Howard University is regarded as the most prestigious historically black institution of higher education in the country. But the operations of the school in the nation’s capital have long been troubled in areas such as budget, financial aid, student housing, security, building maintenance and transparency. Now Howard is facing a huge new problem: The U.S. Education Department has placed Howard on a list that it really doesn’t want to be on.

Education Secretary Betsy DeVos’s staff informed the school in an Aug. 13 letter that it had been moved to what is called HCM2, or “heightened cash monitoring,” status regarding federal financial aid funds. That means the school will no longer get millions of dollars in financial aid in advance to award to students but, instead, will have to give it to students and then seek reimbursement from the federal government.

The new status is a significant hardship for the school for reasons that go beyond the simple embarrassment of being lumped in with dozens of other troubled schools, among them a hair design school in Kentucky.

It will affect the monetary flow to the cash-strapped school, which already depends on a hefty annual allocation from Congress to operate. President Wayne A.I. Frederick said in an interview that the new status will require the school to provide laborious documentation of each financial aid award with no errors in any part of the application. The vast majority of students at Howard are on financial aid status, and almost half qualify for need-based Pell Grants. Howard officials said the amount of affected funds for the coming semester is $31,352,790.

This is just the latest piece of bad news in a turbulent year for Howard, including a financial aid scandal this past spring and a takeover of the administration building by students disgruntled with services at the school. They initially demanded Frederick’s resignation but ended the sit-in with him still in his job. Faculty members voted no-confidence in Frederick in April (though the school says most faculty members did not vote either way).

The Education Department letter’s first page cites a long list of problems that prompted it to take action and notes that Howard had “failed to provide all documentation requested” during past compliance audits and a recent program review. (The department letter refers to Title IV funds, which come from federal student aid programs including Pell Grants, Direct Subsidized/Unsubsidized Loans, Direct Graduate PLUS Loan, Direct PLUS Loan, Federal Supplemental Educational Opportunity Grants, Federal Perkins Loans and TEACH grants.)

The Education Department letter says in part:

The Department is taking this action as a result of serious administrative capabilities identified in Howard’s compliance audits for award years 2015 through 2017 and during the program review conducted in May 2018. The issues include, among other things, a lack of internal controls, the failure to reconcile Title IV disbursements, the failure to reconcile account records, the failure to ensure students begin attendance and are eligible to receive Title IV funds, the failure to separate the functions of authorizing and disbursing Title IV funds, and the failure to follow Title IV credit balance requirements. In addition, Howard has failed to provide all documentation requested during the resolution of its annual compliance audits and during the recent program review. The Department has determined that these issues warrant moving Howard to the HCM2 method of payment.

Frederick, asked in an interview on Tuesday why the department had moved the university to HCM2 status, said, “I am not sure why.”

In an open letter he sent to the Howard community on Tuesday relaying news of the status change, Frederick linked it to a scandal earlier this year in the financial aid office. It was revealed that some employees had taken federal funds to which they were not entitled, and six were fired for “gross misconduct and neglect of duties” in connection with the misappropriation of $369,000 in financial aid.

Frederick’s letter says in part:

The Department of Education began an extensive program review of Howard University in April of 2018 following the public dissemination of information regarding the internal investigation of misappropriation of funds in our financial aid office. While this program review is still in progress, the Department of Education has elected to place Howard University on Heightened Cash Monitoring 2 status so that the DOE can closely monitor the institution’s financial aid management. It is important to note that we are taking all necessary measures to avoid any adverse impact to students in the processing of aid and receipt of funds

The latest list of schools on “heightened cash monitoring” was released by the department in June, and has about 540 colleges, universities and vocational schools on it, most of them on a level less severe than the one Howard is now on. Howard now joins 66 others on a more severe monitoring status. They include the Shear Learning Academy of Cosmetology in Illinois, the Tri-State Institute of Hair Design in Kentucky and the Salon & Spa Institute in Texas.

Asked how he felt about his school now being the most prominent on the HCM2 list, Frederick said he was “not sure I would necessarily make that statement,” and then he referred to the inclusion of Michigan State University on the same list. Actually, Michigan State is on the HCM1 list, which is a less severe status than Howard. On HCM1 schools still get advance funds from the government. On HCM2, they don’t.

Frederick has been at Howard for years in various roles. He became provost in 2012, interim president in 2013 and the president of the school in 2014.

In the interview and his letter to the Howard community, he said that the school has taken action to clean up the problems of the past and that he believes there are now enough employees in the financial aid department to perform the required documentation needed for federal reimbursement.

A Howard spokesman said the school’s Office of Financial Aid had 10 employees in April 2018 but now has 15 staffers with three consulting partners. By October, the office will have 25 full-time staff, six consulting partners and five part-time administrative staff, with recruiting and hiring underway.

