Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-94-05270/USCOURTS-caDC-94-05270-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 13, 1995 Decided January 26, 1996

No. 94-5270

CAREER COLLEGE ASSOCIATION, ET AL.,

APPELLANTS

v.

RICHARD W. RILEY,

SECRETARY OF THE UNITED STATES DEPARTMENT OF EDUCATION,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(94cv1372)

Thomas Hylden argued the cause and filed the briefs for appellants.

Fred E. Haynes, Assistant United States Attorney, argued the cause

for appellee, with whom Eric H. Holder, Jr., United States

Attorney, and R. Craig Lawrence, Assistant United States Attorney,

were on the brief. John D. Bates and Thomas S. Rees, Assistant

United States Attorneys, entered appearances.

Before: SILBERMAN, GINSBURG, and HENDERSON, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge: The Higher Education Act, Title IV,

governs federally funded student financial aid programs for college

and post-secondary vocational training. 20 U.S.C. §§ 1070-1099

(1990 & 1992 Supp.). Congress amended the HEA in 1992 to improve

the accountability and integrity of institutions participating in

Title IV programs. The Department of Education (DOE) conducted

regional meetings and "negotiated rulemaking sessions" to develop

regulations to implement these amendments. Appellants raise five

separate challenges to the regulations ultimately promulgated by

the DOE. We reject these and affirm the district court's grant of

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summary judgment for Secretary Riley. We address each issue and

the relevant facts in turn. 

Master Calendar Issue

Appellants contend that the entire set of regulations amending

34 C.F.R. Part 668, the Student Assistance General Provisions, is

ineffective for the award year 1994-95 because it was not

promulgated "in final form" by May 1, 1994, as required by the

Master Calendar Provision. The Master Calendar Provision states

that

Any regulatory changes initiated by the Secretary ...

that have not been published in final form by December 1

prior to the start of the award year shall not become

effective until the beginning of the second award year

after such December 1 date. For award year 1994-95, this

subsection shall not require a delay in the effectiveness

of regulatory changes ... that are published in final

form by May 1, 1994.

20 U.S.C. § 1089(c) (1992). On February 17 and 28, 1994, the DOE

published proposed rules for Part 668 and provided a 30-day comment

period. 59 Fed. Reg. 8,044 (1994); 59 Fed. Reg. 9,526 (1994). On

April 29, 1994, the DOE published an "Interim Final Rule,"

denominated "interim final regulations with invitation for

comment." 59 Fed. Reg. 22,348 (1994). The April 29 Rule stated

that its effective date was July 1, 1994, with the exception of

provisions containing information collection requirements for which

Office of Management and Budget (OMB) approval was required under

the Paperwork Reduction Act (PRA). Upon receiving OMB approval,

the DOE would publish a notice announcing the effective date for

these provisions. The Rule solicited comments by June 20, 1994,

and stated that the Secretary would consider any comments received

"in determining whether to make any changes in these rules," and

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would publish any changes or a notice indicating no changes would

be made. No mention was made of when any such changes would become

effective. On June 22, after the comment period but prior to the

Rule's effective date, appellants filed suit, seeking declaratory

and injunctive relief. Subsequently, on July 7, the DOE issued a

notice that announced OMB approval for the information collection

requirements, explained that the April 29 Rule was final and

effective for the 1994-95 award year, reopened and extended the

comment period until July 28, and announced that the comments had

been solicited in anticipation of possible revisions for the 1995-

96 award year. 59 Fed. Reg. 34,964 (1994).

Since the Secretary published the "Interim Final Rule" on

April 29, 1994, the dispute turns on whether those regulations were

then "in final form." Appellants assert that the use of "interim"

necessarily implies that the regulations were subject to change and

therefore not in final form. Congress did not explicitly authorize

"interim final regulations" in the HEA, as it has elsewhere, and

the other DOE regulations published the same day were not described

as "interim," showing that the Secretary himself did not view Part

668 as a final rule. The Secretary also requested comments on the

Rule by June 20 and stated that notice of any changesor the lack

thereofwould be published. This deadline, prior to the Rule's

July 1 effective date, indicates that the Secretary was considering

changes for 1994-95. That changes were contemplated, it is argued,

undermines the function of the Master Calendar Provision as a

notice statute intended to apprise regulated institutions of the

coming year's requirements. Comments responding to the Interim

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Final Rule show that such institutions viewed the April 29 notice

as a proposed rather than a final rule. And the Secretary

effectively recognized the ambiguity of the Rule by his publication

of the July 7 correction notice. Finally, appellants argue that

the regulation necessarily was subject to change since it had not

yet received PRA approval from the OMB; several sections would not

become effective until such approval was received, and failure to

receive approval could result in changes.

