG Draft Finding: As a Result of TCI's Payments on Its Student's
       Loans, TCI's Students Were Denied Access to the FFEL Loan Funds to
       Which They Were Entitled.
Tel RESPONSE: TCI STUDENTS WERE NOT DENIED FFEL FUNDS TO WHICH
THEY WERE ENTITLED.
        The Draft Audit Report cites to portions of 34 C.F.R. § 668.22(e)(2) in support of
the assertion that TCI denied students access to FFEL funds to which they were
entitled. In citing this regulation, the OIG appears to assert that TCI students who
participated in the institution's default prevention policy did not receive FFEL funds that
they had actually earned. The OIG, however, offers no factual support for this
allegation.
Final Report
ED-OIG/A02H0007                                                                                  Page 23 of 41




 Mr. Daniel P. Schultz
 Re: Draft Audit Report of Technical Career Institutes, ACN: A02H0007
 March 12, 2008
 Page 3 of 21

        The ledger cards for the five (5) students identified in the Draft Audit Report
demonstrate cOnclusively that FFEL disbursements were made to the students prior to
their withdrawal from the institution . See, Exhibit 1.1. Therefore, such disbursements
complied with the regulatory requirements found at 34 C.F.R. § 668 .22(e).
         In the case of each of the five (5) identified students, TCI determined - based
upon its calculation of the withdrawal date - that each student had earned one-hundred
percent (100%) of his or her applicable Title IV funds for the payment period in question.
(In the case of student                    , TCI disbursed one-hundred and one percent
(101 %) of the subsidized and unsubsidized Stafford loan funds, slightly more than the
student had actually earned.) 1 In the case of students • • • •                 1Ii
. . . . . . . . .' and               , TCI disbursed the maximum amount of Title IV aid
for the payment period. Accordingly, none of the students cited by the Audit Team
failed to receive disbursements of T itle IV funds for which they had applied. 2
        In addition , each of the five (5) students signed a disclosure evidencing that the
students understood and acknowledged TCI's institutional policy, which is to return .
FFEL loan funds to each student's lender(s) in the event the student withdraws during
the first semester of enrollment or does not return for the next term. See, Exhibit 1.2 . .
As such, this document reflects the students' knowing and voluntary waiver of any
further disbursements and of their consent to not continue their loan obligations to FFEL
lenders under such circumstances. !fL No basis exists to support the conclusory
allegation made in the Draft Audit Report that TCI's default prevention policy had the­
effect of denying students an entitlement. Each student was disbursed the Title IV aid
that he or she had earned during the period of enrollment and each student knowingly
and voluntarily acknowledged and consented to TCI's default prevention policy.
Therefore, TCI did not deny any student access to an entitlement.
        1.3  OIG Draft Finding: TCI's Default Prevention Could Have Harmed
        Students.
TCI RESPONSE: TCI'S DEFAULT PREVENTION PRACTICES WERE NO MORE
HARMFUL TO A STUDENTS THAN DEFAULTING ON A FFEL LOAN,
      OIG also suggests that TCI students were harmed by the default prevention plan
because it denied them favorable terms and conditions that are available to FFEL
program borrowers. However, many of the same payment provisions utilized by FFEL

1 An administrative error resulted in the disbursement of more than one-h undred percent (100%) of Title
IV funds in this instance. Moreover, TCI refunded the unearned overage for that student to the
Department as instructed by 34 C.F.R. § 668 .22(e)(4).
2 In addition, none of these students were entitled to a post-withdrawal disbursement. In the e.vent an
institution disburses more Title IV funds than a withdrawn student has earned, the institution must return
the excess funds disbursed. 34 C.F .R. § 668.22(a)(3). Conversely, a student may also be entitled to a
post-withdrawal disbursement if that student earned, prior to his or her withdrawal , more Title IV funds '
than the institution had actually disbursed . 34 C .F.R".,& .668.22(a)(4).
                                                        f;~
                                                  C    iL "',,­
                                                 £~1     -f
                                                  ~"".\;"-E
                                                          SiL..d
Final Report
ED-OIG/A02H0007                                                                                   Page 24 of 41




 Mr. Daniel P. Schultz
 Re: Draft Audit Report of Technical Career Institutes, ACN: A02H0007
 March 12, 2008
 Page 4 of 21

 lenders and guaranty agencies under agreement with the Department also apply to
 those students who received assistance under Tel's default prevention plan. In fact,
 those terms required under Tel's default prevention plan placed each student on similar
 footing or in a better position than other, similarly-situated FFEL student-borrowers. A
 side-by-side comparison of the key terms of FFEL program loans and Tel' default
 prevention plan is presented below:

      FFEL Program Terms and Conditions                         TCI Default Prevention Program Terms and
                                                                                   Conditions
Grace Period: 6 months following the date                      Grace Period: 150 days from the ending date
borrower is no longer enrolled as at least a                   of a student's last term.
part time student. 34 C.F.R. § 682.209(a)(3)(i}.                             .


Interest: Fixed or variable rates of interest                  Interest: TCI did not charge interest.             .,
may be charged according to 34 C.F.R.                                                                             ;

§ 682.202(a}.
Minimum annual payment: $600.                                  Minimum annual payment: $600 (12
                                                               installments of $50.00).
Deferment available to students who qualify                    loans can be deferred at TCI's discretion.
under 34 C.F.R. § 682.210.
Forbearance available to students who qualify              loans can be forgiven at TCI's discretion.
under 34 C.F.R. § 682.211.
Acceleration upon default. See, Terms of                   No acceleration clause.
Master Promissory Note, Exhibit 1.3.
Late charges and Collection Charges as                     Late charges and collection-related charges
applicable in 34 C.F ,R. § 682.202(f) and Master           only applicable if debt is forwarded for
Promissory Note. See, Exhibit 1.3.                         collection by third a party agent.
Lenders may garnish wages and federal tax                  TCI has no power to garnish wages or tax
returns (up to 15% of income) per 20 U.S.c.                returns.
§ 109Sa
Most student loans are not dischargeable in               TCI is an unsecured creditor and student's
bankruptcy per 11 U.s.c. § 523(a)(8).                     debt is fully dischargeable in bankruptcy.
Student in d efault may be ineligible for future          Default on TCI obligation does not make
Title IV student aid (34 C.F.R. § 668.35).                student ineligible for future Title IV aid.

