The HCM2 Club

By Glenn Bogart, J.D.

By some strange quirk, I’m now doing consulting for three schools that are on HCM2. This is a first for me, and I’ve been a Title IV compliance consultant for 26 years.

HCM2 stands for Heightened Cash Management 2 – or as I call it, Holy Crap, no Money until 2 late. To call it an abomination is to sugar-coat it.

Back when I began as a program reviewer at the U.S. Office of Education, which then became the Department of Education, they used to call it a “freeze.” Then it was called “reimbursement.” Now they call it HCM2. And it’s worse than ever.

For most schools (the ones who aren’t on HCM2), if a disbursement of Title IV funds to a student’s account will result in a credit balance, the school gets the money from the government, credits the account, and then pays the credit balance to the student for living expenses. Makes sense, right?

Now, for schools on HCM2, here’s the way it works. The school credits the student’s account for the upcoming disbursement, pays the credit balance to the student (real money, here, which the school has to come up with before any federal funds have been received), and then submits a cash request and a ton of records and prays that the money will be forthcoming from the government eventually. All too often, that money never comes or is delayed for months.

Within the Department’s Case Management Division are people called Payment Analysts. These are program reviewers who rotate in and out of the payment analysis role, the way program reviewers of old, like me, used to rotate in and out of the Training and Dissemination Branch.

Program reviewers in my time at the Department served in the Institutional Review Branch, not a Case Management Division. Think about this a moment. First it was a “branch,” which you could think of as a squad, in military parlance. A squad, during my time in the Army, consisted of maybe 10 soldiers and was led by a buck sergeant, or maybe even a Spec. 4. Now it’s a “division,” which has at least 10,000 soldiers and is led by a two-star general.

And what a horrible job it must be, being a Payment Analyst. Imagine having to spend eight hours a day poring over student financial aid and academic records and canceled checks and student ledger cards, trying to find every little mistake anybody may have made. Hey, that’s what I do when I perform a compliance review! But my purpose when doing that is to help the school improve its compliance. It’s fun to do that, for me at least.

But the Payment Analyst’s purpose is to reject as many student records as possible. Sometimes this is done in contravention of the Department’s own rules and guidance. A school will sometimes just fold when faced with having to run this gauntlet. And when it does so, the higher-ups in the Department and certain congressmen will decry the “greed” of the school operators, who close their schools because the government won’t honor its program participation agreement and fork over the money the school has earned. I guess they think a school’s operators should use their own money to keep the school going, with little hope that anything close to reimbursement will ever happen.

Of course, it is the duty of the Payment Analyst at the Department of Education to reject reimbursement requests where the student is clearly ineligible. If a student is in default on a prior federal student loan and the default hasn’t been cured, then sure, that student shouldn’t get federal student aid until it’s all straightened out. If a student isn’t a U.S. citizen and isn’t a permanent resident, then sure, reject that student.

But some of these Payment Analysts go far beyond simply rejecting reimbursement requests on students who are ineligible.

Here’s one example. A chain of beauty schools had reimbursements rejected because they were counting clock hours students earned while attending and participating in beauty shows. As is often the case, this stemmed from a “finding” in a program review which turned out to be bogus – but still hasn’t been withdrawn. The chain was required to obtain letters from its accrediting agency and state licensing agencies to prove that these hours could be counted toward its programs. After having done that, reimbursement requests still were rejected because of allegedly ineligible hours, for months and months. Meantime, cosmetology schools that were not on HCM2 continued to use these kinds of hours in fulfillment of their payment periods, no problem. That’s because virtually every cosmetology program does this, and it’s perfectly legal. Indeed, this practice is the reason my client’s schools were put on HCM2 in the first place. And they’re still on it because, you see, HCM2 isn’t a punishment.

Here’s another. It’s not unusual for payments to be rejected in cases where there is a difference between the student’s reported household size, and the number of exemptions claimed on the prior or prior-prior year’s federal income tax return. People’s household sizes are fluid, and anyway, the IRS has rules for the counting of exemptions that are different from the Department of Education’s rules for counting people in the student’s household. And when you fill out a FAFSA, you are telling the Department what your household size is now. When you fill out a federal income tax return, you’re looking backward.

There is even a Department of Education Electronic Announcement, dated May 15, 2014, which clearly states that differences between household size and tax filing status do not rise to the level of conflicting information which must be resolved. But still, Payment Analysts will reject a student record where this information doesn’t match.

Here is a third example. The client had a program review in which the reviewers questioned the fact that some students had managed to earn their high school diplomas from a couple of online providers in a matter of two to four weeks. The online schools awarding these diplomas were listed as legitimate by AdvancED, which is recognized as an authority by regional accrediting agencies such as the Southern Association of Colleges and Schools. Interestingly, the Department had no problem with a couple of other online high school programs, where it’s also possible to get a completion diploma in two to four weeks.

Reimbursements have been denied for months over this. The client is not responsible for monitoring online high schools. It is responsible only to make sure these high schools are legitimate. It did, and they are. AdvancED is where practically every school goes to find out whether a high school diploma is legitimate. If you can’t rely on them, then what are you supposed to do? This particular dispute remains pending to this day. What we have is a Payment Analyst who has decided, on her own, that a high school diploma awarded two to four weeks after a person enrolls in a high school completion program has to be illegitimate – but only if the diploma is awarded by a school she hasn’t heard of.

I could write another whole article on the way the Department of Education holds you, the Title IV-participating school, responsible for the legitimacy of high school diplomas even though the law doesn’t, but that’s for another day.

Another problem with HCM2 is that Payment Analysts come and go, and new ones have no problem in rejecting student records for failing to include documents that were never requested.

