Got a program review problem?

I may be able to help.  Not that I really need the aggravation of more appeals and briefs . . .

If I do take your case, it's gonna cost you.  Hey, don't blame me -- if you hadn't been too tight to bring in someone from outside to review your operations, maybe this program review problem wouldn't have happened.

Still, even if I decide not to handle your case, I can probably give you some pointers that will help.  For one thing, if your case is hopeless, I will tell you so.  Some of them are.  If you have a chance of winning, though, I will tell you what you can do.  No charge for that initial consultation, even if it takes me an hour.

Conflicting information and “unlikely scenarios”


Glenn Bogart, J.D.

published in "Career Education Review"

October, 2008


            Conflicting information or documentation with respect to a student’s application for federal student aid is a rich source of expensive file review requirements and institutional liabilities in many U.S. Department of Education program reviews. What constitutes a conflict which must be resolved?  Have program reviewers gone overboard on this?  I can see eyes glazing over already.  But if you want your school or schools still to be alive and well ten years from now, you need to read and understand this article.


            Why should school executives care about this?  It’s simple.  When there is a conflicting information finding in a program review, the required action is to get it resolved, or else pay all the Title IV money back for the student or students to whom the finding applies – the same as in a verification finding.  Naturally, most of the students to whom the finding applies are long gone and hard to find.  It isn’t hard to rack up a $10,000 liability for just one student.  Multiply that by a few dozen (or a few hundred) students, and as the late Everett Dirksen once said, pretty soon we’re talking about real money. 


            In this article, first I’ll give you some examples of obvious conflicts.  This is stuff you must be sure your financial aid people are taking into account.  Then I’ll tell you about some that are not so obvious, but still need to be resolved unless you want to risk having liabilities.  Things your people need to know about federal income tax filing requirements come next.  Finally we’ll discuss some “conflicting information” findings I’m encountering in program review litigation, where I believe reviewers have overstepped their bounds.  I’m fighting these strenuously, but as in all litigation, the results may not be what we’d like them to be.  The prudent school executive will read, and heed.


Obvious conflicts


            Some conflicts are pretty obvious.  They can be spotted just by looking at the Free Application for Federal Student Aid (FAFSA) or the Institutional Student Information Record (ISIR), the output document that results from the processing of the FAFSA.  For example, if an independent student answers the dependency status questions indicating that she is not married, has no children, and has no other dependents, also claims to have a household size of four, then this is an obvious conflict.  The application itself is internally inconsistent.  This kind of thing needs to be resolved with a signed and dated statement from the student (or parent, if the student is dependent), and often will result in the need to correct the ISIR. 


            Students make a lot of mistakes when they input their own data, using FAFSA on the Web.  Just because an ISIR comes back without being selected for verification, and with no C-code, you are not in the clear.  Somebody at your school has to look at those ISIRs and determine whether the data reported is reasonable.  To the extent that this is not happening consistently, your school is vulnerable.  2008-09 may be the first year that most of your students are using FAFSA on the Web.  Paper FAFSAs are mostly a thing of the past.  If you have not shored up your school’s efforts in the area of reviewing ISIRs for accuracy and internal consistency, you are making a big mistake.


Sometimes there will be a comment on the ISIR telling the student to check the inconsistent data and make changes if necessary.  In extreme cases, the ISIR will come back with no Expected Family Contribution on it, forcing the student either to make changes or to confirm what was reported originally, or else, no aid.  In other cases, there’s not even a comment.  Regardless, the school is responsible for making sure the error is corrected (or, if it’s a case where the information just seems to be inconsistent, but there is some explanation, the school must document the explanation with a signed and dated statement from the student (or parent, if it’s parental information that appears to be inconsistent)).  It would be nice if the ISIR would always have a flag of some kind when an application shows internal inconsistencies, but you can’t count on that.


