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Compensating Employees for Securing Student Enrollments

For-profit colleges engage in aggressive recruitment of students regardless of qualifications.

For-profit colleges receive approximately 25% of all federal student aid — which by some estimates, results in over 80% of their revenues. Yet students at such schools default on student loans at alarming rates. On average, for-profit institutions only graduate 38% of their students, who in turn default on their student loan debt at much higher rates than students who attended public or private nonprofit schools.

Although for-profit colleges and career centers enroll roughly 10% of all higher education students, they account for approximately 50% of all federal student loan defaults. In such situations, students do not get the education they need to improve their chances of obtaining employment, and taxpayers are forced to foot the bill for students’ defaulted loans.

Some for-profit colleges pay their employees to recruit students, whether qualified or not.

One cause of these grim statistics is aggressive recruitment of students through tactics that ignore prospective students’ qualifications and chances of academic success. One such tactic that was outlawed by Congress 20 years ago is incentive pay to employees based on the number of new students they recruit and enroll. Such incentive pay encourages recruiters to engage in overly-aggressive tactics to enroll students, regardless of the students’ qualifications and ability to be successful.

Unfortunately, such illegal incentive compensation schemes continue to plague the system. Whistleblowers help put an end to these unlawful practices.

Examples of alleged illegal compensation for student recruitment include the following:

  • In August 2011, the U.S. Department of Justice and the states of California, Florida, Illinois, and Indiana intervened in a whistleblower lawsuit against Education Management Corporation, owner of 105 post-secondary schools operating under the names Art Institute, Argosy University, Brown Mackie College, and South University.The two whistleblowers who initially filed the lawsuit in 2007, both of whom are former employees of the Art Institute of Pittsburgh, allege that the company paid recruiters based on the number of students they enrolled, in violation of the law.The suit also alleges that recruiters were instructed to utilize high-pressure sales tactics and inflate claims of the colleges’ career placement rates to increase enrollment, and were encouraged to enroll individuals regardless of their qualifications — including those who appeared under the influence of drugs or were unable to write coherently.In 2010, Education Management Corporation received 89.3 percent of its revenues — a total of 2.2 billion dollars — from federal financial aid.  Under the False Claims Act, the company could ultimately be found liable for damages as high as $33 billion. The whistleblowers in the case will receive a portion of any recovery obtained by the government.
  • In December 2009, the U.S. Justice Department settled a False Claims Act lawsuit brought against the Apollo Group, owner of the University of Phoenix, for illegally paying recruiters compensation based on the number of students they enrolled. The Apollo Group entered an agreement to pay $67.5 million to settle the suit but denied wrongdoing.The suit was initially filed in 2003 in California by two former University of Phoenix employees. The whistleblower plaintiffs, both former enrollment counselors at Phoenix, alleged that they and others were paid cash bonuses and other gifts based on the number of students they enrolled. The plaintiffs also alleged that the university’s illegal actions put $1.5 billion in federal student aid funds at risk.The government did not intervene in the case but supported the whistleblowers’ lawsuit at various stages, including the filing of a friend-of-the-court brief in an appeal to the Ninth Circuit Court of Appeals. The two whistleblowers who brought the suit reportedly received $19 million of the settlement.
  • In August 2010, Phoenix-based Grand Canyon Education, Inc., the parent company of Grand Canyon University, settled a whistleblower suit for $5.2 million. The suit was filed by a former employee who alleged that the school violated the ban against incentive-compensation pay for student recruitment by giving non-cash awards to enrollment counselors. The suit also alleged other violations, including aggressive recruitment tactics.The whistleblower reportedly received 27% of the settlement, or over $1.4 million.
  • In August 2011, the U.S. Court of Appeals for the Ninth Circuit reinstated a whistleblower lawsuit against for-profit Corinthian Colleges. The False Claims Act lawsuit, filed in 2007 by two former employees of the colleges, alleges that the schools violated federal law by paying bonuses to recruiters based on the number of students they enrolled in the vocational schools. The lawsuit also alleges that Corinthian Colleges receives billions of dollars in federal subsidies.Attorneys for Corinthian Colleges had previously convinced a federal court judge to dismiss the suit. The judge ruled that even if the allegations were true, the school’s bonus payments did not violate federal law.The appellate court disagreed, finding that the allegations, if true, represent violations of federal law. The case was remanded to the district court in Los Angeles for further proceedings in a Los Angeles federal court.

For-profit colleges have a powerful incentive to recruit students by any means necessary.

When more students mean more financial aid money, for-profit colleges are tempted to compete for the students by any means. Whistleblowers play a vital rule in uncovering fraud in college recruitment and bringing that fraud to light.

How Waters Kraus Paul & Siegel can help whistleblowers

With a national presence and in-depth experience fighting fraud against the government, Waters Kraus Paul & Siegel, LLP, provides aggressive representation of whistleblowers in qui tam actions and related complaints. The firm currently represents whistleblowers seeking to recover funds on behalf of the federal and state governments in a variety of cases, which may involve defendants such as large pharmaceutical companies, government contractors, school district contractors, and hospice and nursing home care providers.

To learn more about qui tam representation at Waters Kraus Paul & Siegel, or to have one of our attorneys review your potential case, email us or call 800.226.9880.

What is Qui Tam?

Under the Federal False Claims Act (FCA), whistleblowers have the power to save taxpayers billions of dollars each year by taking a stand against fraud. The U.S. False Claims Act allows private citizens to file suits on the government’s behalf when the government has been defrauded through any federally funded contract or program. The qui tam provisions of the False Claims Act allow these citizens to recover damages. A number of states and the city of Chicago also have laws similar to the False Claims Act to protect against fraud. To learn more about the different types of fraud … READ MORE

Types of Qui Tam/Whistleblower LItigation

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