       The comparison above demonstrates how favorable Tel 's terms and conditions
were for students who would have otherwise been subject to the terms and conditions
of the FFEL program. Specifically, the default prevention plan establishes a grace
period of 150 days from the ending date of a student's term. Because the policy applies
to students who withdrew from Tel in their first enrollment period or did not return for


                                               ~...,
                                                        .
their second enrollment period, Tel's policy ~ates the distinct possibility that the
                                                        s.c.
                                                               '§
                                                               .
                                                                   ~

                                              f>" -l. T
                                               ""....     ":l:l
                                                               :'!.- ..:
 Final Report
 ED-OIG/A02H0007                                                                    Page 25 of 41




 Mr. Daniel P . Schultz
 Re: Draft Audit Report of Technical Career Institutes, ACN: A02H0007
 March 12, 2008
 Page 5 of 21

student's grace period will exceed the 180 day period available under the FFEL
program. For example, in the case of s t u d e n t _ , whose date of withdrawal
fell on the 70th day of an enrollment period lasting 101 days, the grace period as per
TCl's policy would have been 181 days. Furthermore, given the manner in which TCI
sought to collect debts under the default prevention plan there would have been
significant lags in time before a borrower received notice of a default on his or her loan
because additional periods of time would pass while the school attempted to make ·
contact with delinquent students through its internal processes.

         TCI did not charge students any interest on the student loans it held, unlike FFEL
  lenders which charge either a fixed or variable rate of interest to student borrowers
  depending on applicable law. TCI offered a low monthly payment plan option for
. students assisted under its default management policy. Similar to payment plan options
  offered by some FFEL lenders, TCI 's policy guarantees that a student may opt to take
  advantage of the same $600.00 minimum annual payment that is also available to FFEL
  borrowers.

       Certain FFEL borrowers are eligible for deferment or forbearance if they meet
specific criteria detailed in 34 C .F.R. § 682.210 and 34 C.F.R. § 682.211 . Under these
regulations , a borrower is eligible for a deferment if he or she is enrolled in school at
least half-time, has demonstrated an inability to find full-time employment, and faces
economic hardship or is suffering from a disability. Certain types of public service may
also qualify a student for deferment, such as service in the military or Peace Corps.
The eligibility for each of these cCltegories of deferment is strictly defined by regulation.

        For example, in order to qualify for an unemployment deferment, a student must
first register with an employment agency and document at least six (6) diligent attempts
to obtain employment within the six (6) month period preceding the application for
deferment. See generally, 34 C.F .R. § 682.210. Similarly, in order to obtain
forbearance , the borrower must first qualify and receive a deferment and then must also
be unable to make scheduled loan payments due to health problems or "some other
acceptable reason." See, 34 C.F.R. § 682.211 (a)(2)(i). Although there is no provision
expreSSly providing for FFEL-style deferments or forbearances under TCI's default
prevention plan, the School does reserve the right to exercise its discretion on a case­
by-case basis. Furthermore, TCI provides very flex ible payment terms and does not
charge interest on student debts . Finally, TCI only resorts to when skip-tracing methods
indicate that a borrower has significant assets amounting to at least $1,000.00.

       The Master Promissory Note signed by TCI students provides for acceleration                  !
                                                                                                    ,!
and late charges resulting from default on a loan obligation. The TCI default prevention            ~
plan does not provide for an acceleration of student debt and a student would only be               r.
                                                                                                    f
                                                                                                    I
Final Report
ED-OIG/A02H0007                                                                   Page 26 of 41




 Mr. Daniel P. Schultz
 Re: Draft Audit Report of Technical Career Institutes, ACN: A02H0007
 March 12, 2008
 Page 6 of 21

  subject to late charges in the event the account was forwarded to a third party collection
' agent.

        Under its policy; Tel cannot garnish a student's federal tax refund or wages to
satisfy student balances and the debt owed to Tel is fully dischargeable in bankruptcy.
In contrast, FFEL lenders have the authority to garnish federal tax refunds and to
garnish wages up to fifteen percent (15%) of an individual's income to satisfy student
loan obligations. Moreover, a borrower's obligations to FFEL lenders are not
dischargeable in bankruptcy.

        Finally, a student who enters Tel's default prevention plan and who subsequently
defaults on his or her obligation to the institution, does not have his or her ability to
access Title IV funds in the future adversely impacted in any way. In contrast, students
who default on outstanding obligations to FFEL lenders may not access additional Title
IV aid to which they are otherwise entitled. Taken as a whqle, the payment provisions
offered under Tel's default prevention policy are very generous and lenient, and in
some aspects the benefits accruing to students participating in Tel's default prevention
plan exceed those benefits students may obtain under payment provisions and policies
offered by FFEL lenders.

        The OIG alleges that a student "might" suffer damage to his/her credit worthiness
because Tel referred delinquent students to third party agents for collection. Draft Audit
report at 3-4. As suggested by the Draft Report's use of qualifying language, the Audit
Team did not adduce any factual evidence in support of its allegation that student's may
suffer some hypothetical and abstract harm as a result of Tel's default prevention                !
policy.                                                                                           f

        Tel does refer delinquent accounts to a collection agency following the expiration
of the required grace period and after in-house collection efforts proved unavailing.
                                                                                                  !
 However, those third party collection agencies used by Tel in this capacity are not
authorized to send reports of any sort to credit reporting bureaus. See, Declaration of
_ _ at 11 7; Exhibit 1.4. The only time when a former Tel student might be
SUbject to a negative credit report occurs when seriously delinquent accounts are
referred to a third party collection agency for litigation. In such instances, and onfy in
the event a judgment is obtained against a student, is a report forwarded to the credit
reporting bureaus. See, Declaration of                   at 11 7. While a student in such a
scenario might, theoretically, be damaged as a result of a negative report issuing to a
credit reporting bureau, the exposure to the student is obviously no greater than that
faced by students who default on their FFEL loans.

       Indeed, under the circumstances, a student who defaults on his or her obligations
to an FFEL lender is more likely to suffer harm to his or her credit than a student who
                                                      T)
                                                      !f'.,
                                               ~
                                                   ' ..11:&..     .",,_

                                              ) v:, 7           .~
                                              ,-, ill\.... ~
                                                                Al~ •..,",
Final Report
ED-OIG/A02H0007                                                                                        Page 27 of 41




 Mr. Daniel P. Schultz
 Re: Draft Audit Report of Technical Career Institutes, ACN: A02H0007
 March 12, 2008
 Page 7 of 21

 defaults on payment obligations under Tel 's default prevention policy. For example, a
 report regarding a delinquent account for a Tel student who defaults under the
 institutions' default prevention policy only issues to a credit bureau after: (a) the grace
 period expires, (b) initial in-house collection efforts fail. (c) initial third-party collection
 efforts fail, (d) final third party collection efforts fail and, (e) that final th ird party collection
 agency obtains ajudgment in court. Tel thereby affords its student a much longer and
 more exhaustive opportunity to rehabilitate his or her defaulted loan obligation before a
 report is made to a credit report ing bureau. In contrast, a similarly-situated borrower
 working with an FFEL lender may face the prospect of a negative credit report issuing
 after the grace period expires and a student misses a single payment.

