The United States Department of Education confirms that on August 2, 2012, they informed Lon Morris College of their decision to enter an emergency action against the school, based on LMC’s recent bankruptcy filing. In a two-part letter sent to the school, the DOE contends that by filing for bankruptcy protection, the College “no longer meets the definition of an institution of higher education, and therefore, under § 487(a), LMC is no longer eligiblee to participate in the Title IV, HEA programs.”
What are “Title IV, HEA programs” you might ask? The letter defines them this way:
By this emergency action, the Department withholds funds from LMC and its students and withdraws the authority of LMC to obligate and disburse funds under any of the following Title IV, HEA programs: Federal Pell Grant (Pell Grant), Federal Supplemental Education Opportunity Grant (FSEOG), Teacher Education Assistance for College and Higher Education (TEACH) Grant, Federal Work-Study (FWS), Federal Perkins Loan (Perkins Loan) and William D. Ford Federal Direct Loan (Direct Loan) programs. The Direct Loan Program includes the Federal Direct Stafford/Ford Loan Program, the Federal Direct Unsubsidized Stafford/Ford Loan Program, the Federal Direct PLUS Program and the Federal Direct Consolidation Loan Program.
In other words,it would seem that the “emergency action” serves as a sort of temporary hold of all Federal financial aide from the school.
The second part of the letter sets out the DOE’s intent to terminate Lon Morris’ Title IV status, unless a hearing is requested by August 22, 2012.
With the Fall term set to begin on August 29, the DOE decision could be particularly disastrous for LMC , considering the percentage of Lon Morris students historically receiving financial aide. According to Lon Morris’ 2010-2011 Annual Report, 60.22% of students enrolled at Lon Morris in 2010-2011 received Pell Grants. This number does not account for students receiving other forms of financial aide, such as certain student loans and participants in the work study program.
Lon Morris has filed an Expedited Motion Under Section 525 for Relief Against the Department of Education and for Other Relief with the bankruptcy court, which in part seeks injunctive relief against this action. The key issue for the Court to determine is whether or not Section 525 of the Bankruptcy Code prevents the Department of Education from revoking LMC’s Title IV status based solely on its bankruptcy filing. A hearing on the matter has been scheduled for August 20, 2012.
*UPDATE* (August 20, 2012 4:44 PM)
Judge Bill Parker entered an Order this afternoon DENYING Lon Morris’ Expedited Motion Under Section 525 for Relief Against the Department of Education.