Consumer Finance Insights
November 20, 2015

DOJ and State AGs Obtain $100 Million in Student Debt Relief for Students of For-Profit Colleges

On November 16, 2015, the DOJ announced a settlement with a national for-profit education company over alleged violations of the False Claims Act and the Higher Education Act. The settlement resolves four separate qui tam suits filed against the company in federal court. In conjunction with the DOJ announcement, the Attorneys General of thirty-nine states and the District of Columbia announced they had entered into consent orders and settlements with the same company over alleged violations of state consumer protection statutes.

The company operates for-profit colleges nationwide, with enrollment that exceeds 100,000 students. According to the DOJ, admissions officers at the colleges employed a variety of improper recruitment tactics to increase enrollment and thereby obtain tuition payments from federal student loan programs. To participate in the student loan programs, the colleges were required to submit certifications of eligibility to receive federal loan money from the Department of Education, including a certification that the college did not provide admissions officials with “incentive compensation” for enrolling more students. According to the DOJ, despite certifying that they did not have an incentive compensation program, the colleges paid admissions officers higher salaries based on the number of students they successfully enrolled. The colleges allegedly violated the False Claims Act when they submitted false certifications of compliance with the Department of Education’s ban on incentive compensation programs. The $99.5 million settlement will fund compliance expenses for the state settlements and the remaining funds will be shared among the United States, four states that joined the United States in the False Claims Act suits, and the whistleblowers and their counsel.​

In addition to the DOJ False Claims suits, the company was also placed under investigation by the Attorneys General of thirty-nine states and the District of Columbia. The state complaints alleged the admissions officers misrepresented tuition costs, job placement data, and graduation rates to encourage students to enroll, in violation of state consumer protection laws. Under the settlement agreement with the states, the company is required to forgive $102.8 million in student loan debt held by approximately 80,000 former students. The agreement also prohibits future misrepresentations about job placement data, graduation rates, and tuition costs, and requires the company to reform its financial disclosures to students. The company must also submit to ongoing compliance monitoring.