The designation of the Rule as "interim," absent the

explanation (given subsequently) that the Secretary contemplated

that any revisions would take effect after the 1994-95 year and

that comments were sought only for that purpose, was certainly

maladroit. We agree with the government, however, that the rule

passes muster under the Master Calendar Provision. The key word in

the title "Interim Final Rule," unless the title is to be read as

an oxymoron, is not interim, but final. "Interim" refers only to

the Rule's intended durationnot its tentative nature. The

designation of the July 1 effective date could only have meantand,

therefore, put the public on notice of that meaningthat the

regulation was in final form when published and therefore complied

with the Master Calendar Provision. The Secretary's request for

comments on the Rule is explicable, as the government points out,

in light of the short December 1 deadline for any proposed rules to

be put in effect for the 1995-96 award year. That other final

rules issued at the same time were not termed "interim" only

suggests that the Secretary did not contemplate a possible

modification of those rules in the following year. Nor do we think

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1Counsel may well also have concluded that the Secretary's

awkward description of the Rule and other factors would give rise

to a reasonable question whether the Rule was in conformity with

the Master Calendar Provisionbut that is not the same thing as

true confusion as to the purport of the Secretary's promulgation. 

2OMB's possible failure to approve a particular provision is

also less troubling than appellants suggest because it could only

serve to reduce an institution's potential exposure to limited

participation or other sanction. The published regulation

therefore gives a maximum regulatory exposure; an institution

knows fully the substantive requirements, but is aware that some

it particularly relevant that a number of commenters were confused.

Competent counsel would surely have advised any client that the

Secretary intended the Rule to be final as to the 1994-95 award

year.1 Any other construction would suggest that the April 29

publication was without legal significance at all (a senseless

repetition of the notice of proposed rulemaking).

There remains the matter of OMB approval. The government

points out that OMB's own rules specify that its action under the

PRA cannot rescind or amend a rule. Therefore, the published

rule's finality is not affected by the fact that the Secretary had

not received OMB approval at the time of promulgationapproval came

only seven days before July 1 and was not published until the July

7 notice. Admittedly, it seems a bit anomalous for a rule that is

on its face subject to another entity's approval to be considered

final. But as a matter of law, the regulation would have been

valid on July 1 whether or not OMB had approved the relevant

portions. Absent OMB approval, the Department would not have been

entitled to impose a sanction or withhold a benefit to a member of

the regulated class, but the regulation still would have

constituted a normative standard.2 Accordingly, it cannot be said

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may not be enforced if OMB approval is not forthcoming. 

that the April 29 publication was not "final" within the meaning of

the Master Calendar Provision. 

The Refund Regulation

Two provisions in the 1992 HEA amendments deal with refunds

by institutions of "unearned tuition" upon the withdrawal of

students during an enrollment period. Generally under the Title IV

programs, both the federal government and the student will

contribute to the cost of the student's education. The federal

government pays its portion for each enrollment period up front;

students, in contrast, may pay at varying rates throughout the

enrollment period, according to the institution's payment policy.

For example, if the entire institutional charges for the enrollment

period were $5,000, the government might pay $4,000 initially and

the student the remaining $1,000 spread over the course of the

enrollment period. When a student withdraws partway through the

enrollment period, the institution must refund a certain portion of

the charges to account for its reduced educational obligations

toward the student. Appellants challenge regulations issued by the

Secretary to govern the determination of this refund, claiming they

conflict with the statutory refund provisions.

