St. Louis Univ. v. Duncan

• Decision Date: 17 March 2015
• Docket Number: No. 4:11–CV–01367–AGF.,4:11–CV–01367–AGF.
• Citation: 97 F.Supp.3d 1106
• Parties: ST. LOUIS UNIVERSITY a/k/a Saint Louis University, Plaintiff, v. Arne DUNCAN, et al., Defendants.
• Court: U.S. District Court — Eastern District of Missouri

97 F.Supp.3d 1106

ST. LOUIS UNIVERSITY a/k/a Saint Louis University, Plaintiff

v.Arne DUNCAN, et al., Defendants.

No. 4:11–CV–01367–AGF.

United States District Court, E.D. Missouri, Eastern Division.

Signed March 17, 2015.

Alyssa T. Saunders, David E. Mills, Cooley, LLP, Washington, DC, Bridget G. Hoy, Barry A. Short, Winthrop B. Reed, III, Lewis Rice, LLC, St. Louis, MO, for Plaintiff.

Jane Rund, Nicholas P. Llewellyn, Office of U.S. Attorney, St. Louis, MO, Sarah L. Wanner, Office of General Counsel, Washington, DC, for Defendants.

MEMORANDUM AND ORDER

AUDREY G. FLEISSIG, District Judge.

In an administrative proceeding, the U.S. Secretary of Education (“Secretary”) determined that St. Louis University (“SLU”) improperly disbursed more than $2.8 million in federal student aid money during the 1994 to 1996 school years, in violation of Title IV of the Higher Education Act of 1965 (“Title IV”), 20 U.S.C. §§ 1070 et seq. The Secretary demanded that SLU pay the U.S. Department of Education (“Department”) back the $2.8 million, and SLU now asks the Court to set aside the Secretary's decision under the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 701 et seq. This Court's review is limited to the administrative record. After careful review of the extensive record, and for the reasons set forth below, the Court finds that the Secretary's decision is supported by substantial evidence and reflects application of the proper legal standards. Therefore, the Court will deny SLU's request for relief.

BACKGROUND

This case turns on the statutory requirements that condition when a postsecondary institution may award federal financial aid under Title IV to a student who, absent special circumstances, would be ineligible for such an award. The Title IV program at issue is the Federal Pell Grant program.

I. The Federal Pell Grant Program

The Federal Pell Grant program provides need-based grants to low-income students at participating postsecondary institutions. See 20 U.S.C. § 1070a. Unlike loans, these grants do not have to be repaid. The Pell Grant program is one of several Title IV programs which Congress has authorized the Secretary to administer. Id. § 1070(b). The Secretary reviews and certifies postsecondary institutions for Title IV eligibility. Id. § 1099c. An eligible postsecondary institution must then enter into a program participation agreement with the Secretary, in which the institution, as a fiduciary with direct access to and authority to disburse federal funds, agrees to comply with all statutory and regulatory requirements under Title IV. Id. § 1094.

The Secretary is also authorized to monitor and enforce participating institutions' Title IV compliance through final audit determinations and final program reviews. 20 U.S.C. § 1094(c) ; see also Trs. of Calif. State Univ. v. Riley, 74 F.3d 960, 965 (9th Cir.1996) (“Under the authority of 20 U.S.C. § 1094, the Secretary has promulgated regulations governing the institutions participating in the various federal programs for financial assistance for students, including the Pell Grant Program.”).

An institution may challenge a final audit determination or final program review in an administrative hearing, but the institution has the burden to prove, as applicable, that the “expenditures questioned or disallowed were proper” and that “the institution or servicer complied with program requirements.” 34 C.F.R. § 668.116(d). On review, the hearing official must issue a written decision explaining whether the final audit determination “was supportable, in whole or in part.” Id. § 668.118(b). The hearing official may base any findings of fact “only on evidence properly presented before him, on matters given official notice, or on facts stipulated to by the parties.” Id. § 668.118(c). Either party may appeal the hearing official's decision to the Secretary. Id. § 668.119. The decision of the Secretary is the final decision of the Department. Id. § 668.121.

II. Title IV's Need Analysis Provisions

The amount of a student's financial aid award is determined by Title IV's “need analysis” provisions. See 20 U.S.C. §§ 1087kk –1087vv. These provisions set forth a statutory formula that calculates a family's expected contribution to a student's educational expenses based on the family's net income and net assets. Expected family contribution (“EFC”) is the linchpin of Title IV's need analysis. To qualify for need-based assistance, a student's education costs must exceed his EFC. See id. §§ 1070a(b) (Pell Grants), 1087kk (other Title IV programs). The size of a student's Pell Grant is then determined by subtracting the student's EFC from the statutory maximum Pell Grant amount for that award year. Id. § 1070a(b)(2)(A).