        More importantly', however, under either scenario the potential harm to any
student(s) remainspurely conjectural. The OIG cites no evidence indicating that any
student(s) suffered any harm as a result of Tel's implementation and administration of
its default prevention policy. As such, the Audit Teams' findings on th is issue rema in
purely speculative.

         1.4    OIG Draft Finding: TCI's Payments on Its Students' Loans May Have
         Made Its Cohort Default Rate Calculations Incorrect for All Fiscal Years
         After FY 1994 and TCI May Have Retained Its Eligibility for Title IV
         Programs Improperly,
TCI RESPONSE: WERE TCI'S PAYMENTS IMPROPER, ITS COHORT DEFAULT
RATES WOULD NEVERTHELESS HAVE BEEN TOO LOW TO CAUSE A LOSS OF
ELIGIBILITY,
        As addressed above, Tel 's actions were in accordance with law and regulation.
Notwithstanding, Tel recalculated its cohort default rates to reflect the addition of
students the OIG would deem to be in default due to the operation of Tel's default
prevention plan .3 The import of this analysis is that institutions whose cohort default
rates exceed 25% for three consecutive fiscal years lose their eligibility to participate in
Title IV programs. 34 C.F.R. § 668.187(a)(2). This recalculation demonstrates that Tel

3 Even if 34 C.F.R. § 668.183(c)(1 )(iii) could be applied to the five loans in the sample, three of the five
woul d not be deemed to be "indefaulf' nor counted toward TCl's cohort default rate because they were
.
cailn.ciie~"e
            ild. .
                 an
                  ~d. /or fully refunded w ithin 120 days of disbursement The financial aid files for TCI students
•                    '                  , and                   ind icate that TC I returned FFEL funds for these
stude nts to the lender(s) within 120 days of disbursement Loans that are fully refunded or cancelled
within 120 days of disbursement should not be included in the cohort default rate calculation . See,
Cohort Default Rate Guide at 2.1-11. Student _ ' s funds were returned within 117 days of
disbursement; student                    funds were returned within 57 days of disbursement; and student
• • • funds were returned with in 57 days of disbursement.                                                              i
                                                                                                                       i,
Final Report
ED-OIG/A02H0007                                                                Page 28 of 41




 Mr . Daniel P. Schultz
 Re: D raft Audit Report of Technical Career Institutes, ACN: A02H0007
 March 12, 2008
 Page 8 of 21

 did not exceed the twenty-five percent (25%) threshold in any of the Institution's fiscal
 years from 2002 to 2005. See, Exhibit 1.5 Therefore, even if the OIG were correct in its
 assertion, TCI 's recalculated cohort default rates would not have caused the College to
 lose its eligibility to participate in Title IV programs pursuant to 34 C.F.R.
 § 668.187(a)(2)

        1.5  OIG Draft Finding: TCI's Default Prevention Policy Was Improper As
        Implemented and Administered.
 TCI RESPONSE: TCI'S DEFAULT PREVENTION PLAN WAS PROPERLY
 IMPLEMENTED, ADMINISTERED AND SANCTIONED BY DOE AND HESC.
        As noted by                 , TCI's former Director of Financial Aid and Vice
President for Student Financial Services, TCI developed the subject default prevention
policy in the 1990s to combat high default rates. See, Declaration o f _ at ~
5. TCl's default prevention policy was reviewed by both the Department and its
guaranty agency, the New York Higher Education Services Corporation ("HESC").
        In particular, the Department's program reviewers analyzed TCI default
prevention policy in the course of a program review that occurred in April 1999. See,
Exhibit 1.6. In fact, TCI received an               est from the Department for a copy of
its default rate plan materials and                  provided this plan to _ , an
experienced member at the time                      Area Case Management Team. See,
See, Declaration of               at ~ 8. At no time during the course of or subsequent to
the program review did the Department communicate any finding, concem, or even
raise a question regarding the default prevention policy let alone suggest that the policy
was in violation of the Higher Education Act or any implementing regulation.
       In addition, TCI disclosed and presented the policy to
Assistant Secretary for Postsecondary Education at the
with TCI's then president,                  , to discuss, "rr.nnlil
manner in which TCI implemented its default prevention plan. The Department's
reaction to the plan was positive. See, Declaration of _ _ at ~~ 9-10.
       TCI's default prevention policy was also the subject of multiple reviews by HESC
and was considered by HESC to be a model plan. As a guaranty agency in the FFEL
program , HESC is required to review FFELP participating institutions located in New
York and to "take such measures and establish such controls as are necessary to
ensure its vigorous enforcement of all Federal, State, and guaranty agency
requirements ... " 34 C.F.R. § 682.41 O(c)). This express delegation of enforcement
powers specifically addresses enforcement of cohort default rate rules. HESC, as a
guaranty agency, is charged by the Department with the task of "[c]onducting
comprehensive biennial on-site program reviews" of institutions that have high cohort
default rates. 34 C.F.R. § 682.4tO(c)(1)(C). HESC reviewed TCI's default prevention
plan in 1996, 1998, and 1999. HESC consis&sJ,ltly found TCl's policy to be compliant
                                                           ~
                                                . .p--. , _i.._ - ';;'~

                                               ;\. ','"
                                               ~~4.-_ ~
                                                              ';Jj:.-d
Final Report
ED-OIG/A02H0007                                                                    Page 29 of 41




 Mr. Daniel P . Schultz
 Re: Draft Audit Report of Technical Career Institutes, ACN: A02H0007
 March 12, 2008
 Page 9 of 2 1

 with the Department's cohort default rate regu lations and to be an effective plan. See,
 Exhibit 1.7. HESC's on-site compliance review states that TCI "has a comprehensive
 default rate management plan to reduce the default rate in the future" and "has
 implemented a complete default management program resulting in decreases in the
 cohort default rate. " lfL. (emphasis added). In addition to the final compliance review
 report dated November 25, 1998, HESC continued to praise TCI's default management
 policy in numerous email exchanges with the Institution's Director of Financial Aid from
 1999 through 2004. Exhibit 1.8.                 .
         During this time, HESC issued a press release stating, "[wjithassistance from
 HESC's Advocate Unit, TCI has one of the most successful default management
 programs in the nation." See, Exhibit 1.9. Finally, at the request of HESC, _ _
 presented TCl's default prevention policy as a model program at HESC's administrative
 workshop in New York City in December 2000. Exhibit 1.9. TCI distributed its plan to
 all attendees at this conference. See, See, Declaration of               at 111110-1 3.

