Student Loans

The federal government spends billions of dollars annually in grants, loans, and financial aid to educational institutions and students across the country. Some of this money is spent to provide grants to fund basic and applied research. Billions more are spent to provide financial aid for students, including: Pell Grants and loans under the William D. Ford, Perkins, Stafford, and Family Federal Education Loan (FFEL) loan programs.

Student loan fraud occurs when schools knowingly:

  • Violate federal student aid program eligibility requirements (for example, by knowingly enrolling ineligible students)
  • Violate the “90/10 Rule” (which prohibits a for-profit college or university from obtaining more than 90% of its yearly tuition from federal student aid)
  • Misrepresent student job placement statistics, in order to maintain eligibility to participate in federal financial aid programs
  • Pay admissions counselors and recruiters based on the numbers of students they recruit.

Case Examples

A number of successful False Claims Act cases have been based on allegations of fraud in student loan programs. By way of example:

In 2013, ATI Enterprises, Inc. agreed to pay $3.7 million to settle claims that the company violated the False Claims Act by fraudulently misrepresenting its job placement statistics in order to maintain its eligibility for federal financial aid under Title IV of the Higher Education Act and knowingly enrolling students who were ineligible because they did not have high school diplomas or recognized equivalents.

In 2012, Princeton Review agreed to pay up to $10 million to resolve whistleblower claims that the company violated the False Claims Act by falsifying student attendance records and billing the U.S. Department of Education for tutoring services for at-risk students that it never provided. The whistleblower in this case was a former employee who received 20 percent of the settlement.

In 2011, CHI Institute agreed to pay $1.6 million to settle whistleblower claims that the company violated the False Claims Act by misleading students, most of whom received federal student financial aid, about the availability of externships without which students could not graduate. The whistleblower in this case was the former Director of Education for CHI Institute.

In 2010, four student aid lenders, including Nelnet Inc. and Nelnet Educational Loan Funding Inc., paid $57.75 million to settle whistleblower claims that they violated the False Claims Act by creating billing systems that enabled them to receive improperly inflated interest rate subsidies from the U.S. Department of Education. The whistleblower in the case received $16.65 million from these settlements.

In 2009, the University of Phoenix agreed to pay $67.5 million to settle whistleblower claims that it violated the False Claims Act by accepting federal student financial aid while violating prohibitions against paying admissions counselors incentive-based (“per student”) compensation, tied to the number of students they recruited. The two whistleblowers in this case were two of the counselors who had been hired to recruit students. They received $19 million as their share of the settlement.

If you have knowledge and solid evidence of fraud or false claims involving federally funded or insured student loans, please contact our Chicago whistleblower attorneys. Consultations are free and confidential.