Over the past several years, a number of colleges and universities have faced significant fines, penalties, and liabilities for unlawfully inducing students into enrolling using falsified or exaggerated graduation and employment data or by paying recruiters by the enrollee. For instance, several U.S. law schools were named in a recent lawsuit alleging employment and bar passage rates were inflated to entice students to enroll, ultimately costing students thousands of dollars in tuition fees for an inferior legal education.
In the context of the False Claims Act, federal officials have begun cracking down on schools receiving federal financial assistance while using fraudulent tactics to boost enrollment rates and ultimately pad profit margins. In one example, Utah-based Stevens Henager College was alleged to have incentivized recruiters by offering bonuses to those who could sign on the highest numbers of students who would be receiving federal financial aid, a practice specifically barred by the school’s agreement with the federal government. In sum, the college prioritized maximizing federal aid influx over graduation rates.
Department of Education Places 76 Schools on ‘Heightened Cash Monitoring’
Without revealing the names of the universities, the Department of Education has revealed it plans to closely scrutinize 76 institutions believed to be at a higher risk of misuse of federal funds. Currently, as much as $150 billion in federal funding is allocated to for-profit and non-profit institutions of higher learning, and the Department has vowed to ensure that students enrolled in these universities are getting a quality education and that they’re being recruited with honest and forthcoming tactics.
In order to trigger scrutiny from the Department of Education, an institution would have to essentially place itself on the radar by failing a “financial health test” or engaging in blatant misappropriations of funds. While the vast majority of U.S. schools fall outside of this classification, the Department may in its sole discretion audit any school it chooses.
For the most part, it is generally smaller private colleges bearing the brunt of financial oversight. Last year, Mid-Continent University was scrutinized for being unable to provide documentation as to how it spent or allocated federal aid money and grants – and the school closed its doors ten months later. In another example, small St. Catharine College in Kentucky was placed on a heightened cash monitoring system after there was a finding of gross inadequacies in its accounting of federal aid.
Financial Aid Misuse Could Lead to Major Penalties
Under the False Claims Act, a university found to be mishandling federal aid money could face treble damages, as well as up to $12,000 in penalties per instance of misconduct. For schools already fledgling financially, this could quickly lead to a shutdown, resulting in even greater overall expense for taxpayers and students.
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