        1.6    OIG Recommendations
        OIG's recommendation 1.1 states that TCI should stop making payments to
lenders on students loans for default prevention purposes. TCI suspended this aspect
of its default management policy on or about September 2007 until such time as a final
decision on this matter is made.
       OIG's recommendation 1.2 requests that TCI identify all students for whom it
made payments to lenders on or after July 1, 2005. Tel compiled this information and
has already provided it to the OIG.
        Recommendation 1.3 calls for TCI to rescind all collection agency referrals for
the affected students. TCI maintains that its payments to lenders were proper and that
its collection processes are not abusive or unfair to students. TCI ceased making
agency referrals with the students enrolled at TCI in the Fall of 2006.
         Recommendation 1.4 calls for TCI to instruct collection agencies to retract any
negative reports made to credit bureaus regarding affected students. As detailed in
section 1.3 above, credit bureau reporting would only occur as a consequence of
litigation . TCI does not believe that any such reports have been made since July 1,
2005TCI ceased forwarding student accounts for litigation with the stud ents enrolled at
TCI in the Fall of 2006.
       OIG 's recommendation 1.5 calls for TCI to communicate with affected students to
discuss any possible remedies they may have under the HEA and consumer laws. TCI
maintains that its policy was not in violation of the HEA and no such disclosure relating
to the HEA is warranted.
      Recommendation 1.8 calls for the Acting Chief Financial Officer of FSA "to
consider limiting , suspending, or terminating T Cl's participat ion in Title IV, HEA student
                                                    ril -
                                               "....,l4,,_
                                              i~.l!t~,,,,,,i
Final Report
ED-OIG/A02H0007                                                                                    Page 30 of 41




 Mr. Daniel P. Schultz
 Re: Draft Audit Report of Technical Career Institutes, AC N: A02H0007
 March 12, 2008
 Page 10 of21

 aid programs". OIG 's recommendation that FSA consider taking such adverse action
 against Tel is who lly inappropriate given the law as well as the facts and circumsta nces
 described herein and surrounding the development and implementation of T el's default
 prevention plan. In develop ing and implementing its plan, Te l acted in good faith and
 substantial reliance on substantive guidance provided by the Department and HESC
 including the active encouragement of both agencies.
        The OIG's cla im that students were harmed is speculative at best. There are no
grounds to justify the limitation, suspension, or termination of TCI's eligibility to
participate in Title IV, HEA student aid programs.


OIG DRAFT FINDING NO.2 - TCI ' S ADMINISTRATION OF TITLE IV PROGRAMS
NEEDS IMPROVEMENT
TCI RESPONSE: TCI'S ADMINISTRATION OF TITLE IV PROGRAMS IS
COMPLIANT UNDER THE APPLICABLE REGULATIONS
       The OIG's position is that TCI had "internal control deficiencies " with regard to its
administration of the Title IV program during the audit period. The OIG alleges that TCI
tacked adequate written policies and procedures with rega rd to "the calculation and
                                                                                                                   II
timely return of T itle IV funds, the proper d isbursement of Pell Grant funds, and the
accurate and timely updating of the (COD] system: Moreover, the OIG makes much of
an appa rent verbal exchange between unnamed "Te l officials" and a member(s) of the
Audit Team. Apparently, this conversation led the Audit Tea m to conclude that Tel did
not have written policies and procedures because the institution believed that its staff
"did not believe it needed (such policies and procedures]." See, Declaration of
_           aI 1l1l21-22.
        As the Audit Team itself confirmed, however, Tel does maintain written office
procedures that contain explanations of Tel's policies and procedures and which are
distributed to staff members in the Student Financial Services division       when
appropriate, to other administrative offices of the College. Declaration of           at
11 21. These written office procedures are continually evolving and T et    i
updates its procedures with additional relevant information and detail as necessary.4

4 With regard to the conversation which appears to have significanlly influenced the Audit Team's
conclusions, Tel submits the remarks were taken out of context and were never intended to give the
impression that TCI somehow viewed itself and its staff as too       I          and/or eXPielicill
                                                                                                en ~c~
                                                                                                     ell
                                                                                                       d ll
                                                                                                          to. .
require anywrillen documentation whatsoever. Declaration                    at 1111 21-22.
makes it clear that such comments were instead intended only to inform the Audit Team that TC I had staff
members with significant knowledge of and experience in the administration of Tille IV programs.
Furthermore, such staff members remained cognizant of changes to both federal and state regulatory
requirem ents as well as Te l's pollcies and procedures as they evolved over time. TCI actively consulted
such staff members and involved them in TCl's decision-making process as its poliCies and procedures
developed over time and in response to the ever-cha         regulatory regime.
                                                   K
                                                  &.it
 Final Report
 ED-OIG/A02H0007                                                                                Page 31 of 41




 Mr. Daniel P. Schultz
 Re: Draft Audit Report of Technical Career Institutes, ACN: A02H0007
 March 12.2008
 Page 11 of 21

                 2.1     OIG Draft Finding: TCllncorrectly Calculated the Return of
                 Title IV FUNDS.
 TCI RESPONSE: TCI CORRECTLY CALCULATED THE RETURN OF TITLE IV
 FUNDS.
        The OIG's position is that Tel incorrectly determined the withdrawal date of
fifteen (15) students because it did not utilize, as the withdrawal date for Return to Title
IV ("R2T4") calculations , the date upon which each student accrued his or her twenty­
first (21st) consecutive day of absence. The Audit Tearn therefore concluded that TCI:
(a) incorrectly used its "processing date" (instead of the alleged "actual withdrawal
date") as the withdrawal date for four (4) students; (b) did not appropriately use the mid­
point as the withdrawal date for nine (9) students; and (c) did not use the last date of
attendance after the midpoint as the withdrawal date for two (2) students. The Audit
Team also appeared to place particular emphasis upon its erroneous conclus ion that
each of the fourteen (14) students cited "unofficially withdrew" from Tel.
        As an initial matter, the Audit Team did not identify its findings on a student-by­
student basis. Thus, Tel is left to speculate as to which of those students reviewed
belonged in each particular "category" identified by the Audit Team. This obviously
precluded the institution from fully vetting and assessing the OIG's position with regard
to each specific student. Nevertheless, the school looked to the law and its overall
policy regarding R2T4 and withdrawal dates as the basis upon which to respond to the
allegations contained in the Draft Audit Report.
       Under Tel's withdrawal policy, any student who violated the school's attendance
policy by failing to attend any classes for twenty-one (21) consecutive days was
processed and administratively withdrawn in a similar manner as a student who
provided the school with notification of his or her intent to withdraw. Specifically, an
absentee report is run on a weekly basis that provides a list of those students who have
accumulated twenty-one consecutive days' worth of absences for all classes. A staff
member in the Registrar's Office then reviews the absentee report and changes each
such student's status from "Active" to 'Withdrawn" within Tel's database system . 5



