Educational loan abuse and fraud involving federal funds have risen under the False Claims Act (FCA). In the last 10 years, over a dozen whistleblowers have stepped forward against for-profit institutions of higher education. Most of these complaints involved obtaining student loans and grants under fraudulent circumstances. Many notorious schools settled allegations of Education Fraud for millions of dollars.
By the end of 2015, student loans owed to the federal government totaled $1.2 trillion. The overwhelming majority of this money was authorized by the Higher Education Act’s Title IV provisions. Because of this, student aid fraud is the number one fraud in the education system.
About Education Fraud
In 1965 under the Higher Education Act (HEA), Congress established various federal student loan and grant programs. These aimed to help students obtain education beyond high school by receiving money to help defray education costs. Congress detailed strict requirements to colleges with students who received federal money. However, many do not meet the requirements or just conceal fraud to not disrupt the federal money coming in. Educational loan fraud is similar to contract fraud in that illegal actions such as kickbacks and misappropriation of funds are common.
The types of Education Fraud can be:
- Creating fake students to obtain federal funds
- Not notifying that a student left and still keeping the money
- Not refunding credit balances
- Obtaining funds even if a student is ineligible to matriculate
- Falsifying graduation data
Education Fraud Examples
These cases show examples of how education fraud happens.
In February 2016, the U.S. District Court of South Carolina awarded nearly $9.3 million against Lacy School of Cosmetology and its president, Earnest “Jay” Lacy. Lacy made false claims to the U.S. Department of Education in order to receive federal student loans and grants. The school intentionally engaged in unauthorized disbursements of funds, failed to give students refunds when they had credit balances, and deliberately hid illegal actions by turning in false compliance statements.
Then, in November 2015, four qui tam cases resulted in a landmark settlement with the second-largest for-profit education corporation in the United States, Education Management Corp. (EDMC). EDMC agreed to pay $95.5 million in retribution. The company used high-pressure sales tactics and paid recruiters based solely on the number of students they managed to enroll. They falsely certified their compliance with Title IV of the Higher Education Act (HEA). Title IV forbids an educational institution from basing a recruiter’s pay on successfully enrolling students. Whistleblowers in the four cases split $11.3 million.
Finally, in November of the same year, an insurance carrier for Marinello Schools of Beauty, a defunct for-profit cosmetology school paid $8.6 million. The company acquired federal student loan funds for students with fraudulent high school diplomas. Students could take the diploma test without supervision and while looking up answers. The students could keep retaking until they were successful. The six whistleblowers who came forward will share the $2.5 million award.
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Therefore, if you believe you have uncovered evidence of fraud involving a government-funded program, contact us today. Our attorneys have represented many clients in the past with complex cases. We will work tirelessly to obtain results on your behalf.