For-Profit Education Fraud

Much of the tuition paid by students at for-profit colleges and universities comes from federal programs, such as Pell Grants, the Federal Family Educational Loan program, VA Loans, and the GI Bill. To be eligible for these funds, schools must abide by certain federal regulations.

For example, when applying for Title IV funds, they must certify compliance with the Higher Education Act. Failure to then comply with these regulations can thus form the basis for False Claims Act liability.

Although there are many potential theories of liability, four in particular have been the focal point of many False Claims Act cases and settlements with for-profit universities.

Incentive Compensation Ban

The Higher Education Act prohibits paying recruiters, marketers, or admissions staff salaries or bonuses based on the volume of students they enroll. For-profit institutions certify compliance with this rule as part of the Program Participation Agreement required to be eligible to receive Pell Grant funds.

Violations of the incentive compensation ban have resulted in massive False Claims Act settlements, such as against the University of Phoenix for $67.5 million in 2009 and Education Management Corp. for $97.5 million in 2015.

Falsifying Applications for Unqualified Students

Only students who can be expected to benefit from the education being offered are eligible for federal grants and loans that pay for their tuition. Various for-profit colleges have been found to have violated the False Claims Act by helping unqualified students – such as individuals without high school diplomas or who don’t speak English – falsify their Pell Grant applications.

False Grades, Attendance Records, and Job Placement Rates

There is an expectation that students will advance, graduate, find a job, and be able to repay the government loans. Falsification of grades, attendance, and job placement to continue to maximize enrollment and qualify for funding is a common scheme employed by for-profit universities.

90-10 Rule

The Higher Education Act requires that only 90% of a for-profit college’s revenues come from federal financial aid sources. The other 10% of revenue must come from private pay sources. The VA has a similar rule limiting VA beneficiary enrollment to 85%.

In addition to these “classic” areas of for-profit education fraud, the CARES Act created a $14 billion higher education emergency relief fund (HEERF) for the Department of Education, of which $1.1 billion went to for-profit schools. These funds address COVID-19-related hardships and have many requirements regarding how they can be used.  Violation of these requirements may also result in False Claims Act liability.

Case Results