Not-so-obvious conflicts


Other conflicts or inconsistencies are not so obvious.  For example, if your school uses an application for admission or an institutional application for financial aid, and such application asks questions about the student’s marital status or number of children or other dependents, that information needs to be matched with the information that appears on the ISIR.  If your school uses documents like this, you need to be sure that your financial aid department obtains and reviews them against the ISIR, notes any inconsistencies, and gets the inconsistencies resolved in writing.  Better yet, don’t ask such questions on your institutional forms, and you won’t have to worry about getting answers that conflict with the ISIR. 


Admissions consultants sometimes recommend the use of institutional forms that request personal information about family and employment from prospective students, because it may help the admissions representative develop a rapport with the student.  That may well be the case – but understand that if you do request such information on an institutional form, you are going to collect conflicting information sometimes, and a program review team, sooner or later, will spend a jolly week at your campus finding inconsistencies and exploiting them.


Alternative loan applications often ask the applicant to give job information, such as how much the student earns and how long he or she has been employed at his or her current job.  If the alternative loan application says the student has been making $15 an hour in a full-time job he’s held for the past four years, the ISIR had better not say the student earned only $3,000 in 2007.  Program reviewers love those alternative loan applications. 


Here’s another one that can cost you a bunch in liabilities:  failure of the financial aid office to coordinate with the school’s VA certifying official.  People who expect to receive VA educational benefits are supposed to say so on the FAFSA, but quite often, they don’t.  They fill out the FAFSA ignoring the part about expected VA benefits, then go across the hall to the VA certifying official to get certified for that nice little $1101 per month in Montgomery GI Bill benefits.  If the financial aid office never finds out about the VA benefits, there is a good chance the student will receive a combination of aid, including a big unsubsidized loan, that constitutes an overaward.  In a program review, the school will be held liable for amount of unsub that, when added to all other aid including the VA educational benefit, exceeds the cost of attendance.  And the GI Bill benefit is set to increase.  Add that to the increased loan limits that went into effect recently, and your exposure for overawards is that much greater.  I was finding liabilities by getting lists of VA beneficiaries more than 20 years ago, when I was an ED program reviewer.  It’s even easier now.  And it all starts with conflicting information – the ISIR says one thing, but the VA certifying official at the school says something else.


Conflicts with federal income tax filing requirements


            The Department of Education has stated by written policy in the Federal Student Aid Handbook that there are certain things that financial aid offices are expected to know about federal income tax laws.  If the financial aid office comes across a situation where it appears that federal tax filing requirements (i.e., to file or not to file, and filing status) have been violated, ED considers this to be “inconsistent information” which must be resolved.  My own position is that this is nonsense, but, that’s just me.  I’m litigating a program review appeal right now where this is an issue, but while we await a decision on that, you need to beware.


            For example, suppose you have a 25-year-old student who claims that he earned $12,000 in 2007, but also claims that he was not required to file a federal income tax return for that year.  Whether he’s chosen for verification or not, ED considers this a conflict which must be resolved.  (Probably the student received his pay under the table and didn’t get a W-2 form, but that doesn’t excuse him from filing a tax return.)  To resolve a case like this to the satisfaction of ED, you have to make the student file a tax return and give you a copy of it for his file.  IRS Publication 17 contains the necessary information.  If your financial aid packagers don’t know what Publication 17 is, you’ve got a problem.  And if your financial aid director doesn’t have a copy on his or her desk (or, at least, a copy of the pertinent parts of it), you’re really in trouble.


            Situations like this are not really conflicts the way we usually think of conflicts, in that there aren’t two documents in the file that actually conflict with each other and there’s no one document that contains inconsistent information.  These are situations where the information provided by the student or parents is at variance with what the financial aid officer knows, or “should” know, about federal income tax filing requirements. But in a program review report, findings like this invariably are headed “Unresolved conflicting information,” or something like that.  I think this is because they can’t think of anything else to call it.  I also think it’s because they have no other regulation except the one about conflicting information on which they can hang their hats.