Despite instructions from, and correspondence with, your previous Payment Analyst, when you get a new one, you never know what he or she will demand in the way of documentation until you get a bunch of student records rejected, because you didn’t send documents that the Department never asked you to send.

One client of mine complains that it had reimbursement requests rejected because dormitory contracts weren’t included. Of course, nobody ever asked for them to be included, until this new Payment Analyst decided to reject a bunch of reimbursement requests because they weren’t included. Must have never occurred to her to pick up the phone and call the school to ask them to include these. Nah – it’s better just to reject the records and watch the school squirm and try to survive without the money it’s earned, for a little longer. I wonder if they have hands-on, in-service training where they torture small animals for extra credit.

Got a student who wants to borrow less than the maximum? You’ll need to get a statement from him to the effect that he really only wants to borrow $2000, even though he knows he’s eligible to borrow $3500. Are you missing a redundant Statement of Educational Purpose in a verification case? It’s redundant because every student signs one when he signs the FAFSA – but there’s no quicker way to get a reimbursement rejected than failing to get another one. Got a student who has a dependent child in the household who’s over 21? Oh, you’ll need a statement on that one, even though regulations don’t require it.

How about requiring a tax return transcript when the student used the IRS Data Retrieval Tool? Using DRT is supposed to be the ultimate in accuracy, and the ISIR says whether it was used or not. But I know of at least one case where DRT was used and the reimbursement request was rejected because no tax transcript was included in the package.

This whole HCM2 system is perverse. The higher your tuition is, the less you have to pay out in credit balances out of your own pocket, so it encourages high tuition. When you pay out credit balances and you aren’t reimbursed before the end of the year, it adversely affects your financial statement – so now you’re “financially irresponsible,” too, and may have to get a letter of credit, which further damages your financial position. A friend calls it the “non-compliance cascade,” and it’s true — and often it all starts with a bogus program review finding. And you’ll stay on HCM2 until that bogus finding is revoked or dismissed by an administrative law judge – and probably even after that, because, you see, it isn’t a punishment, and in the meantime, they’ve found other “problems,” such as failing to get student statements on various subjects when they aren’t required by any regulation or even by any written policy you can find in the FSA Handbook.

Technically, you can get off HCM2 by having six monthly submissions in a row where the Payment Analyst doesn’t find problems. I wonder how this can ever happen, when every other month they find a new “problem,” whether it’s really a problem or not.

I invite any schools on HCM2 to provide me with further examples of reimbursements being denied for nonsensical reasons. Maybe I could do a follow-up piece, listing all of them. Send me an email at glennbogart@aol.com. Join the HCM2 Club!

Look, Department of Education. It’s one thing to put a school on HCM2 because you have some doubts about its administrative capability or financial stability. It’s another thing to harass these schools the way you have been doing. You have people holding the purse-strings who couldn’t care less about fundamental fairness or due process of law, who impose their biases, ignore official ED guidance, and make up new “rules” in any way they wish. Stop it!

At a minimum, the Department needs to stop dishonoring reimbursement requests on the grounds of disputed, novel program review or audit findings that haven’t even been stated in a program or audit review report, much less litigated.

When a new Payment Analyst is assigned, he or she must be required to accept a student record as adequate if it includes everything the prior Payment Analyst requested. This moving of the goal posts in the middle of a cycle needs to stop. GS-12 bureaucrats shouldn’t have such power. I used to be one. I know. They’re just people. And sometimes, they have an agenda. Sometimes they are extremists. Yeah, I knew some when I was with the Department. And what I’m seeing these days, in the way of rejecting reimbursement requests from HCM2 schools, makes me think the Department has an affirmative action program for sadists.

Every single student record that is about to be rejected needs to be reviewed by an ombudsman seasoned in Title IV administration and who knows the administrative law, before the rejection is finalized. The standard should be, is this a case where it is likely an administrative law judge would find the payment ineligible? If it’s a toss-up, just pay the darned money with a caveat.

Or, the Department could abandon this whole HCM2 thing altogether. Do an Emergency Action in cases where it appears that the school is not acting properly as a fiduciary. At least in an Emergency Action, the burden is on the Department, where it should be. If they can prove the school is violating regulations by paying aid when it shouldn’t, then they should do it. What we have now is death by a thousand cuts, even when the school is in trouble over a program review finding that is highly questionable and probably will not be sustained.

I mentioned earlier that I have three clients who are on HCM2. I have reviewed their cases thoroughly, and I believe that in all three cases, the program review findings on which their placement on HCM2 was based will be withdrawn, or will be dismissed on appeal. If they are able to survive the torture, they will be found not to have violated any regulation. Hell of a way to run a railroad. But that’s your deep-state ED – shoot first, ask questions later. Note that it is not just for-profit schools that are caught up in this. Non-profits, schools with religious missions, are also victimized under HCM2.

Secretary DeVos, I will come to Washington at my own expense to meet with you about this. I can bring some victims with me if you’d like – if they can afford the trip while being bled dry by your Department. This is happening on your watch. Please look into it.

The views expressed by contributors are their own and not the views of CER.

GLENN BOGART, J.D. is a Title IV compliance consultant who specializes in school compliance reviews and Department of Education program review responses and appeals. A former ED program review officer, he holds a bachelor’s degree in government from Southern Illinois University, and earned the Juris Doctor degree at Western New England University in 1986. He resides in Birmingham, Alabama, but travels all over the U.S.

Mr. Bogart started his consulting business in 1992, after having served briefly as director of internal audit and compliance at Phillips Colleges, Inc., and prior to that as corporate vice president for financial aid for another large group of proprietary schools. Over the years, he has contributed frequently to these pages.