Technical College May Lose Ability to Offer Federal Financial Aid For Violating Newly-Relaxed Aid Rule

Student Loan Girl — Wed, 20 Aug 2008 20:05:00 GMT

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.”

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Student Loan Blog : Star Technical Institute

Technical College May Lose Ability to Offer Federal Financial Aid For Violating Newly-Relaxed Aid Rule