DOJ recently intervened in a False Claims Act case against Stevens-Henager College, Inc. (and its owner), alleging that the college made false certifications regarding compensation of its recruiters—and made false claims for payments under federal education programs based on those certifications. In its complaint, the Government alleges that the defendants received more than $660 million in federal funds since 2002 based on false certifications. DOJ’s complaint is part of a trend to bring FCA claims against for-profit colleges and universities for unlawful recruitment practices. Most of the major for-profit universities or colleges have faced an FCA allegations in the past five years—and more are likely to come.

DOJ’s FCA actions against for-profit schools share several common elements. The claims are generally initiated by whistleblowers who work in the school’s recruiting or admissions department. The Government or qui tam plaintiff asserts that the school offered employees incentives based on the number of students enrolled. Such incentives violate the Higher Education Act (which provides students with grants, federally-guaranteed loans, and financial aid) and the “program participation agreements” a school enters with the Government to be eligible for such funding.

The Government’s FCA cases against for-profit schools are generally based on a false certification theory of liability. DOJ or a qui tam plaintiff alleges that the school falsely certified that it did not and will not offer employees incentives based on student enrollment to obtain eligibility to participate in Higher Education Act programs—then submitted or caused to be submitted claims for payment to the Department of Education (e.g., a loan and grant applications) based on the allegedly false certifications.

The recent action against Stevens-Henager College is interesting because, to date, the Government has not intervened in many of these cases but has left them to relators to pursue. However, with for-profit educational institutions facing increased scrutiny, and the potential for relators to obtain large awards, not only are more actions likely but it’s reasonable to assume that DOJ will intervene in more of these cases, raising the stakes in circumstances in which effective compliance programs have purportedly proved difficult for some of the schools to manage.

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