Blowing the Whistle on Financial Aid Fraud

A whistleblower can report illegal activity to the government and, under certain circumstances, share in the monetary recoveries the government obtains.

[This article first appeared on University Business, written by Joseph Gentile.]

The U.S. higher-education system is second to none. That’s partially due to the generous taxpayer support that is provided in the form of financial aid. Indeed, federal and state tax dollars, such as programs under Title IV, help support a wide range of for-profit and nonprofit institutions. Everyone, students included, benefit from this government investment.

Unfortunately, some higher education institutions fail to play by the rules. They game the system, accept government funds, but do not comply with the rules associated with taking tax dollars.

For example, Title IV of the Higher Education Act of 1965 prohibits colleges, universities and other higher education institutions from, among other things, using incentive-based systems for paying recruiters and admissions personnel. The rules seek to “eliminate abusive recruiting practices”—in other words, recruiting students (regardless of their qualification) so as to increase financial aid revenue. Yet this practice is unfortunately commonplace.

Honest administrators and other university employees who witness this wrongdoing are caught in the middle. Is it best to act or simply look the other way?

Doing nothing may seem like the safest course of action.  If we keep quiet, the college will get much-needed revenue.  Perhaps the violation will cease on its own or another employee might take the necessary corrective action. In fact, figuring out the “corrective action” can be challenging.

Taking some form of action has its risks. If we decide to act, we could be marginalized at the office or worse. We could be falsely accused of poor performance, harassed, fired, even blackballed.

Most educators and college administrators who find themselves in the unenviable position of witnessing or being asked to participate in frauds will want to do the right thing and report it, but will be understandably concerned about the effect of doing so on their careers.

In many situations like this, the False Claims Act (FCA) can provide a solution. The FCA is a powerful tool that allows a whistleblower to report illegal activity to the government and, under certain circumstances, share in the monetary recoveries the government obtains. This is accomplished through a whistleblower or “Qui Tam” lawsuit.

The whistleblower’s share of any recovered proceeds can be substantial, usually between 15% and 30% of the government’s recovery. In addition to providing a financial incentive to bringing these violations to the government’s attention, the FCA also provides whistleblower protections in the form of anti-retaliation provisions.

The government understands that retaliation is a legitimate fear employees have when weighing the possibility of whether to report wrongdoing. That’s why the FCA has specific anti-retaliation rules which protect employees from being “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer” because the employee investigated, reported or sought to stop an employer from engaging in practices which defraud the federal government.

The FCA’s dual incentives to whistleblowers—lucrative financial rewards and anti-retaliation protections—have real-life impact. For example, in 2009 and 2015, two large for-profit education providers paid $67.5 million and $95.5 million, respectively, to settle FCA allegations that they paid recruiters based on their ability to enroll financial aid-eligible students. Both lawsuits were filed by internal whistleblowers. The whistleblowers in these cases received millions of dollars as a reward for their information and efforts.

These types of cases are complex and the decisions made in the face of illegal behavior—whether to act or not—can have a tremendous impact on one’s career and life. Given the weight and complexity of these decisions, it’s prudent to consult with an attorney about choosing the best course of action.

This is also a specialized area of law, so it’s best to find an attorney with a high degree of familiarity and experience—someone who can to navigate the system of government agencies and lawyers that are involved in FCA litigation. Many attorneys take these cases on a contingency basis, which means clients don’t pay any fees unless they are successful.