5 The student may return to class at any time during that twenty-one (21) day period and continue taking
classes without having his or her enrollment terminated . Additionally, a student may return to class even
after his or her status has been changed from "Active" to "Withdrawn" provided that student rece ives
wriUen permission from his or her instructor(s), Student Affairs representative and Student Financial
Services representative. TCI actively encourages absentee students to return to class and continue their
ed ucation and intends for its institutional policy to provide a window of opportunity during which the
institution can "re-capture" non-attending students and encourage them to return to the classroom. On
many occasions, TCI staff members reached out to non-attending stu dents via telephone calls and letters
encouraging students to return to Tel and complete their educational programs .
 Final Report
 ED-OIG/A02H0007                                                                   Page 32 of 41




 Mr. Daniel P . Schultz
 Re: Draft Audit Report of Technical Career Institutes, ACN : A02H0007
 March 12, 20 08
 Page 12 of 2 1

       Subsequently, when a TCI staff member performs the R2T4 calculation, he or
she used the date that the School took action to disenroll the student as the withdrawal
date. Similarly, if a student provided written notification of withdrawal to TCI , a staff
member would also change that student's status from "Active" to "W ithdrawn" in the
database system and the earliest date of notice to TCI was used as the withdrawal date.
Thus, as a practical matter, TCI ceased to differentiate between "official" and "unofficial"
withdrawals because, in either instance, the School itself took affirmative action to
disenroll a specific student and thus each and every withdrawal was an "official
withdrawal."
       TCl 's catalog mistakenly describes its policy as an "unofficial" withdrawal policy.
However, under both the law and the facts , TCI actually had an administrative
withdrawal policy. Moreover, the catalog specifically states that "[a] student who stops
attending all classes . . . shall be administratively withdra wn." 2006-07 TCI Course
Catalog at 19 (emphasis added). TCI adopted a lawful administrative withdrawal policy
as recognized by the Department and described herein.
         The Department's regulations provide that an institution must take attendance "if
an outside entity .. . has a requirement ... that the institution take attendance." 34
C.F.R § 668.22(b)(3)(i). Thus, those institutions not required to take attendance by an
outside entity are considered non-attendance-taking institutions under the regulatory
regime. lQ.,,; see also, 2008-09 Handbook at 5-42. TCI is not required to take
attendance by any outside entity and is; therefore, a non-attendance-taking institution
for T itle IV purposes . .

         Based upon the regulations , sub-regulatory guidance, and input from Department
representatives, TCI determined that the Department viewed instances wherein an
institution took action to administratively withdraw a student as an "official withd rawaL"
T herefore , TCI determined that it had to use the date it took action to terminate a
student's enrollment as the withdrawal date for R2T4 calculation purposes. See, 34
C.F.R § 668.22(c)(1 )(iv); 2006-07 FSA Handbook at 5-65. Thus, TCl 's catalog states
that "[f]or Federal Title IV refund purposes, the withdrawal date of an unofficial
withdrawal is the date [TCI] administratively withdraws the student from classes. " 2006-
07 TCI Course Catalog at 19.

      The Department provided specific guidance relevant to TCl's development and
implementation of its policy beginning with the 2002-03 FSA Handbook. That
Handbook instructs,

               "If an institution expels, suspends, or otherwise disenrolls a
               student during a period , the institution is officially                             r
               withdrawing the student and the withdrawal date is the date
               the institution terminated the student's enrollment for the
                                                    11""'1\
                                                     "  ...
                                                                                                   F
                                                4"~'; ~~~~
                                               ~~.. ,-~LT~                                         i,
                                               ~).~-~
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Final Report
ED-OIG/A02H0007                                                                     Page 33 of 41




 Mr. Daniel P. Schultz
 Re: Draft Audit Report of Technical Career Institutes, ACN: A02H0007
 March 12,2008
 Page 13 of 21

                period." 2002-03 FSA Handbook at 2-114 (emphasis
                added).

Under this guidance, a school that observed Tel's policy and administratively withdrew
students based upon a period of non-attendance was both obligated and required to
utilize the specific date that the school took action to terminate a student's enrollment as
the withdrawal date. Furthermore, the 2002-03 FSAHandbook provides the above­
referen ced admonition in a section with the sub-heading, 'Withdrawal without student
notification due to circumstances beyond the student's control. " J.sL Under the
Circumstances, it is therefore appropriate for a school to treat as an official withdrawal
those instances when the school itself takes action to terminate or disenroll a student.

       Tel's policy to treat administrative withdrawals as official withdrawals is proper
and justified based upon the plain language of the FSA Handbook. The Handbook
instructed Tel that, because the institution itself had taken aCtion to terminate the
student's enrollment, it had to utilize the date it terminated the student's enrollment as
the withdrawal date. Tel did precisely that when it utilized the date it changed the
stUdent's status from "Active" to 'Withdrawn" as the withdrawal date for R2T4
calculation purposes. As such, Tel's implementation of its policy was fully compliant
with the Department's regulations and guidance on this issue.

       Subsequent FSA Handbooks contain substantially similar language as
that found in the 2002-03 Handbook. For example, the 2003-04 Handbook
contains the following statement under the sub-heading "Withdrawal without
student notification due to circumstances beyond the student's control, "

               "If an institution expels, suspends, or otherwise disenrolls a
               student . .. the institution is officially withdrawing the student
               and the withdrawal date is the date the institution term inated
               the student's enrollment." 2003-04 FSA Handbook at 2- 124.

Identical language is also found in the 2004-05 FSA Handbook at 5-56.

       The 2005-06, 2006-07 and 2007-08 FSA Handbooks also make the
Department's position - that an administrative withdrawal constitutes an "official
withdrawal" - even more plain when they state, yet again under the sub-h eading,
"W ithdrawal without student notification due to circumstances beyond the student's
control, "                                                                                          ,
                                                                                                    i
       "If a school administratively withdraws a student ... who has not
       notified the school of his or her intent to withdraw, the last possible
       date of withdrawal . . . is the date the school terminates th e
                                                                                                    ;
                                                                                                    !
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                                                        !i--{
                                               ~,...,   *- "
                                              ~~~f
                                                           .'
                                                           -~
Final Report
ED-OIG/A02H0007                                                                      Page 34 of 41




 Mr. Daniel P. Schultz
 Re: Draft Audit Report of Technical Career Institutes, ACN: A02H0007
 March 12, 2008
 Page 14 of 21

        student's enrollmeni." However, an institution may not artificially
        create a withdrawal date for such a student that is beyond the
        midpoint of the period by simply choosing to withdraw the student
        after the midpoint." 2005-06 FSA Handbook at 5-60; 2006-07 FSA
        Handbook at 5-59; 2007-08 FSA Handbook at 5-65 (emphasis
        added).

