New California Whistleblower Case Claims Fraud by For-Profit University

I am a whistleblower lawyer, and I represent people who are blowing the whistle on fraud against the Government. In my field of law, which deals with the False Claims Act, we are seeing an alarming increase in the number of fraud cases involving for-profit education.

I will be writing several blog entries about a brand-new California case, Hoggett v. the University of Phoenix. This whistleblower case was brought under the False Claims Act, the federal law that encourages whistleblowers to report fraud in order to stop the misuse of taxpayer funds.

In order to encourage students to go to college, the United States government runs a student loan guarantee program in which the Government guarantees loans that students take out from private banks. By making it safe for banks to lend to students, the United States hopes to encourage banks to loan money to students, so that more U.S. citizens can afford college educations.

Some “for profit” colleges have abused this system. Their goal has been to recruit as many students as possible, and pocket the students’ loan money. These unscrupulous schools mislead students into taking loans they can never repay, in order to get jobs that do not exist. In a bad economy, these schools have an even easier time of it, as people who are desperate for jobs turn to colleges, hoping more education will help them get employment.

The result has been that many, many students are defaulting on their big-dollar student loans. When these students cannot repay their loans, the misery spreads far and wide. The students wind up with shattered dreams and bad credit. U.S. taxpayers end up repaying the banks that made the loans to the students. The universities, on the other hand, have received their full payment.

Recognizing the conflict of interest, and in order to try to stem the rising tide of student loan defaults, the Department of Education has made rules to try to stop university recruiters from pressuring and misleading potential students. For example, the Government has enacted a rule that prevents universities from paying recruiters based on the sheer number of students they are able to pressure into signing up.

The University of Phoenix, a for-profit university with branches all over the country, is no stranger to legal trouble over this very issue. Back in 2009, UOPX paid $78.5 million to settle charges that it was paying its recruiters bonuses based on how many students they could talk into enrolling at the school. United States ex rel. Hendow v. University of Phoenix, No. 2:03-cv-0457-GEB-DAD (E.D. Cal.) (Burrell, J.). Hendow was the whistleblower who brought that False Claims Act lawsuit. He claimed that the University of Phoenix had been violating the Government’s rules. The University of Phoenix denied all wrongdoing in the case, but paid a large amount to settle the claims.

One year after the University of Phoenix had settled that first suit, however, two more UOPX employees filed a new suit claiming that UOPX had learned nothing from the first case. These employees claimed that UOPX had reverted right back to its old practices, and was still paying recruiters based on how many students they could sign up. The University of Phoenix denies these claims. The court handling the case recently issued a new opinion, and I will be discussing it in my next whistleblower blog entries.