Where the False Claims Act meets for-profit colleges: 4 hot areas for compliance


Job Placement Rates

Another requirement for participation in federal student aid programs includes entering into a Program Participation Agreement (PPA) with the Secretary of Education. Since 1992, executing a PPA has been mandatory. This agreement requires the college to abide certain statutory, regulatory, and contractual requirements. One of these requirements involves advertising job placement rates. If these are advertised to attract students, the college must also make available to prospective students its most recent and accurate employment statistics.

In a case against ATI Enterprises, the government alleged that the college misrepresented job placement statistics. It continued that doing so resulted in ATI’s fraudulently maintaining eligibility for federal financial aid.

The Department of Justice intervened in and settled two cases in August 2013 against ATI Enterprises for $3.7 million. Here, again, the government’s decision to intervene signals its interest in such cases and in viewing breached terms of PPAs as violations of the FCA.

Incentive-Based Compensation to Recruiters

Based on a theory similar to that for job placement statistics, for-profit colleges entering into a PPA must abide a ban on incentive compensation. Incentive compensation is paying recruiters on a per-student basis. The ban prohibits schools from “provid[ing] any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting or admission activities or in making decisions regarding the award of student financial assistance.” 20 U.S.C. § 1094(a)(20).

In intervening in a case originally filed by a former Education Management Corp. (EDMC) admissions recruiter, the DOJ alleged in its complaint that EDMC violated the FCA when it falsely certified to the government that it was in compliance with the ban on paying incentive-based compensation to recruiters. It contended that Congress enacted this ban because paying bonuses and commissions to recruiters had resulted in at least three undesirable outcomes: enrollment of unqualified students, high student loan default rates, and wasted program funds. The states of California, Florida, Illinois, and Indiana intervened as plaintiffs as well.

While this case did not immediately result in a settlement, the government’s intervention shows that it is willing to litigate cases where for-profit colleges are not abiding the incentive-based compensation prohibition.

Enrolling Ineligible Students

A final area under governmental scrutiny is enrollment eligibility for students. It is perhaps axiomatic that for a college to receive Title IV funds, the student must be eligible for those funds. Institutions may employ a multitude of plans to bring on or retain ineligible students. In addition to retaining funding that institutions should not retain, it puts the students further into debt. The institutions use students’ master promissory notes and leads students to unknowingly default on loans. In short, when students come to the institution to enroll, it is incumbent on the institution to determine student eligibility. Retaining loan payments when students are ineligible is grounds for an FCA action. One case in particular shows how institutions carry out these plans.

In August 2012, the DOJ intervened and filed a complaint against ATI (the same defendant involved in job placement issues above). The complaint alleged that three campus had job placement issues, but also a number of student eligibility issues. For example, it alleged that ATI employees knowingly enrolled students who did not have high school diplomas; falsified high school diplomas; and kept students enrolled when they should have been dropped because they had poor grades or attendance.

The DOJ’s intervention evidences the importance of properly reviewing the eligibility of each student. Failure to do so may result in FCA liability through a relator or whistleblower action.

Conclusion

Compliance is key in Title IV funding. Where for-profit colleges are noncompliant, the DOJ has shown its willingness to enforce compliance through a robust tool—the False Claims Act. There are real stakes for students—their futures, for institutions—multi-million dollar liability, and for relators—reward of up to 30%. They should all keep these four areas in mind as their institutions receive Title IV funding.

David Scher is a principal of The Employment Law Group, P.C. A trial-tested attorney who specializes in qui tam and whistleblower retaliation actions, he is frequently quoted by the media. His legal analysis has been featured by outlets including ABC World News, Nightline, CBS, and the Washington Post.

R. Scott Oswald is managing principal of The Employment Law Group, P.C and past president of the Metropolitan Washington Employment Lawyers Association. He has been recognized as one of the Best Lawyers in America and is listed as a Top 100 Trial Lawyer by The National Trial Lawyers.