       Tel did not "artificially" create a withdrawal date because it implemented and
observed a standard policy for all students throughout each payment period. See,
Exhibit 2.3. Thus, based upon its pre-defined policy, Tel terminated a student's
enrollment after a staff member received a weekly report documenting those students
with twenty-one consecutive days of absences from all classes and changed the
student's status from "Active" to 'Withdrawn ." This process generally occurred within
twenty-one (21) to twenty-eight (28) days after the student's last day of attendance at all
classes.

       The 2008-09 FSA Handbook includes identical language as found in the 2005-
06,2006-07 and 2007-08 Handbooks. However, perhaps because the Department
recognizes that a number of institutions observe administrative withdrawal policies
similar to that of Tel, the most recent FSA Handbook included an additional sidebar
under the sub-heading 'Withdrawal without student notification due to circumstances
beyond the student's control," entitled "Withdrawal date for administrative withdrawals."
The sidebar states that,

               "If .. , a school. , , has a uniform policy of withdrawing of
               students [sic] after a specified (and reasonable) number of
               absences that applies throughout the payment period . . .
               then the date that the student exceeded that number of
               absences would be the date that the school would normally
               use as the withdrawal date." 2008-09 FSA Handbook at 5-
               70.

This language is contrary to and a clear departure from prior Handbooks as well as
Departmental opinions and guidance. As such, it can only be viewed as a new
interpretation by the Department. As described in this Response, Tel 's policy and
practice has been fully consistent with the law as promulgated as well as with previous              i
                                                                                                     !
Departmental interpretations of the regulations for the periods at issue. Of course, Tel
will fully comply with the new interpretative language noted in the 2008-09 FSA
Handbook and adapt and/or modify its policies to the extent necessary for them to
remain compliant with Departmental guidance.
       Du      the     riod surrounding the inception of the R2T4 regulations, Tel
consulted                     a well-known and~r~spected consultant in the higher
                                               ,:f""'1
                                                          '!l·t~.1'k.
                                                         JL·
                                              {~if~..J        If
                                              ~~"'$.-a
                                                              .......J
Final Report
ED-OIG/A02H0007                                                                            Page 35 of 41




 Mr. Daniel P. Schultz
 Re: Draft Audit Report of Technical Career Institutes, ACN: A02 H0007
 March 12, 2008
 Page 15 of21

 education indu stry. _          provided TCI with significant guidance re lated to the newly­
 instituted R2T4 regu latio ns, including guidance related to the school' s formulation of its
 withdrawa l policies. See, Declaration of                at 1111 16-17.
            In 2001,          described an                                  policy for institutions not
 required to take attendance (such as Tel)                        , a high level Departmental
 official who is widely recognized as extremely knowledgeable with respect to
 Department policies and regulations. _                    reviewed the policy and confirmed that
 the Department ''would view the school' s termination of enrollment (sometimes called
 '.eX
    IIC
      .I.uSian, ' 'disenrollment,' etc.) to be an official withdrawal." Exhibit 2.1 at 2.
•          further confirmed that in such in stances, "[t]he date of withdrawal (where a school
termi nated a student at a school not required to take attendance) would be the date that
the school expe lled or removed or disenrolled the student. .... .!Q,
         Based upon this information, TCI created a policy that defined the Title IV                       i
withdrawal date for adm inistrative withdrawa ls for an in stitution not required to take
atte ndance in conformance with
_
                                               s guidance to          . See, Declaration of
              at 11 17. Although TCI continued to label such withdrawals as "u nofficial,"
the Col lege correctly determined withd rawa l dates for administrative withdrawals and
                                                                                                           l
                                                                                                           r
correctly ca lcu lated R2T4 determinations using the guidance provided by _ . In
fact, Tel treated each student withd rawn under the school's administrative withdrawal
                                                                                                           :
pol icy as an "official withd rawa l" based upon          's input and ana lysis. Tel has
observed the policy described herein in all subsequent instances, including with regard
to its treatment of those students cited by the Audit Team .
        In September 2003,                                                       a Senior
Analyst in the Office of                                                   responsible for
setting and interpreting Departmental                           a well known and well-                         f
respected Department official with in                            _             with a specific
description of an administrat ive withdrawal       i such as Tel's , including several
hypothetical examples to more fully illustrate how the policy is applied in particular
cases. See, Exh ibit 2.2; see also, Decla ration of _             at 11 18. With the proviso
that the school "a pplies its policy consistently throughout the period to all students," _
. . . . stated that an administra tive w ithdrawal occurring after the midpoint would
neither violate nor circumvent the regulatory requirements prescribing use of the
midpoint of the payment period as the withdrawal date for an "unofficial withdrawal ."
Exh ibit 2.2 at 1. _ ' analysis further confirmed the Department's view that,
under TCI's policy, th e calculation of the withdrawal date for an admin istrative
withdrawal must be treated as the eq uival ent of an official withd rawa l.
       As part of its ongoing review to maintain compliance with R2T4 regulations and
guidance, Tel's independent auditor of the Student Financial Assistance Programs,
iI"IIII!IIIIII!I!II'
                 sent a detailed memorandum to _            , currently a Team Leader
in the New York Area Case Management Team. See, Decla ration of _                at 1111


                                               &R
                                                     L
Final Report
ED-OIG/A02H0007                                                                                      Page 36 of 41




    Mr. Dan iel P. Schultz
    Re: Draft Audit Report of Technical Career Institutes, ACN: A02H0007
    March 12, 2008
    Page 16 of21

    19-20. This email fully explained TCI 's policy and again provided hypothetical examples
    to provide a more thoroughgoing basis for                to assess how a school would
    practically implement the referenced policy. Exhibit 2.3. The hypothetica.l.e.xllla.mllip.'e.s
    reviewed by _           and Department staff members demonstrate that _
    made it clear that the Institution's policy would result in the calculation of withdrawal
    dates that occurred more than twenty-one (21) days after a student's first day of non­
    attendance. kl at 4-5.