20 U.S.C. § 1091b (1992) requires that institutions develop a

"fair and equitable" policy for refunding "unearned tuition." §

1091b(a). An institution's policy "shall be considered to be fair

and equitable"

if that policy provides for a refund in an amount of at

least the largest of the amounts provided under

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(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). The second relevant statutory provision

states that "refunds shall be credited in the following order:"

first to reimburse federal government programs, then other sources

of aid (e.g., state government programs), and last the student. 20

U.S.C. § 1092(a)(1)(F) (1992).

Under the prior refund regulations, institutions were not

required to consider the student's scheduled, but not yet paid,

cash payments in making § 1091b(b)'s refund calculation.

Institutions therefore based refunds on the charges they had

actually collected, not on the total charges for the enrollment

period. The Secretary determined that this practice in effect paid

the student's unpaid charges from Title IV funds and had the

collateral consequence of treating students inequitably because, as

will be seen below, students who had paid their portion of the

tuition before dropping out ended up paying more of the cost than

students who had deferred or defaulted upon payment of their share.

See 56 Fed. Reg. 66,498 (1991). Thus, after Congress enacted §

1092(a)(1)(F)'s refund crediting order in 1992, the Secretary

issued a new "Refund Regulation" that required consideration of

scheduled cash payments:

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3The regulation does not apply to the pro rata calculation

of § 1091b(b)(3), which is already statutorily defined. 

4State law and accrediting agency policies may often use

different methods to calculate the refund, e.g., by applying

various cut-off points during the enrollment period for set

refund levels. The Refund Regulation does not affect the method

of calculation. 

(iii) In determining the amount that the institution may

retain for the portion of the period of enrollment for

which the student has been charged during which the

student was actually enrolled, an institution shall

(A) Compute the unpaid amount of a scheduled cash

payment by subtracting the amount paid by the student for

that period of enrollment for which the student has been

charged from the scheduled cash payment for the period of

enrollment for which the student has been charged; and

(B) Subtract the unpaid amount of the scheduled cash

payment from the amount that may be retained by the

institution according to the institution's refund policy

...

34 C.F.R. 668.22(f)(2)(iii) (1994). Put simply, this requires that

after calculating the refund under § 1091b(b)(1) and (2), the

school subtract the student's unpaid charges from the amount it

would otherwise retain.3

The effect of this provision on the refund calculation can

best be seen in a numerical example. Assume the numbers from

above$5,000 total charges, $4,000 paid up front by Title IV

programs, and $1,000 paid over the course of the semester by the

student. If a student withdraws from a ten-week program after two

weeks, the institution would be entitled, assuming a pro rata

calculation for simplicity, to retain 1/5 of the tuition earned,

here $1,000.4 The following chart shows examples of the refund

calculation under the prior and current regulations, assuming

varying payments by the student:

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Amount

Paid by

Title TV

Programs

Amount

Paid/

Unpaid by

Student

Total

Amount

Paid

Prior

Regulation:

Amount

Institution

Retains

Amount

Refunded

(to Title IV)

Current

Regulation

:

Amount

Institution

Retains

Amount

Refunded

(to Title IV)

$4,000 $0 / $1,000 $4,000 $1,000 $3,000 $0 $4,000

$4,000 $200 / $800 $4,200 $1,000 $3,200 $200 $4,000

$4,000 $1,000 / $0 $5,000 $1,000 $4,000 $1,000 $4,000

Assuming five equally spaced payments (the second row of the

table), the student would only have paid $200 of his full $1,000

obligation. Under the prior regulations, the school would refund

$3,200the amount it actually received, $4,200, minus the pro rata

amount earned, $1,000. The government would thus receive $3,200

back; and the student effectively would "receive" $800the amount

not yet paid and for which he is then not charged. Under the new

Refund Regulation, the school must subtract the amount of the

student's unpaid charges$800from the amount the institution is

otherwise entitled to retain$1,000and is left with only $200.

The total refund to Title IV programs would then be $4,000$4,200

actually received minus $200 retained by the institution.