            There is no Department of Education regulation that actually defines “conflicting” or “inconsistent” information with respect to a student’s application for federal student aid.  There is a regulation requiring schools to develop and apply “an adequate system to identify and resolve discrepancies in the information that the institution receives from different sources with respect to a student's application for financial aid under Title IV, HEA programs.”  34 CFR 668.16(f).  This regulation goes on to list various kinds of documents a school should be reviewing for each student, and it talks about having to review “any other information normally available to the institution regarding . . . other factors relating to the student's eligibility for funds under the Title IV, HEA programs.”  I don’t think that was meant to include information on who should file a tax return and what a person’s filing status should be, but that’s how ED is interpreting it.


I have argued, in the College America case and in other cases, that the Department can’t legally just issue policy statements and then enforce them as if they were regulations.  That is what I believe they are doing here:  they’ve decided that college financial aid officers are supposed to know certain things about income tax law, and when they find a case where the FAO didn’t know those things, they call it “conflicting information.”  This is a stretch, of course, but so far they’ve gotten away with it.  If you don’t want to have to fight with them about this (and take the substantial chance that you will lose), it would be best for you to be sure your packagers are aware of what the Department says they should know about federal income taxes.  It may be years before this issue is finally decided.  It would not be smart to assume it will be decided in our favor, because that may not happen.  Besides, it’s always better not to have to fight with the Department of Education if you can avoid it.


            Most of us in the financial aid field actually do know enough about federal income taxation to be able to smell a rat when somebody who should have filed a tax return claims he wasn’t required to, or when married people both file separately as “head of household” in order to get two earned income credits instead of one. 


Unfortunately, though, the Department’s (almost reasonable) position on this has emboldened some program reviewers to the point where they will assert a “conflicting information” finding any time something in a student’s file “looks funny” to them.  As happens so often, the government has built itself a fine slippery slope, and some reviewers are riding that slide with wild abandon.  And when they do that, you get the bill for their little side-trip to Six Flags.  You end up with a Hobson’s choice of either paying me, if I’m lucky, to appeal a bogus Final Program Review Determination, or paying liabilities you shouldn’t have to pay.


Conflicting information findings in Final Program Review Determinations


            Here are some “conflicting information” findings I’ve encountered recently – and this is just from one final determination letter, issued in July, 2007:


n      Number of exemptions on tax return doesn’t match number of household members on the ISIR.


n      Independent student didn’t document how he was able to “survive” on zero FAFSA-reported income.


n      Student reported income of exactly $4,000.  “The school obtained no documentation to explain this unlikely scenario.”  That’s a direct quote from a Final Program Review Determination.


n      Single independent student claims a child in his household and also claims that he paid child support.


n      Self-employed person claims to have zero business net worth.


Final determinations, of course, are not really final.  They can be appealed to an administrative judge in ED’s Office of Higher Education Appeals.  I have done so on behalf of a California client, as to the findings listed above.  But it may be years before there is a final decision of the Secretary of Education on this – at this point, we don’t even have the initial decision of the administrative judge, which either party (my client, or Federal Student Aid) can appeal to the Secretary.  Briefs are still being submitted, and I expect to have one more to do before I can rest awhile.  School owners who pray, should pray that we win this case.   


Riding down the slippery slope


As stated, I am litigating a program review case right now where all of the findings listed above have been asserted, so this discussion isn’t just theoretical.  We’re talking big-time liabilities (not just for my client, but for any other school receiving a visit from one of these conflicting-information-detective program reviewers in the future).


I just love the one about the “unlikely scenario.”  I wonder when the Department will publish a regulation setting forth exactly which scenarios are considered “unlikely.”  If exactly $4,000 in income is considered unlikely, then suppose mom and dad report an income of exactly $54,321.  5-4-3-2-1, blast off!  How “likely” is that?  I mean, that’s a straight, in poker, isn’t it?  And what if somebody’s “income tax paid” figure is $12,345.  Another straight!  Darned unlikely.  Better get some documentation to explain how such an “unlikely scenario” occurred, even though the student isn’t selected for verification, and there’s not even a comment code on the ISIR!