       _ , along with "other specialists in [his] office, and the training officer,"
reviewed the policy, reached certain conclusions, and subsequently provided a written
response to _ . kl at 1.                     said that, after he and his team considered
the manner in which the institution intended to apply its policy, they reached the
conclusion that, "the process ... described does not constitute 'artificially creating' a
withdrawal date.'"' kl Thus, TCI 's policy, as implemented, did not (and does not)
violate the regulatory requirements or guidance contained in the FSA Handbook through                                     i
2007-08, including the use of the processing date as the withdrawal date and the use of
this date in lieu of the mid-point.
                                                                                                                         ~
        The following example demonstrates the manner in which TCI applies its policy
                                                                                                                         r
                                                                                                                         I
and processes students who are administratively withdrawn prior to the mid-point of the                                  1

payment period. A student named               enrolled in the Fall 2005 semester, which
began on September 7, 2005.              began attending classes and continued his
attendance until September 19, 2005, at which point, he ceased attending classes.
_ ' s twenty-first (21st) consecutive day of non-attendance at all classes occurred on
October 10, 2005. A scant three days later, on October 13, 2005, a TCI attendance                                     .
                                                                                                                      ;


                                                                                                                     !
report indicated that _        had twenty-one (21) consecutive days of non­                                          r
attendance, which required that the school administratively withdraw him.

        Therefore,on the very same day, a staff member in the Registrar's Office
administratively withdrew            by changing his status from "Active" to 'Withdrawn "
in the school's database, thus terminating his enrollment. Staff members subsequently
used October 13, 2005, the twenty-ninth (29th) day of the payment period and the day
that TCI terminated his enrollment, as the withdrawal date for R2T4 calculation
purposes and determined that the student had earned $1,170.68, or 36.3% (29/102), of
his Title IV aid.
                                                                                                                     i
                                                                                                                     i
       Had TCI not instituted an administrative withdrawal policy and applied it                                     I
consistently for all students, the College could have utilized "the mid-point of the
payment period" as the student's withdrawal date because the student "cease[d]                                       i
                                                                                                                     i
6
                                                                                                                     r..
             and his Team also provided his guidance with a similar proviso as that of
Specifically, in both instances, the institutional policy must be "defined , established , and applied
throughout the course of the term." Exhibit 2 .3 at 1; S:f!!&'; also, Exhibit 2.2 at 1.
                                                                                                                     ~
                                                                                                                     !

                                                    ~\t<~
                                                   (x. 1
                                                          .~i,_J
Final Report
ED-OIG/A02H0007                                                                     Page 37 of 41




 Mr. Daniel P. Schultz
 Re: Draft Audit Report of Technical Career Institutes, ACN: A02H0007
 March 12, 2008
 Page 17 of 21

attendance without providing ' official notification to the institution." 34 C.F.R.
§ 668.22(c)(iii). This regulation would allow TCI to keep fifty-percent (50%) of
Title IV aid for the payment period, or $1,612.50. However, because the school applies
its pre-defined institutional policy regarding administrative withdrawals consistently, TCI
instead relied upon the date it took action to administratively withdraw the student as the ·
most fiscally responsible and accurate withdrawal date for R2T4 calculation purposes.
        2.2  OIG Draft Finding: The Return Of Unearned Title IV Funds Was
        Untimely.
TCI RESPONSE: THE UNTIMELY RETURNS WERE WITHIN THE DEPARTMENT'S
COMPLIANCE THRESHOLDS.
       The OIG's claim is that the school violated the regulations because it did not
return unearned Title IV monies for which it was responsible "no later than 30 days after
the date of the institution's determination that the student withdrew." 34 C.F.R. §
668.2(j)(1). The Audit Team alleges that TCI returned unearned Title IV funds thirty-one
(31) and one-hundred and forty-eight (148) days after the school determined that two
students withdrew. Again, the Audit Team did not identify the student's in question,
making a more certain assessment of the exact circumstances of each student and
payment difficult to determine.
       The regulations instruct that, "[t]he Secretary does not consider an institution to
be out of compliance ... if the institution is cited in any audit or review report because it
did not return uneamed funds in a timely manner for one or two students." 34 C.F.R.
§ 668. 173(c)(2) (emphasis added). Here, the Audit Team cites two (2) instances out of
a sample of thirty (30) wherein TCI allegedly failed to make a timely return of funds.
While the OIG's factual analysis with respect to these two students may be accurate,
TCI was in material compliance with the Department's timely return of Title IV funds
requirement as evidenced by the de minimis number of late payments in the sample.
        2.3     OIG Draft Finding: TCI Incorrectly Disbursed Pell Grant Funds.
TCI RESPONSE: THE IDENTIFIED ERROR WAS AN ISOLATED INCIDENT.
        Immediately after the Audit Team identified this exception, TCI supeNisors
discussed the finding with key senior personnel in the Registrar's Office. TCI then
undertook efforts to isolate and identify the source of the alleged deficiency and
determine whether it was widespread and might affect additional students. Following a
thorough review of institutional documentation related to this finding, TCI determined
that the problem resulted from a single instance of human error. Accordingly, TCI
returned $1,013.00 to its Federal PeliGrant fund account for the student cited by the
Audit Team. In addition, staff members in the Registrar's Office reviewed institutional             .
policies and procedures in order to make certain that this problem did not recur.                   ..
                                                                                                    ~
         Further, TCI undertook an internal file review of an additional thirty (30) student        F
files to determine if the error could be replicate,!;!. TCI personnel were unable to
                                                   .K
                                              I~·"\i
                                              "",.X. i!
                                                     .~
Final Report
ED-OIG/A02H0007                                                                  Page 38 of 41




 Mr. Daniel P. Schultz
 Re: Draft Audit Report of Technical Career Institutes, ACN: A02H0007
 March 12, 2008
 Page 18 of 21