According to the Education Department, there are two levels of “heightened cash monitoring” that a school can be placed on:

Heightened Cash Monitoring 1 (HCM1): After a school makes disbursements to eligible students from institutional funds and submits disbursement records to the Common Origination and Disbursement (COD) System, it draws down FSA funds to cover those disbursements in the same way as a school on the Advance Payment Method.
Heightened Cash Monitoring 2 (HCM2): A school placed on HCM2 no longer receives funds under the Advance Payment Method. After a school on HCM2 makes disbursements to students from its own institutional funds, a Reimbursement Payment Request must be submitted for those funds to the Department.
Schools may be placed on HCM1 or HCM2 as a result of compliance issues including but not limited to accreditation issues, late or missing annual financial statements and/or audits, outstanding liabilities, denial of re-certifications, concern around the school’s administrative capabilities, concern around a schools' financial responsibility, and possibly severe findings uncovered during a program review. Some schools are on this list due to preliminary findings made during a program review that is still open. Those findings could change when the program review is completed.

This is the letter that Frederick sent to the school community on Tuesday:

Office of the President
August 28, 2018
Dear Howard University Community,
In alignment with my commitment to continuous progress and providing regular updates to the Howard Community, I am writing today to share developments impacting the Office of Financial Aid and financial aid distribution at the University. Transforming that office to more effectively administer aid and improve levels of service provided remain a top priority of my administration.   
The Department of Education began an extensive program review of Howard University in April of 2018 following the public dissemination of information regarding the internal investigation of misappropriation of funds in our financial aid office. While this program review is still in progress, the Department of Education has elected to place Howard University on Heightened Cash Monitoring 2 status so that the DOE can closely monitor the institution’s financial aid management. It is important to note that we are taking all necessary measures to avoid any adverse impact to students in the processing of aid and receipt of funds.
This change in status means that all drawdowns for Title IV funds will require the University to submit all documentation on each student before the Department of Education will release the funds. This documentation must be accurate and complete to ensure reimbursement. Students can assist by ensuring they submit all necessary documentation to the university in a timely manner. This process will impact the influx and timing of federal financial aid funds to the University, however, we will supply students who have submitted all documentation on time with university refunds, and will await monthly reimbursement from the Department of Education.  For more information, please see here: [].
On April 9, 2018, in a letter to the Howard University Community, and an accompanying Preliminary Investigation Report, I informed our community of the termination of six employees as a result of violations of University policies with respect to the disbursement of University-provided financial aid funds. I committed at that time that there would continue to be significant reforms in our Financial Aid Office, as well as heightened oversight and accountability for this unit.
Since April, the following improvements have been implemented:
• Hiring of a new, permanent Director of Financial Aid.
• Hiring of an internal Financial Aid Compliance Officer.
• Completion of other strategic hires including a new Associate Provost for Enrollment Management and a University-wide Chief Compliance Officer.
• Significantly increased staffing in the Financial Aid Office.
• Approval for all awards of University grants are now reviewed and approved by the Budget Office (for unrestricted institutional aid) and the Controller’s Office (for donor-directed aid) prior to award by the Financial Aid Office.
• Access to the Banner financial aid module has now been limited to a small number of appropriate senior University individuals, with adequate third-party review and appropriate segregation of duties.
• Financial Aid Services, an outside firm that provides universities with student financial aid services, has been retained and assigned a comprehensive range of tasks related to the improvement of Howard’s administration of financial aid. These tasks include: 
o Updating all student/family consumer information regarding Howard’s student charges and financial aid policies, for posting on the Web;
o Updating Howard’s Financial Aid Policies and Procedures Manual, covering rules for the efficient administration of both Howard-provided institutional financial aid and federal aid; and
o Training all Howard University Office of Financial Aid staff on the contents of the updated Financial Aid policies and procedures manual.
To further improve service to students, we have implemented a mandatory campus-wide customer service training for all employees, and deployed the Bison E-Line at the Financial Aid Office and the Bursar’s Office (a queue management app that allows students to wait in a “virtual line” rather than a physical line, freeing them to address academic and other responsibilities before returning for a scheduled appointment). We will continue to improve our systems throughout this area.
I am committed to Howard providing “best in class” service to our students and community in Financial Aid administration, as well as every other aspect of campus life impacting our students. We will continue to partner with Financial Aid Services, and together work closely with the Department of Education, and other entities to improve service, restore confidence in our processes, and continue to provide the world-class education that our students deserve. As good stewards of University and Federal funds, we are committed to continuing to investigate any matters related to inappropriate use of University resources. Additional updates regarding this and related matters will be forthcoming.
Excellence in Truth and Service,
Wayne A. I. Frederick, M.D., MBA
Office of the President
2400 Sixth Street, NW, Suite 402
Washington, D.C. 20059