The effect of the new regulation is to require the refund

calculation to be madein accord with the applicable method, here,

pro rataas if the student had paid his full obligation for the

enrollment period. Thus, if the student has paid the full $1,000,

the refund will be identical under both the former and current

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5As can be seen in the table, under the Refund Regulation

the amount the institution retains varies with the student's

unpaid charges, while the amount refunded to the Title IV

programsand therefore the amount of Title IV assistance given to

similarly-situated studentsremains constant. The Title IV

programs will receive a refund of $4,000 regardless of whether

the student has paid $200 or $1,000, and therefore will not "make

up the difference" for the student who has only paid $200. For

sample calculations, see Student Assistance General Provisions,

Notice of Proposed Rulemaking, 56 Fed. Reg. 66,496, 66,498

(1991). 

regulation: under the former regulations, the institution retains

$1,000, so the refund is $4000$5000 actually received minus $1000;

under the Refund Regulation, the unpaid scheduled cash payment is

$0, so the institution retains $1,000, and the refund is again

$4,000. But if, on the other hand, the student has not yet paid

his full charges, the school's retained funds decrease by the

unpaid amount.5

Appellants contend that because the Refund Regulation changes

the amount the institution can retain, by requiring the institution

to add to the refund the amount of the student's unpaid scheduled

cash payment, it impermissibly modifies § 1091b(b)'s definition of

a fair and equitable refund policy. Section 1091b(b) fully

occupies the field of refund determinations and therefore compels

the Secretary to accept as "fair and equitable" any determination

made in accord with the provision. Two district courts have so

held. See California Cosmetology Coalition v. Riley, 871 F. Supp.

1263, 1270-72 (C.D. Cal. 1994); Coalition of New York State Career

Schools, Inc. v. Riley, 894 F. Supp. 567, 571-72 (N.D.N.Y. 1995).

While the regulation appears superficially to conflict with

the statutory language, upon closer examination we are not

persuaded by appellants' arguments. As indicated above, there is

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6For example, assuming the same scenario as in the table,

supra at 8, under the former regulations, a student who paid the

full $1000 would not receive any refund. He therefore would have

paid $800 more than the student who paid only $200, and $1,000

more than the student who paid nothing. The latter two students

received a constructive "refund" of the amount not paid. That

this is a "refund" can be seen more clearly by positing that a

student who should have paid the $200 by the time he withdraws,

has defaulted on that payment. Under the former regulations, the

school would still be entitled to retain $1,000 and would refund

only $3,000$4,000 collected minus $1,000 retained; the student

therefore receives the benefit of the $200 he never paid, for

which the federal government pays through its reduced refund. 

The $200 can, not insensibly, be considered a "refund"so may the

$800 not yet paid. 

no issue if the student has paid the full amount of the enrollment

period charges up front; the refund is identical under both §

1091b(b) and the Refund Regulation. The problem arises when the

student has not yet paid the enrollment charges for the relevant

period. Then, as appellants contend, the Refund Regulation has the

effect of "adding" the amount of the student's unpaid scheduled

cash payments to the refund as calculated under § 1091b(b).

However, not including the unpaid amount, as under the prior

regulations, has the effect of constructively "refunding" that

amount to the studentat the expense of the federal governmentand

of therefore crediting the refund to the student before the Title

IV programs. This violates the explicit allocation requirements of

§ 1092(a)(1)(F).6

The two statutory provisions are thus in considerable tension

as to the appropriate way to address unpaid student charges in the

refund determination. But neither expressly addresses the

situation; it appears that the draftsmen did not contemplate this

scenario and its impact on the refund calculation. Section

1092(a)(1)(F), which provides that "refunds shall be credited" to

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the government before the student, suggests that the drafters

presumed the student will have paid the charges to then be

"refunded." Similarly, the language of § 1091b(a)"Each

institution ... shall have in effect a fair and equitable refund

policy under which the institution refunds unearned tuition, fees,

room and board, and other charges to a student who received

[federal assistance]"suggests that the drafters assumed that the

student would pay the full charges for the enrollment period, such

that all "unearned tuition" will need to be refunded. But §

1091b(b) does not on its face require the institution to include

the student's unpaid charges in the refund calculation. We thus

conclude that the statute is ambiguous as to how students' unpaid

charges affect the refund determination.

Given this ambiguity, the Secretary has some discretion to

resolve the apparent conflict between the two provisions. Chevron

U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S.