 replicate the error and did not identify any similar error in any of the additional files
 reviewed . As a result, TCI concluded that the alleged deficiency identified by the Audit
 Team was truly an isolated incident and not a widespread or systemic problem .
 Moreover, TCI promptly took corrective action to further review policies and procedures
 with staff members and insure that such an error will not recur.
        2.4     OIG Draft Finding: Pell Grant Data Reported Incorrectly to COD.
TCI RESPONSE: TCI HAS UPDATED COD WITH ACCURATE DATA AND
IMPLEMENTED ADDITIONAL POLICIES AND PROCEDURES TO VERIFY THAT
DATA IS REPORTED TIMELY AND ACCURATELY.
        The OIG's position is that TCI made incorrect reports to COD for twelve (12) of
4.083 Pell Grant recipients. TCI allegedly did so because it failed to reconcile errors
identified by ED Express and thus failed to update COD in a timely manner.
        As an initial matter. upon learning that it had allegedly provided incorrect data to
COD. TCI undertook almost immediate action to update COD with correct data.
March 19.2007, a member of the Audit Team provided information
• • • • TCI's current Direct of Student Financial Services, identifying nine           e
twelve (12) errors cited in the Draft Report.               made corrections to COD for five
(5) of those student by March 26, 2007.                 subsequently corrected information
in COD for an additional four (4) students      March 29. 2007. Of the remaining three
(3) students in question ,            provided updated information to COD in December
2007. Thus, prior to the end of 2007, TCI had already updated and corrected erroneous
data reported to COD and cited by the Audit Team. In addition, supplemental data
needs to be updated to COD for one (1) remaining student. _ _ has already
made arrangements with the Department to resolve the issue and TCI expects to
update COD data for that final student as soon as practicable. See. Exhibit 2.4.
        Furthermore. the error rate for this particular deficiency, according to the Audit
Team's own findings, is 0.3%, which falls well within Departmental compliance
thresholds. See, 34 C.F.R. § 668.173(c)(2). The de minimis nature of this error rate
demonstrates TCI's substantial and material compliance with the requirements as well
as the fact that TCI possesses the administrative capability necessary to provide
accurate and timely reports, data and updates to COD. Moreover, those errors
identified by the Audit Team did not result in any overdraw(s) of federal funds because
TCI relies upon its internal fiscal and student records to determine the amount of Pell
funds to which an eligible student is entitled.
       Nevertheless, TCI recognizes the importance of improving its internal controls
and has already enhanced its capability in this area by overlaying an additional check
and balance onto its systems. Under this additional procedure, TCI's Disbursement
Office and TCI personnel responsible for reporting payment activity to COD periodically
reconciles award year activity for consistency, accuracy and timeliness.
                                                   -~f)

                                               C   K
                                              ~"J
                                              ';"..~ 'if~      .

                                                      _!C"''''''
Final Report
ED-OIG/A02H0007                                                                  Page 39 of 41




Mr. Daniel P. Schultz
Re: Draft Audit Report of Technical Career Institutes. ACN: A02H0007
March 12. 2008
Page 19 of 21

        The Disbursement Office generates computerized payment reports based upon a
date-range methodology approach that captures all upward or downward adjustment
activity throughout the current and prior award years. That office then submits these
reports to TCl's Director of Student Financial Services ("DSFS"), who has responsibility
for reviewing, monitoring, and reconciling any discrepancies between TCl's in-house
computerized payment system and COD. Consequently, if the DSFS identifies any
errors or discrepancies, he or she can initiate immediate action to address the problem
and correct any errors. Moreover, the DSFS is now in a better position to monitor and
identify mistakes and to determine whether additional professional training related to the
electronic transmission of payment data may be necessary for TCI personnel.
       To date, TCl's implementation of this additional procedural check on its financial
aid processes has already reaped substantial benefits. The institution achieved '
overwhelming success in reconciling its underlying fiscal books and records with the
                                                                                                 .
                                                                                                 I
Department's payment and disbursement system(s) (e.g., COD) for the 2005-06 and                  I

2006-07 fisca l award years. TCI does not anticipate any further discrepancies arising
with regard to its financial reporting and reconciliation responsibilities.
                                                                                                 i
                                                                                                 I:
       2.5 ·   OIG Recommendations.                                                              r
                                                                                                 I
                                                                                                 !I
        OIG's recommendation 2.1 states that TCI should "[djevelop, implement, and
ensure that its personnel adhere to written policies and procedures for the
administration of Title IV programs." TCI will continue to revise and add to its written
office procedures, particularly with regard to those sections related to the administration
of Title IV programs. TCI will continue to review these additions w ith its personnel at
staff meetings convened for that purpose.
        OIG's recommendation 2.2 calls for TCI to return $1,013.00 in Pell Grant funds
along with applicable interest. TCI has already refunded that amount to the
Department. Recommendation 2.2 also calls for the return of $5,445.00 in FFEL funds.
TCI will continue to review its records and consult with the OIG and/or Departmental
officials as to the refund of FFEL funds.
       Recommendation 2.3 calls for TCI to identify all students for whom "TCI used an
incorrect withdrawal date during the period July 1, 2004 to the present" and to perform
various calculations to determine whether additional Title IV refunds are due to the
Department. TCI has demonstrated that it did not use incorrect withdrawal dates
because it calculated such withdrawal dates based upon its institutional policy which is
compliant and which was reviewed and approved by the Department on three separate
occasions.
       Recommendation 2Acalls for TCI to identify all students to whom 'TCI disbursed
Pell Grants for attendance in any noncredit or reduced credit remedial course ... during
the period July 1, 2004 to the present." The OIG bases its recommendation on the fact
that Audit Team identified one (1) single student who improperly received Pell Grant
funds based upon attendance at a non-quali1;'i!'1g course. As discussed in Section 2.3,
                                          (,r~
                                              4,J\;;;   ~
                                              """'<b.~~ ~
                                                       ~~,&
Final Report
ED-OIG/A02H0007                                                                   Page 40 of 41




 Mr. Daniel P. Schultz
 Re: Draft Audit Report of Technical Career Institutes, ACN: A02H0007
 March 12, 2008
 Page 20 of21

 above, TCI has identified the problem as stemming from a single instance of human
 error, instructed staff on preventing such errors, and determined via subsequent file
 review that no other such errors occurred.
        Recommendation 2.5 calls for TC I to verify that data is reported correctly to
COD. As discussed in Section 2.4, above, TCI has already implemented additional
policies and procedures to make certain that the institution makes timely and accurate
reports to COD.
                                           CONCLUSION
        For all the reasons discussed above, TCI submits,
            •   that its default prevention policy:
                o   did not violate the HEA or implementing regulations ;
                o   was reviewed by the Department on more than one occasion without
                    any indication of concern;
                o   was touted to the education community as a model plan by HESC, the
                    agency with principal responsibility for ensuring institutional
                    compliance with Department rules and regulations governing cohort
                    default rates;
                o   served the public interest and was more beneficial to students; and
            •   that its administrative withdrawal policy:
                o   was consistent with law and the Department's guidance at applicable
                    times as reflected in the FSA Handbook; and
                o   was consistent with interpretations obtained from three sets of
                    Department officials over an extended period of time.




                                                                                                  t~
                                                                                                  I
                                                 Final Report
                                                 ED-OIGIA02H0007                                                                   Page 41 of 41




                                                     Mr. Daniel P. Schultz 

                                                     Re: Draft Audit Report of Technical Career Institutes, ACN: A02HOQ07 

                                                     March 12, 2008 

                                                     Page 21 of 21 


                                                            TCI appreciates your consideration of these comments and the opportunity to
                                                     respond to this Draft Audit Report. Please feel free to contact TCI or me if you have any
                                                     questions.
                                                                                                                                                                                                                              c

                        --   ---------~ --.~


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                                                    Attachments.
                                                     cc:                      W. Felski
                                                                              J. Melville
                                                                              J. McGrath
                                                                              J. Alperin
                                                                              W. Payne