False Claims Act (FCA) Liability in Educational Fraud

False Claims Act (FCA) liability arises in the area of educational fraud where educational institutions violate the Higher Education Act of 1965 (“HEA”) or knowingly make false promises to become eligible to receive government funds.

When an educational institution seeks subsidies under the HEA, it is required to enter into a Program Participation Agreement with the Department of Education, and abide by various statutory, regulatory, and contractual requirements.

Educational institutions often violate HEA’s ban on incentive compensation, i.e., paying recruiters based on the number of students recruited. This ban is intended to reduce the number of under qualified students who will derive little benefit from the subsidy and who will face considerable obstacles repaying federally guaranteed loans.

HEA Compliance Requirements as a Condition of Federal Funding

To receive federal subsidies under the Higher Education Act of 1965 (“HEA”), educational institutions must enter into a Program Participation Agreement with the Department of Education and adhere to numerous statutory, regulatory, and contractual obligations. These requirements regulate core aspects of an institution’s operations, including student recruitment, financial aid administration, recordkeeping, and ongoing certifications of compliance. When institutions fail to comply with these requirements but continue to seek or accept federal funds, they risk triggering liability under the False Claims Act

Key Legal References

• The Higher Education Act of 1965, Pub. L. NO. 89-329, 79 Stat. 1219 (Nov. 8, 1965), as amended by the Higher Education Amendments of 1998, Pub. L. No. 105-244, 112 Stat. 1581 (Oct. 7, 1998); 20 U.S.C. §§ 1001 et seq. (2006).
• United States ex rel. Hendow v. University of Phoenix, 461 F.3d 1166, 1168 (9th Cir. 2006), cert. denied 550 U.S. 903 (2007).
• Id., 461 F.3d at 1168. The Higher Education Act’s prohibition on incentive compensation is codified in 20 U.S.C. Section 1094(a)(20) as follows:

“The institution will not provide any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting or admission activities or in making decisions regarding the award of student financial assistance, except that this paragraph shall not apply to the recruitment of foreign students residing in foreign countries who are not eligible to receive Federal student assistance.”

• See also United States ex rel. Bott v. Silicon Valley Colleges, 262 Fed. Appx. 810 (9th Cir. 2008) (noting that the HEA does not prohibit all salary reviews, but rather prohibits payment adjustments based solely on the number of students recruited).
• Id. (United States ex rel. Hendow v. University of Phoenix), 461 F.3d at 1168-1169.

Notice

This website is designed to provide general information only. This information is not and should not be construed to be legal advice. The transmission of the information found on this website also does not result in the formation of a lawyer-client relationship.

You should be aware that qui tam claims are subject to a Statute of Limitations. The area of limitations periods is complex. There are also first to file rules, public disclosure bars, original source issues, and varying limitations in pursuing retaliation claims. If you wish to pursue your claims, you should promptly seek the opinion of an attorney regarding the merits of your qui tam claim and the applicable statute of limitations.