837 (1984). The Secretary asserts that the Refund Regulation

defines "unearned tuition" by requiring the institution to consider

the full charges assessed for the enrollment periodnot just the

charges actually receivedin calculating the refund. This in

essence requires the institution to presume that the student has

paid the full charges at the outset. If the total charges are

$5,000, and the student has completed 1/5 of the course, it is

logical that the "unearned tuition" is $4,000the sum of the

student's and the government's payment obligations. The Refund

Regulation merely requires repayment of this full amount regardless

of whether the student has paid his portion. The Regulation

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therefore does not "add" to the refund, as appellants allege, but

merely treats all studentsand the governmentequally with respect

to unpaid charges by defining the "unearned tuition" to which the

refund policy must be directed.

That the Refund Regulation corrects the misallocation of

refunds can be seen from the examples in the table, supra.

Although the federal government paid $4,000 in all three scenarios,

under the prior regulation it was refunded varying amounts$3,000,

$3,200, and $4,000. The student effectively received a

corresponding "refund" of the amount he had not yet paid$1,000,

$800, and $0. This violated the refund crediting order of §

1092(a)(1)(F) by in effect allowing the institution to "refund"

money to the student first. Under the current regulation, in

contrast, the federal government receives the same amount, the full

$4,000, in all three scenarios, prior to any refund to the student

(who receives no refund in this example). And the institution is

only required to refund (up to) the unearned amount of the full

tuitional charge$4,000 ($5,000 full charge minus $1,000 "earned").

To be sure, the inevitable effect of the Refund Regulation is

that institutions will retain less money if the student has not

paid in full. The decrease in an institution's income is not,

however, dispositive. While the statute clearly posits that

institutions generally will retain some funds when a student

withdraws, it does not delineate a precise amount and does not

condition that amount on what the institution has actually

received. Congress was focusing in § 1091b(b) on fairness and

equity to the studentsit is unusual, to say the least, for

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7We disagree with the two district court opinions on which

appellants relyCalifornia Cosmetology Coalition and Coalition of

New York State Career Schoolsbecause they mischaracterize the

regulation as adding to the refund rather than as addressing the

problem of students' unpaid charges, and fail to consider the

relation of § 1091b(b)'s refund calculation to § 1092(a)(1)(F)'s

refund allocation.

Congress to speak of fairness to the federal government. The

Refund Regulation, by affecting the amount the institution retains,

is not inconsistent with this policy. It essentially puts the risk

of the student's "default" on the institutionwhich may be

reasonable given that the institution has more control over the

student's payments, but the statutory silence on unpaid charges

makes that permissible. We thus conclude that the Secretary has

permissibly interpreted these two statutory provisions to fulfill

the mandates of both as closely as possible.7

The Cohort Default Rate Rule

It is also alleged that the "Cohort Default Rate Rule" exceeds

the Secretary's authority because it conflicts with various

statutory provisions. In order to participate in Title IV

programs, an institution must be both eligible and administratively

capable. Eligibility requires that an institution be an

institution of higher education and that it meet various program

and administrative requirements, e.g., that it use funds solely in

accord with program provisions, that it provide information to the

Secretary and other persons. 20 U.S.C. § 1094(a) (1990). The

eligibility criterion upon which appellants focus examines the

institution's cohort default ratethe percentage of students in

default on federally insured loans in any given award yearfor loan

programs: "An institution whose cohort default rate is equal to or

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greater than [25%] for each of the three most recent fiscal years

for which data are available shall not be eligible to participate

in a program under this part for the fiscal year for which the

determination is made and for the two succeeding fiscal years ..."

20 U.S.C. § 1085(a)(2) (1992) (emphasis added). In addition to

these threshold eligibility requirements, an institution must be

administratively (and financially) capable of participating in

Title IV programs: "Notwithstanding any other [statutory]

provisions ..., the Secretary shall prescribe such regulations as

may be necessary to provide for... the establishment of reasonable

standards of financial responsibility and appropriate institutional

capability for the administration by an eligible institution of

[Title IV programs]." 20 U.S.C. § 1094(c). Pursuant to this

provision, the Secretary promulgated regulations that determine an

institution administratively incapable of adequately administering

Title IV programs (both loan and non-loan) if, inter alia, the

institution has a cohort default rate of more than 25% for any of

the three most recent fiscal years. 34 C.F.R. § 668.16(m)(1)(i)

(1994). A determination that an institution has impaired

administrative capability may affect its ability to secure an

initial or renewal application and may result in a limitation of

participation rights, i.e., provisional certification for a period

of one to three years.

