Technical College May Lose Ability to Offer Federal Financial Aid For Violating Newly-Relaxed Aid Rule
Star Technical
Institute, a technical college in New Jersey, may not be able to
offer federal financial aid to students at two of its seven campuses
for allegedly violating a federal law that requires colleges to
obtain 10 percent or more of their revenues from nonfederal sources
in order to participate in the federal student-aid program, reports
The Chronicle of Higher Education (“Just as
Congress Eases Aid Rule, College Is Accused of Violating It,”
Aug.18, 2008).
A recent audit conducted by the U.S. Department of Education’s Inspector General found that from January 2004 to December 2006 the
technical college relied on federal funds for 93 to 96 percent of
its revenues at the two campuses, known as Star Upper Darby.
Since the college received more than 90 percent of its funds from
the federal government, auditors recommended that both of the
institute’s campuses located in Philadelphia, Pa., and Egg Harbor
Township, N.J., have their eligibility for federal financial aid
revoked.
Auditors also said that the school should return almost $10-million
in federal grants and loans it received between 2004 and 2006.
New Legislation Seeks to Relax 90-10 Rule As Student Loan
Borrowing Limits Increase
The allegations and recommendation to revoke federal aid are at odds
with provisions in the College Opportunity and Affordability Act of
2008, just signed into law by President Bush, which seeks to
ease the 90-10 requirement.
Legislators feared that earlier legislation passed by Congress,
which raised the loan amount of subsidized federal Stafford student
loans by $2,000 per student, would cause some institutions to run
afoul of the 90-10 rule. With students’ ability to borrow more in
federal financial aid — increasing the likelihood that they could
pay for their college costs solely through grants and student loans
— colleges run the risk of receiving more than 90 percent of their
revenue from federal sources.
To account for the increased limits in student loans and to help
institutions maintain their federal funding below the 90 percent
threshold, the College Opportunity and Affordability Act allows
schools to temporarily treat the extra $2,000 in federal student
loan funds as part of their 10 percent, and enables them to work
with the Department of Education to resolve violations within a two
-year time period.
Resolution, Federal Funding Uncertain
It remains to be seen whether the Department of Education will work
with Star Technical Institute to resolve the issues raised by the
department’s inspector general under the new provisions of the law
or if the department will proceed to revoke the college’s federal
funding.
Star’s president, Karen Manin, disputes the audit’s findings and
defends her position that the school received only 90 percent of its
revenues from federal sources. In a formal letter to the Education
Department, Manin noted that the Department of Education appeared to
accept formulas her institution used in audits conducted prior to
its current audit of 2004 to 2006.
Based on the department’s perceived approval of its previous formula
calculations, Manin said, “Star Upper Darby reasonably relied on the
DOE’s acceptance of these audits and made decisions about its
business.”