The reason this came up is that the reviewer found several cases of exactly $4,000 being reported as untaxed income.  There can be little doubt that these were cases where the student was living with someone else and had no real income of his or her own.  The financial aid officer probably suggested to each of them that $4,000 would be a reasonable value to place on being able to sleep on someone’s couch, so the student put that down as Worksheet B untaxed income.  Financial aid officers do that kind of thing all the time when counseling students on how to fill out the FAFSA.  It’s probably done at your own school, maybe right down the hall from your office.  The financial aid officers who do this are just trying to do the right thing.  But you end up getting slammed in a program review for it.


The Department’s Application and Verification Guide itself says that in a verification case where an independent student reports zero income, “you may . . . choose to ask her for further information about her means of support during the base year.”  (Page AVG-14, in every year’s Application and Verification Guide in recent memory.)  Then again, presumably, you may choose not to do so.  You’d think that if the Department’s own guidance tells us we don’t have to obtain low-income documentation when the reported income is zero, then we don’t have to do it when it is greater than zero, wouldn’t you?  And, of course, there is nothing in any regulation that says there may never be three zeroes in a row.  Yet, I promise you, such findings crop up in program reviews.  If you get a program reviewer who’s out for blood and who takes, shall we say, an expansive view of what’s proper and what isn’t, it could happen to you.  If it does, I want to hear from you.  This just ain’t right.


There is, of course, no requirement in the verification regulations for a school to “reconcile” the household size with the number of exemptions on the tax return, and for very good reasons.  First, the number of exemptions on the tax return is as of December 31 of the base year.  The number the student reports in his household is as of the date he signs the FAFSA, or, if a Verification Worksheet is collected from the student, as of the date that is done, which is almost always several months later, and is sometimes more than a year later.  Second, the Internal Revenue Service rules governing the number of exemptions are quite different from the Department of Education’s rules governing household size. 


There is no reason at all to expect these numbers always to match, and no reason to suspect that anything is wrong if they don’t.  Yet, I am in the appeals process on a Final Program Review Determination that lists this as a liability finding.  According to the reviewer, failure to “resolve” this difference between number of exemptions and household size calls for the school to pay back every dime the student was paid for the whole award year. There’s no regulation to back this up, except for the one that requires schools to resolve conflicting information.  In a program review, the burden of proof is on the school – so I have to prove that this is not a conflict.  I think I have done that, but who knows what an administrative judge will do with this?  My client shouldn’t even be in jeopardy over this nonsense.  Neither should you – but it could happen quite easily.


Moving forward -- it’s true that a student may not claim a child in his household size, and then report having paid child support on that same child.  It has to be one or the other.  But is there necessarily a conflict?  The student could easily have one child living in his home, and another one living with his ex-wife, in which case it would be perfectly legitimate for him both to count the one child in his household size, and to count child support he paid for the other child. But some reviewers will call it a conflict any time a divorced student claims a child in his household size, and also shows child support paid on Worksheet C.


As to self-employment income but no business net worth – there is nothing unusual about that situation, either, yet my favorite program reviewer calls it a conflict.  Many self-employed people have no business assets whatever, or at least none that are reportable to the IRS.  The guy who mows your lawn and the woman who cuts your hair are good examples.  Self-employed computer specialists may also fit into this category.  So do people who hang drywall for a living, in some cases, unless you want to count a hammer as a business asset.  If all a person sells is his services, there is a good chance he has no business assets.  This isn’t even an “unlikely scenario,” yet the Department of Education is asking my client to pay back all the Title IV funds a student whose parent was in this category received.  (The parent received all of $4,500 in self-employment income as a carpenter, but you’d think he was Bill Gates, to look at the final determination letter.)