The statutory formula for calculating EFC is uniform, comprehensive, and extremely detailed. See 20 U.S.C. §§ 1087ll –1087vv. In general, the formula takes into account the family's available income and then provides for a series of deductions against that income, such as federal income taxes paid, allowances for social security taxes, an employment expense allowance, and an income protection allowance.See, e.g., id. § 1087oo . The income protection allowance constitutes the maximum deduction for general living expenses that may be taken into account in calculating EFC. Id. § 1087oo (c)(4). The amount of income protection allowance is prescribed by the Secretary and updated annually based on increases in the Consumer Price Index. Id. § 1087rr(b). The amount differs depending on a family's size and the number of persons in the family attending college. Id. § 1087oo (c)(4).

Notwithstanding the comprehensive need analysis formula, Title IV grants participating institutions some amount of discretion to adjust the statutory formula to account for an individual student's special circumstances. This discretion is governed by section 1087tt(a), which, during the years at issue in this case, provided:

Nothing in this part shall be interpreted as limiting the authority of the financial aid administrator, on the basis of adequate documentation, to make adjustments on a case-by-case basis to the cost of attendance or the values of the data items required to calculate the expected student or parent contribution (or both) to allow for treatment of an individual eligible applicant with special circumstances. However, this authority shall not be construed to permit aid administrators to deviate from the contributions expected in the absence of special circumstances. Special circumstances shall be conditions that differentiate an individual student from a class of students rather than conditions that exist across a class of students. Adequate documentation for such adjustments shall substantiate such special circumstances of individual students.

20 U.S.C. § 1087tt(a) (1994).

Although the Secretary has authority to enforce Title IV compliance generally, the Secretary is prohibited from prescribing regulations to carry out Title IV's need analysis provisions, including section 1087tt(a), except to update the amount of the income protection and other allowances, and to propose modifications in the need analysis methodology. See 20 U.S.C. § 1087rr(a) ( “Notwithstanding any other provision of law, the Secretary shall not have the authority to prescribe regulations to carry out this part except (A) to prescribe updated tables in accordance with subsections (b) through (h) of this section; or (B) to propose modifications in the need analysis methodology required by this part.”).

III. SLU's Implementation of Section 1087tt(a)

In its briefs, SLU describes itself as a private Catholic, Jesuit university that participates in Title IV programs, including the Pell Grant program. Pursuant to section 1087tt(a), SLU implemented a policy allowing students to request adjustments to their EFC based on special circumstances. Students requested adjustments using a form entitled “Application for Consideration of Financial Aid Special Circumstances.” The form asked students to list, among other things, medical and dental expenses; elementary and high school education expenses, including private or parochial school tuition; and average annual living expenses, including, for example, housing, food, insurance, utilities, debts, clothing, and transportation.

According to a declaration submitted by SLU's financial aid director, Harold Deuser, SLU's financial aid administrators “only made Professional Judgment adjustments for individual students and/or families who completed an individual ‘Application for Consideration of Financial Aid Special Circumstances' form.” (Administrative Record (“R.”) at 262.) Deuser contended that financial aid administrators would engage in discussions with students about their circumstances prior to making adjustments, if needed, and that administrators documented adjustments by making a notation in the student's file. Id.

In making these adjustments, Deuser stated that it was “extremely important” to SLU that its institutional policies implementing section 1087tt(a) ensured that students “who are similarly situated are similarly treated.” (R. at 260.) Thus, after reviewing the statutory requirements and various guidance documents from the Department, SLU made the policy decision to treat certain categories of expenses reported by a student as “automatic” special circumstances. Id. at 266.

IV. The Department's Audit of SLU

In January of 1997, the Department's Office of Inspector General (“OIG”) initiated an audit of SLU's Pell Grants during the 1994 to 1996 award years. The OIG found that SLU used section 1087tt(a) to make adjustments for 46% of its Pell Grant recipients during these award years, whereas financial aid administrators nationally did so for only 4% of their Pell Grant recipients. (R. at 309.)

In its audit, the OIG extracted a sample of 139 students' files from a universe of the 2,200 students for whom SLU used a section 1087tt(a) adjustment to award Pell Grants in excess of the amount...