FCA Liability When Colleges and Universities Lie to Students

With rising costs of tuition at colleges and universities, more and more students across the country are relying on federal student loans.  College Board Advocacy and Policy Center reported that in 2011–2012 over ten million students took out federal loans to help pay for college.  Because of the large amounts of federal money in higher education, some institutions may be tempted to engage in fraudulent practices.

Colleges and universities, in order to be eligible to receive federal student aid such as federal student loans, must enter into a program participation agreement (PPA) with the federal government.  By entering into a PPA, colleges and universities agree to comply with the statutes and regulations relating to federal student aid.

Some of the regulations with which participating colleges and universities agree to comply address misrepresentations to students.  Those regulations prohibit institutions from making misrepresentations (i.e., any false, erroneous, or misleading statements) to prospective students.  The Department of Education specifically prohibits misrepresentations regarding the nature of an educational program, the employability of graduates, the nature of financial charges, and an institution’s relationship with the Department of Education.  Institutions that make substantial misrepresentations to students – those on which prospective students could reasonably be expected to rely or did reasonably rely – may have their PPAs revoked or suffer other consequences regarding those institutions’ participation in federal student aid programs.

In July 2011, the Department of Justice announced a False Claims Act settlement with CHI Institute, a subsidiary of Kaplan, Inc.  The suit, brought by a whistleblower, alleged, in part, that CHI made misrepresentations to prospective students and the federal government regarding the availability of externships that were necessary for graduation of its surgical technology program.  Most of the students who enrolled in the program received federal student aid, and, therefore, students paid, with federal money, for a program that CHI knew it could not provide.

The settlement makes clear the Government’s position that, when colleges and universities do not comply with the statutes and regulations regarding federal student aid, including by making substantial misrepresentations to students, those colleges and universities may be subject to liability under the False Claims Act.


If you believe you have a Federal Student Loan Fraud case, or other False Claims Act case, contact the Rabon Law Firm for a free consultation.

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