I suspect most of our readers have seen television ads touting colleges whose names were not too familiar when the ads first started running. Many of these schools are for-profit schools and are of the online-study variety. These are quite different from public and private universities such as Auburn (public) and Samford (private). For-profit colleges have come under recent scrutiny concerning whether they are a worthy investment of federal monies. Most of these for-profit colleges employ high-pressure sales tactics to enroll students and then commence to saddle them with substantial debt and an unmarketable degree. U.S. Senator Tom Harkin, Chairman of the Health, Education, Labor and Pensions Committee, stated recently that “enrollment quotas” are often the highest priority for recruiters. While recruitment is typically not an issue, the for-profit colleges are having continued difficulty placing their students in gainful employment upon graduation – if, that is, they make it to graduation.
The report by Senator Harkin found that students of the for-profit colleges are burdened with unreasonable amounts of student loan debt. The tuition for a bachelor’s program at a for-profit college, on average, is 20 percent greater than a similar program at a flagship public college. Associate degrees have a similar problem averaging 450 percent, or four-and-a-half times, more than the comparable community college. Consequently, some students from for-profit colleges find themselves $60,000 in debt for a two-year associate’s degree.
Compounding the problem, graduates from for-profit colleges frequently encounter obstacles in obtaining gainful employment after graduation. The Department of Education found that graduates from for-profit colleges have a harder time finding job placement than graduates from other types of higher education.
According to the U.S. Department of Education, the vast majority of students at for-profit colleges, 92 percent of students, borrow money to finance their education. This number is extraordinarily high compared to 59 percent of students at private, non-profit schools and 46 percent of students at public schools. The Senate and Government Accountability Office found that for-profit colleges collect over $32 billion through programs such as Pell Grants. Marketing, recruiting, and profits accounted for 41.8 percent of the revenues while a mere 17.7 percent of revenue was spent on actual instruction.
Furthermore, the Department noted that students from the for-profit colleges are twice as likely to default on their student loans, than graduates from more traditional schools. As a result, the students from for-profit colleges account for 46 percent of all student loans in default, but these same students only account for 12 percent of all college students in the U.S.
The for-profit colleges have lobbied extensively to keep rules that are favorable to their flawed business model. The Department of Education issued new rules requiring that 35% of graduates must be repaying student loans, or the federal funding for student aid would be cut. However, the for-profit college successfully challenged this rule in federal court in Association of Private Sector Colleges and Universities, v. Duncan, No. 1:11-cv-00138 (D.C. Cir. Feb. 21, 2012).
The D.C. Circuit held that the rules exceeded the Department’s authority because it did not provide statutorily-required procedural protections and defined misrepresentation too broadly. The Association of Private Sector Colleges has spent over $4.7 million since 2007 in lobbying efforts. Additionally, the University of Phoenix and Kaplan spent $1 million and $1.4 million respectively in 2011 lobbying efforts alone.
According to the Chronicle of Higher Education, 372 of the 2,042 for-profit colleges receive 85 percent to 90 percent of their total revenue from federal student aid programs. The average amount for all for-profit colleges was 70 percent of revenue between 2010 and 2011. The federal government capped the amount of revenue a for-profit college may receive under these programs to 90 percent of their total revenue. If you haven’t figured out the economic motive for these schools by now, the availability of federal financial aid programs and loans might just be a clue.
There is an increase in whistle-blower lawsuits exposing fraud and misrepresentation relating to for-profit colleges. Often these for-profit colleges manipulate data in order to secure continued funding through the federal government. These claims vary, including misrepresenting the accepting of the program’s credentials by employers, falsifying job placement data and student loan figures to prospective students, falsifying data to maintain accreditation/licensure in order to maintain federal student loan eligibility and paying recruiters based on how many students they enroll.
The False Claims Act protects whistleblowers from discrimination, harassment, threatening acts, demotion, and termination. In the event an employer retaliates against a whistleblower for standing up for the truth, the False Claims Act requires that a whistleblower be reinstated to his or her previous job grade and receive double back pay. Additionally, if whistleblowers file a suit on behalf of the federal government, they are entitled to receive at least 15 percent and potentially 30 percent of the government funds recovered. This is a hefty incentive for employees everywhere to stand up for the truth and tell their employers to stop defrauding the American taxpayer.
Lawyers in our firm have been battling this type of corporate fraud for over 30 years. We would welcome the opportunity to assist any person who has been victimized by fraudulent conduct of a for-profit school. If you are aware of any such fraud, we will be glad to help and look at any potential cases. If you need more information on this subject, you can contact either Chad Stewart or Andrew Brashier, lawyers in our Consumer Fraud Section, at 800-898-2034 or email by Chad.Stewart@beasleyallen.com or Andrew.Brashier@beasleyallen.com.
Sources: NBC News and Huffington Post
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