Appellants allege that this regulation, the "Cohort Default

Rate Rule," has "changed" the default rate measure from a violation

in each of the three prior years as required by the eligibility

provision, to any of the three prior years under the administrative

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capability regulation. This puts an institution at "heightened"

risk of losing its participation under the Secretary's

administrative capability regulation even though it meets the

eligibility requirements. This modification has additional

significance, appellants claim, in that the regulation permits the

Secretary to provisionally certify an institution when it is

prohibited by the statute, which allows provisional certification

only when an institution is seeking an initial or renewal

certification, is having its administrative capability determined

for the first time, or has undergone a change of ownership. 20

U.S.C. § 1099c(h). Appellants also point out that the regulation

neglects to provide the statutory notice and hearing protections

for the limitation or termination of participation in Title IV

programs, 20 U.S.C. § 1094(c)(1)(F) (1990), and the statutory

appeal rights for loss of eligibility, 20 U.S.C. § 1085(a)(2).

Thus, by first placing an institution on provisional

certificationequivalent to a "limitation" of participation, and

then revoking that certificationequivalent to a loss of

eligibility, the Secretary effectively can terminate an

institution's participation without providing these statutorily

required procedural protections.

The Secretary counters that he has express statutory authority

to establish "reasonable standards of ... appropriate institutional

capability" for the Title IV programs, 20 U.S.C. § 1094(c)(1)(B),

and to "establish procedures and requirements relating to the

administrative capabilities of institutions," based on, inter alia,

"consideration of past performance of institutions ... with respect

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8The Secretary also notes that the 25% rate over a three

year period was actually a relaxation of the standard from a 20%

rate for any one year. That the numerical rate is identical to

that of the eligibility provisionwhich the 1992 Amendments

gradually decreased to 25%is thus fortuitous. 

to student aid programs," 20 U.S.C. § 1099c(d)(1) (1992). It was

pursuant to his authority under these provisionsnot §

1085(a)(2)that the Secretary promulgated the administrative

capability regulations. Section 1085(a)(2) addresses eligibility,

not administrative capability, and has distinct, if overlapping,

coverage of loan programs. The 25% default rate criterion,

evaluated over three years, is a reasonable measure of a school's

administrative performance.8

The statutory provisional certification limitations are no bar

to the regulations, the Secretary asserts, because he will only

provisionally certify an institution on the basis of administrative

incapability in accord with these limitations, i.e., at an initial

or renewal application, change of ownership, or first

determination. And such an initial or renewal certification, it is

argued, would not fall under the terms of § 1094(c), which requires

notice and a hearing, because it would not limit or terminate Title

IV "participation"which the Secretary interprets to mean current,

full participation. Provisional certification of an institution

during the pendency of a current certification, in contrast, can

only be accomplished through an affirmative administrative action,

which would be subject to the notice and hearing requirements of §

1094(c) and the appeal rights of § 1085(a)(2). As to revocation,

the statute itself provides for termination without procedural

protections: "If, prior to the end of a period of provisional

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certification under this subsection, the Secretary determines that

the institution is unable to meet its responsibilities under its

program participation agreement, the Secretary may terminate the

institution's participation." 20 U.S.C. § 1099c(h)(3). This

provision does not require the procedural protections of §§ 1094(c)

and 1085(a)(2), and the Secretary therefore asserts that he has

discretion to select appropriate procedures. He has done so by

providing that an institution will have an opportunity to be heard

in an administrative review process before an independent official,

34 C.F.R. § 668.13(f).

We note that the statutory structure indicates that

"eligibility" is not synonymous with "administrative

capability"which the Secretary is expressly authorized to

defineand this alone suggests that the Secretary's independent

construction of administrative capability to include a 25% default

rate criterion is permissible. And the prevention of student

defaults can reasonably be thought one indication of an

institution's "past performance ... with respect to student aid

programs." That administrative capability and eligibility both

examine default ratesand that administrative capability could be

construed as one factor in determining eligibilitydoes not

preclude the Secretary from choosing a different measure for the

former. The two criteria are distinct; administrative capability

is a broader concept than eligibility both in its scope of

application, i.e., all Title IV, HEA programs rather than just loan

programs, and in the range of factors it incorporates.