Is there any limit?


What’s next for the conflicting-information detectives?  If a reviewer can claim that a difference between the number of tax exemptions and the FAFSA-reported household size is a conflict which must be resolved (even though the number of exemptions is determined at the end of the base year and the number in the household is determined as of the date the FAFSA is signed, and the ED and IRS definitions are different), then I can think of many other tantalizing conflicting information “scenarios” that could just as easily be cited.


How about this for a finding?  “Adjusted gross income for 2007 is less than adjusted gross income for 2006.  This is conflicting information which must be resolved.”  Or – “Adjusted gross income for 2006 is less than adjusted gross income for 2007.”  If a difference between the number of tax exemptions taken as of December 31, 2007 (on the 2007 federal income tax return) and the number of household members (shown on a FAFSA completed in August of 2008) can be considered “conflicting information,” then any change in family circumstances, even from one award year to the next, becomes fair game for a conflicting information finding in a program review.  There’s nothing to stop them.


Here’s another one.  “Parents’ household size on the 2004-05 FAFSA does not match the parents’ household size on the 2007-08 FAFSA.”   Well, why not?  If the standard for determining whether there is a conflict or not is “anything a program reviewer can possibly come up with,” then nobody is safe.  If a reviewer can get away with asserting that household size and number of exemptions have to match, then is there any limit?


Gladstone said that “once you abandon the principle of proportional taxation, you are at sea without rudder or compass, and there is no abomination you cannot commit.”  You may or may not agree with that.  But in the context of federal program reviews, he certainly would have a valid point.  Once you abandon the principle of regulatory enforcement based strictly and solely on what the regulations actually address and require, there is no change in family situation or income the Department of Education cannot assert as a conflicting information finding.


I am hoping for a decision from an administrative judge that agrees with me on this.  Then, of course, the Department will appeal to the Secretary (who recently remanded another case to the administrative judge after sitting on the appeal for six years – and it wasn’t a complicated case).  Eventually there will be a decision.  Until then, if certain program reviewers come your way, getting findings like the ones I’ve described here is not an “unlikely scenario” for your school.  You could easily be placed on reimbursement or have your provisional certification revoked (or just have ED refuse to renew your regular certification) over findings like the ones discussed here.


Protecting yourself completely against a rogue program reviewer (and I truly believe that is what has happened in the case I have been discussing here) from the Department of Education is impossible.  You just never know what kind of “findings” such a person will assert – and I can tell you from experience that you cannot expect the Federal Student Aid higher-ups to do anything but support the program reviewer’s findings, no matter how absurd they may be. 


I’ve often noted that operating a private career school is just like living down-slope from a volcano.  If it (ED) erupts, you are going to get burned. 


Yet, there are things you can do to minimize your exposure.  First, you can make sure your financial aid people are catching all the real conflicts, whether they are of the obvious, or the not-so-obvious, variety.  There’s no defense when those kinds of findings are asserted.  Second, you can ask them to redouble their efforts to ensure that even possible conflicts are resolved in writing.  (Here, we’re talking about student and family assertions on the ISIR that suggest a situation that a suspicious person might find, well, suspicious.)  The way things are right now, you should also get a statement from the student (and parent, if the student is a dependent) in cases where the numbers of exemptions don’t match the number in the current household.    


Monitor your financial aid people to make sure this is being handled.   Give your financial aid director a copy of this article and ask him or her to give you a written report on how your school is keeping the possibility of conflicting information findings to a minimum.  Hire somebody who is an expert in financial aid compliance to come and do an on-site review, at least once a year.  Beyond that, you have to be ready and willing to fight, or else resign yourself to paying back money your school should be able to keep. 


Believe me, this is a very serious matter and it deserves your attention.  Sooner or later, you will have a program review visit.  When you do, this is something the feds are likely to explore.  Be as ready as you can be, or you will regret it.