Not infrequently, educational institutions, such as colleges, universities, community colleges, trade schools, and online schools, commit fraud against the federal government in matters involving federal student financial aid. For these institutions to receive federal student financial aid, they must comply with federal laws and regulations and meet many requirements. If institutions knowingly or recklessly fail to meet those requirements or engage in other fraudulent activities and receive financial aid, they may be in violation of the False Claims Act.
For-profit colleges are among the most notorious violators of the False Claims Act with regard to student loans, and “student recruiting” is one of the most abusive schemes by which for-profit colleges engage in fraudulent practices. In 2010, an undercover investigation by the U.S. Government Accountability Office (GAO) found that among fifteen for-profit colleges across the nation, four of the colleges encouraged applicants to engage in fraudulent activities such as falsifying loan documents in order to qualify for federal student aid. The investigation revealed that all fifteen of the colleges made dishonest and misleading statements to the undercover applicants.
Another fraudulent practice by for-profit colleges has been the payment of bonuses or commissions to admissions counselors or recruiters based on the number of students admitted. This practice is prohibited under the Higher Education Act, and has been the basis for some of the most successful False Claims Act whistleblower lawsuits against for-profit colleges.
Real World Examples of Recent Student Loan Fraud False Claims Act Cases:
- 2009: The University of Phoenix paid $67.5 million to settle claims that it violated the False Claims Act. Two whistleblowers, both former University of Phoenix employees, alleged that the University of Phoenix violated the False Claims Act by accepting federal financial student aid while violating federal law by paying admission counselors based on the number of students recruited. The whistleblowers received an award of $19 million.
- 2007: Oakland City University paid $5.3 million to resolve allegations in a whistleblower lawsuit brought pursuant to the False Claims Act. The whistleblower, a former director of admissions of the university, claimed that the institution improperly paid incentives to admissions recruiters. As a result of the settlement, the whistleblower received $1.4 million.