We find more troubling appellants' argument that the Secretary

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9We are told by the Secretary that the 1992 amendments

removed a provision that required all administrative hearings to

be "on the record," i.e., with oral hearings. Under the new

regulations, this hearing procedure is preserved for fully

certified institutions, but only a written administrative review

should not be able to do in two steps what he cannot do in one:

terminate an institution's participation without certain procedural

protections. Although the Cohort Default Rate Rule itself is

silent as to when evaluation of administrative capability occurs,

we will accept the Secretary's interpretation of the regulation as

allowing him only to exercise his authority to provisionally

certify institutions in accord with the statutory limitations. It

then follows logicallyas the Secretary contendsthat institutions

subject to provisional certification under § 1099c(h) as initial or

renewal applications are not entitled to the notice and hearing and

the appeal requirements. Such applicants are not "participating"

in a Title IV program and do not possess any current "eligibility"

that can be lost. To conclude otherwise would create in effect an

"entitlement" to certificationfor without positing such an

entitlement, which the statute does not provide, there is no valid

argument that an applicant has a "right" to procedural protections

granted participating institutions. On the other hand, the

Secretary concedes that the disputed procedural protections do

apply to a change from full to provisional certification of a

currently participating institution.

As to the "second step" of termination of provisional

certification, the Secretary's decision not to provide notice and

hearing or appeal rights based on § 1099c(h)(3)'s silencewhen

Congress has specified procedures elsewhereis not impermissible.9

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is allowed provisionally certified, "high risk" institutions. We

are also informed that while the term "provisional certification"

was incorporated in the HEA for the first time by the 1992

amendments, it stems from a prior statutory provisionand

administrative practiceallowing the Secretary to enter into

"limitation agreements" that provide fewer participation rights

to the institution. This regulatory background and experience

provide additional support for the Secretary's construction of

the provisional certification process. 

That section does not cross-reference § 1094(c) or § 1085(a)(2),

and it provides no express procedural protections. While §

1099c(h)(3) does refer to the Secretary's termination of an

institution's "participation," what is being terminated is not the

full participation assumed in §§ 1094 and 1085(a)(2), but

participation that has already been limited based on an evaluation

of the risk of continued Title IV funding for a particular

institution. And as the Secretary noted at oral argument, a

provisionally certified institution merely has one level of

administrative review rather than two. Absent any due process

concerns, the Secretary's interpretation of § 1099c(h)(3) as

establishing a separate standard for termination of provisional

certification is permissible.

The Thirteen Week Rule

We can more easily dispense with the claim that the "Thirteen

Week Rule" is arbitrary and capricious under the Administrative

Procedure Act. The HEA requires that institutions have a 70%

placement rate for their graduates "as determined under regulations

of the Secretary." 20 U.S.C. § 1088(e)(2)(A) (1992). Pursuant to

this provision, the Secretary promulgated the "Thirteen Week Rule,"

which requires that institutions calculate the placement rate for

any award year based on "the number of students who, within 180

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days of the day they received their degree, ... obtained gainful

employment ... and, on the date of this calculation, are employed,

or have been employed, for at least 13 weeks following receipt of

the credential from the institution." 34 C.F.R. § 668.8(g)(ii)

(1994). Appellants contend that this regulation is arbitrary and

capricious because it will be "virtually impossible" to meet. If

a school has to calculate the placement rate at the end of the

award year, it will have insufficient time to determine whether its

graduates have obtained employment within 180 days and maintained

that employment for 13 weeks, a total of about 270 days.

But the Secretary points out that this "virtual impossibility"

is based on a misreading of the statute; the calculation of the

placement rate is to be made not at the end of the award year, but

at the yearly audit, within 120 days after the fiscal year ends.

