California Cosmetology Coalition v. Riley
| Decision Date | 11 April 1997 |
| Docket Number | No. 96-55314,96-55314 |
| Citation | 110 F.3d 1454 |
| Parties | 117 Ed. Law Rep. 454, 97 Cal. Daily Op. Serv. 2659, 97 Daily Journal D.A.R. 4763 CALIFORNIA COSMETOLOGY COALITION; American Association Of Cosmetology Schools, Plaintiffs-Appellees, v. Richard W. RILEY, Secretary of Education, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Jeffrica J. Lee, United States Department of Justice, Washington, D.C., for defendant-appellant.
Leslie H. Wiesenfelder, Dow, Lohnes & Albertson, Washington, D.C., and Justin J. Shrenger, Murphy Shrenger & Weiss, Los Angeles, CA, for plaintiffs-appellees.
George P. Ritter, Sacramento, California, for amicus.
Appeal from the United States District Court for the Central District of California, Richard A. Gadbois, Jr., District Judge, Presiding. D.C. No. CV-94-06406-RG.
Before: BROWNING, THOMPSON and THOMAS, Circuit Judges.
This case concerns regulations promulgated by the Secretary of Education (the "Secretary") in 34 C.F.R. § 668.22 governing the amount of tuition and other fees postsecondary schools must refund when a student receiving Title IV federal aid withdraws from classes before completing the term for which those fees have been charged. The district court found the regulations contradicted 20 U.S.C. § 1091b, the section of the Higher Education Act ("HEA") they were intended to implement, and entered a permanent injunction against their enforcement. We affirm.
Title IV of the HEA, as amended, 20 U.S.C. §§ 1070-1099, established need-based federally funded student financial aid programs for college and postsecondary vocational training. Title IV programs include grant funds, which students do not have to repay, such as the Federal Pell Grant Program and the Federal Supplemental Educational Opportunity Grant Program, as well as loan funds, which students do have to repay, such as the Federal Stafford Loan Program and the Federal Perkins Loan Program.
Concerned by the widening gap between the escalating costs of higher education and students' ability to pay those costs, Congress amended the HEA, enacting the Higher Education Amendments of 1992 (the "1992 Amendments") to address the problem. H.R.Rep. No. 447, 102d Cong., 2d Sess. 6-9 (1992), reprinted in 1992 U.S.C.C.A.N. 334, 339-42. The 1992 Amendments also sought to make program administration more equitable for students. H.R.Rep. No. 447, 102d Cong., 2d Sess. 10, 79 (1992), reprinted in 1992 U.S.C.C.A.N. 334, 343, 412. To this end, the 1992 Amendments require all schools participating in Title IV programs to develop a "fair and equitable" policy to refund a portion of the tuition paid by Title IV-assisted students withdrawing from classes before completing the period of enrollment for which the tuition has been paid. Pub.L. No. 102-325, § 485(a), 106 Stat. 448, 619-20 (1992) (codified at 20 U.S.C. § 1091b).
Congress established specific minimum criteria by which a policy could be determined to be "fair and equitable":
The institution's refund policy shall be considered to be fair and equitable for purposes of this section if that policy provides for a refund in an amount of at least the largest of the amounts provided under--
(1) the requirements of applicable State law;
(2) the specific refund requirements established by the institution's nationally recognized accrediting agency and approved by the Secretary; or
(3) the pro rata refund calculation described in subsection (c) of this section, except that this paragraph will not apply to the institution's refund policy for any student whose date of withdrawal from the institution is after the 60 percent point (in time) in the period of enrollment for which the student has been charged.
20 U.S.C. § 1091b(b) (emphasis added).
Thus, to satisfy the "fair and equitable" requirement of § 1091b(b), schools must, at a minimum, refund the largest of: (1) the refund required by state law; (2) the refund required by an accrediting agency's Secretary-approved refund policy; or (3) if the student is a first-time student who drops out before completing more than 60% of his program, the pro rata refund provided in 20 U.S.C. § 1091b(c). 1 At present, only the first and third of these calculations need be made because the Secretary has not yet approved any accrediting agency's refund policy, making § 1091b(b)(2) currently inoperative.
The 1992 Amendments further require that the refund be paid first to reimburse Title IV loan programs, then to Title IV grant programs, to other sources of aid (e.g. state government programs), and last to the student. 20 U.S.C. § 1092(a)(1)(F).
