Higher Education Fraud – Student Loans

Federal and state governments distribute billions of dollars annually to students and schools in the form of loans and grants. The number of scams involving student loans has drastically increased in recent years due to the lack of sufficient safeguards to prevent this type of abuse.

As public budgets tighten and education costs increase, it’s become more important than ever to detect and push back against this type of fraud. Whistleblowers play a critical role in combatting education fraud, and many lawsuits are helping students get relief from student loans connected to these institutions.

Financial Aid and Student Loan Fraud

Fraud involving student financial aid and student loans in the U.S. education system is a growing problem. In 2022 alone, undergraduate and graduate students received $240.7 billion in grants, federal loans, federal education tax benefits, and federal work-study. The average student borrowed $29,400 to pay for college.

Higher education has become a lucrative business for many for-profit colleges and trade schools nationwide. Many of these institutions rely on the billions they receive in federally-backed grants and student loans to stay in business.

Because most students at these schools rely on aid, driving up tuition costs is considered a “smart” business practice. Beyond this, some institutions have turned to fraud to boost their bottom-line results.

Higher Education — Fraud Against the Government

Fraud against the government by higher education institutions is out of control. Unlike public and non-profit colleges and universities, for-profit schools view education as a business. They try to maximize their profits by enrolling as many students as possible while saving money on things like teacher salaries, technology, support, and extracurricular activities.

For-profit schools often use high-pressure sales tactics and fraudulent business practices to get students enrolled. Some schools offer kickbacks to recruiters to boost their enrollment numbers. Other fraudulent acts include:

• Exaggerating graduation rate, post-graduate placement rates, and degree values
• Arbitrarily inflating course and materials costs
• Encouraging students and teachers to falsify information to ensure accreditation and funding
• Offering courses designed to ensure failure among a large percentage of students who would be forced to re-take and repay for credits
• Creating class schedules that make it impossible for students to graduate

When private institutions make false and misleading claims and perpetuate this fraud, several things happen:

• Students don’t get the level of education they pay for, with many of them not even able to complete their programs.
• Student career prospects don’t match the false promises made by the schools, meaning they don’t make enough money to repay their loans.
• Students are stuck with loan payments for decades and are unable to invest in things like real estate, retirement savings, or their own children’s educations.
• Communities suffer because citizens don’t have sufficient skills and income to support themselves and their families.

Lawsuits Related to Higher Education and Student Loan Fraud

Several federal and state laws provide legal remedies for students, municipalities, and even the federal government related to the harm caused by fraud, waste, and misconduct in higher education.

The False Claims Act allows individuals to file lawsuits on behalf of the government against entities that have defrauded government programs, like student loans. Some of the largest lawsuits include:

The University of Phoenix

The University of Phoenix is the nation’s largest for-profit higher education chain. Beginning in 2012, it ran a series of ads bragging about the school’s partnerships with corporations like Yahoo and the American Red Cross, but those ties didn’t actually exist.

The Federal Trade Commission (FTC) filed a deceptive claims lawsuit against the company. It was settled in 2019 for $191 million. Many students have since had federal student loans tied to this school’s programs forgiven.

ITT Technical Institute

ITT Technical Institute was a private for-profit school with 130 campuses in 38 states. It was founded in 1969 and was one of this country’s largest for-profit educators before it was forced to close in 2016.

In 1998, a whistleblower reported on the school’s use of predatory recruitment practices. The Securities and Exchange Commission (SEC) sued the company in 2015 for investor deception regarding student loan default rates. To date, over $330 million in private student loans have been forgiven.

Corinthian Colleges

Before it shut down in 2015, Corinthian Colleges had more than 100 for-profit campuses nationwide, with 74,000 enrolled students. In 2014, the Consumer Financial Protection Bureau (CFPB) found that the company was illegally collecting high interest on private loans marketed to students.

More than 100 federal lawsuits were filed against Corinthian, alleging that the company engaged in a variety of fraudulent and deceptive practices. The company was still liable for over $500 million in student loans at the time it closed its doors.

Education Corporation of America

After ITT Tech and Corinthian, Education Corporation American was the third-largest for-profit school to close due to fraud. A 2018 report revealed that the school failed to meet basic requirements for education quality. The U.S. Department of Education declared that the 19,000 students enrolled could transfer to another school or apply for the discharge of their student loans.

Education Management Corporation

At one point, the Education Management Corporation (EMC) operated 110 for-profit higher education schools across the country. The federal government investigated and sued the corporation for misleading practices, unlawful student recruiting, and fraud.

EMC settled with the government in 2015 for $99.5 million and filed for bankruptcy in 2018. The school also agreed to forgive $100 million in student loans as part of its settlement.

Holding the Perpetrators of Higher Education Fraud Accountable

Higher education fraud not only redirects public funds from legitimate sources but also jeopardizes the opportunities available to deserving students and withholds money from communities because funds are tied up in unaffordable student loan payments.

Not every law firm has experience handling education fraud cases or whistleblower claims. Powell & Majestro, P.L.L.C. in West Virginia, has a background and experience with both. Our firm has gone up against powerful corporate forces in some of this country’s largest class action and mass tort cases and achieved positive results for our clients.

Since 2002, our personal injury attorneys have been representing the interests of individual and municipal clients in a wide variety of complex litigation matters. With more than 55 years of combined experience, we take pride in our accessibility and commitment to client service.

Powell & Majestro, P.L.L.C. offers legal representation to clients in cases related to higher education fraud. Please call (800) 650-2889 or contact us online to schedule a free initial consultation in our Charleston or Parkersburg offices.