This allows the institution to look to the post-graduation time

period to determine placement. We think this explanation entirely

reasonable, and indeed, the auditing provision is explicitly

referenced in the placement rate regulation. We nevertheless were

concerned by the possibility that some institutions might be caught

with insufficient time to calculate the placement rate by the

timing of the end of their fiscal year. But, the Secretary

represented at oral argument that he would not find a violation nor

impose a penalty if the sole reason that an institution was unable

to document its placement rate at the time of the audit was that

270 days had not yet elapsed.

The Five Day Rule

The Five Day Rule, which applies to non-term based, credit

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1020 U.S.C. § 1088 sets minimum weeks of instructional time

for program eligibility, but does not define such a week. 

hour (vocational) schools, defines a "week of instructional time to

be any week in which at least 5 days of regularly scheduled

instruction, examinations, or preparation for examinations occurs

..." 34 C.F.R. § 668.2(b) (1994). Appellants argue that the Five

Day Rule is unreasonable because there is no evidence in the record

to support the rule, and the severe effect on evening students is

not justified by the statute. The Secretary asserts that his

interpretation is due Chevron deference because the statutory term

"week of instruction" is not defined,10 and emphasizes that the DOE

considered all relevant factors and important aspects of the

problem, gave an explanation consistent with the evidence, and

provided a reasonable interpretation of the statute. We agree with

the Secretary that the Five Day Rule is not arbitrary and

capricious. The record contained indications that certain non-term

based, credit hour institutions abused the definitions of full-time

student and academic year. Furthermore, the effect of the

regulation was ameliorated by the Secretary's interpretationwhich

we must accept because not inconsistent with the

regulationallowing institutions to receive credit for each week of

instruction on a pro rata basis, i.e., with only four days of

instruction per week, an institution could receive credit for 80%

of a week's worth of instruction.

Appellants also assert that the February 29 Proposed Rule gave

insufficient notice that the Secretary was considering defining a

"week of instruction" as five days of class. The Proposed Rule had

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a "one day rule" for all institutionsdefining a week of

instruction as any week with one day of classthat supposedly would

allow creative and innovative programs, yet "not open the door to

abuse." 59 Fed. Reg. at 9,529-30. Appellants acknowledge that the

Proposed Rule noted concerns with abuse, but contend that the

reference was insufficient to put the public on notice that such a

dramatic change in the definition of "week of instruction" was

contemplated. The statements were ambiguous, and were obscurely

located in the preamble under the definition of full-time student.

And while commenters referred to possible abuse of a one day rule,

the Secretary cannot change the regulation based solely on comments

received. The Five Day Rule, it is argued, was therefore not a

"logical outgrowth" from the Proposed Rule. Chocolate Mfrs. Ass'n

v. Block, 755 F.2d 1098, 1102-05 (4th Cir. 1985).

Contrary to appellants' efforts to find ambiguity and

obscurity, the February 28 notice explicitly stated that the

Secretary was concerned with possible abuse of the definition of

academic year and full-time student, and "request[ed] comments on

whether, to further address this potential abuse, he should also

establish a weekly minimum full-time workload for educational

programs that are measured in credit hours but do not use academic

terms." 59 Fed. Reg. at 9,530. The statements were logically

placed in the discussion of the definitions of statutory terms, and

more particularly under a term dealing with

workloadrequirements"full-time student." Cf. MCI

Telecommunications Corp. v. FCC, 57 F.3d 1136, 1141-42 (D.C. Cir.

1995) (statements provided insufficient notice when placed in a

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footnote to the background section, appended to a discussion of a

completely separate topic). These statements were sufficient to

apprise the public, at a minimum, that the issue of the definition

of a full-time workloadpossibly through the definition of academic

yearwas on the table. That the Proposed Rule described the one

day rule approvingly does not undermine the notice to interested

parties that the rule was subject to modification, particularly in

light of adverse comments, as received by the Secretary here.

Chocolate Mfrs. Ass'n, 755 F.2d at 1107; City of Stoughton v. EPA,

858 F.2d 747, 753 (D.C. Cir. 1988). The change from a one day rule

to the Five Day Rule, while not insubstantial, was a "logical

outgrowth" from the Proposed Rule's express concerns.

* * * *

The district court's summary judgment in favor of Secretary

Riley is therefore

Affirmed.

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