On December 23, 1991, prior to enactment of the 1992 Amendments, the Secretary published a Notice of Proposed Rulemaking. He proposed amending 34 C.F.R. § 668.22, the regulation governing institutional refunds for withdrawn students, to change the definition of the "institutional refund" a school must pay when a student receiving Title IV assistance withdraws before completing the program for which the Title IV assistance was provided. 56 Fed.Reg. 66,496, 66,498 (1991). After several iterations, the Secretary published Final Regulations on November 29, 1994, which adopted in substance the Secretary's December 23, 1991 proposal. 59 Fed.Reg. 61,142 (1994) ("the Final Regulations").
Rather than simply effecting the statutory scheme, the Final Regulations utilize an entirely different method of computing the amount of money schools can retain upon student withdrawal. Under the Secretary's formula, institutions are to calculate the appropriate refund using the method prescribed in the 1992 Amendments. The institutions are then mandated to subtract from the retainage any amounts still owed either from the student to the school or from the government to the student as financial aid. 34 C.F.R. § 668.22(g)(2)(iii). These amounts owed are termed "unpaid scheduled cash payments." Under the Final Regulations, schools must deduct unpaid scheduled cash payments from the amount they may retain to pay for tuition and fees incurred by withdrawn students, thereby in effect adding the unpaid scheduled cash payment to the amount they must refund. 2 "Scheduled cash payment" is defined in pertinent part as:
the amount of institutional charges that has not been paid by financial aid for the period of enrollment for which the student has been charged, exclusive of--
(A) Any amount scheduled to be paid by Title IV, HEA program assistance that the student has been awarded that is payable to the student even though the student has withdrawn....
Under this definition, an unpaid scheduled cash payment could include two types of unpaid charges: (1) amounts students had agreed to pay out-of-pocket but had not yet paid; and (2) any disbursements of financial aid that were scheduled to have been paid sometime after the date the student withdrew to which the student had not become entitled before withdrawing.
The essential purpose of this additional requirement is cost-shifting from the government to the institution and the student. Under the prior regulations, an institution would not have to seek reimbursement from the withdrawing student for amounts owed because it could simply retain the Title IV funds it had already received on behalf of the student. Under the Final Regulations, the school would have to include in its reimbursement to the government the amount still owed by the student. The institution would then have to pursue the student for the unpaid sums. All parties concede that for some students receiving full grants, the implementation of this regulation can have the unfortunate effect of converting grant funds into personal debt.
A simple hypothetical example will illustrate the change in the regulations. Assume students A and B attend the same school, are enrolled in the same program, and have the same financial aid package. The program cost is $3000, of which Students A and B are expected to pay $500 out-of-pocket, the remaining $2500 to be covered by Title IV assistance. Both students drop out on the same day. The school had already received the $2500 Title IV payment on behalf of each student. Student B had paid the $500 sometime before withdrawing, while Student A had paid nothing. Assume further that the applicable refund policy permits the school to retain $1500 per student to pay for the period they had attended the school. Under the previous refund regulations, the school would base the amount of the refund on whatever payment it had received by the time the student withdrew-it would refund the difference between what it was permitted to retain and the payment it had already received for the student. The school had received $2500 for Student A, all in Title IV assistance, and $3000 for Student B, $500 from the student and $2500 from Title IV. The school would therefore refund $1000 to Title IV for Student A and $1500 to Title IV for Student B. Student A will have attended the school for free, Title IV having covered the entire cost, whereas Student B will have paid $500, even though both students had the same financial aid package.
Under the Final Regulations, the school would be permitted to retain $1500 for Student B, the $1500 the applicable refund policy permits it to retain minus the $0 balance remaining on Student B's account, but only $1000 for Student A, $1500 minus the $500 balance remaining on Student A's account. The institution would refund $1500 to Title IV for both Students A and B and then bill Student A for the $500 balance remaining on his account.
To summarize, the Final Regulations require institutions to:
(1) calculate all three refunds listed in § 1091b(b), to the extent they are applicable; 34 C.F.R. § 668.22(b)(3)
(2) pick the calculation that requires the largest refund, or pick the institution's own refund policy if that policy provides for a larger refund than all three...
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