Alleged illegal recruiting for college leads to False Claims Act complaint

by Saul Ewing LLP
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In Brief

  • Stevens-Henager College and its owners are accused of offering compensation incentives to admission consultants based on the number of students they recruit.
  • The government alleges that the college falsely certified compliance with federal law that prohibits such incentives in a case originally brought by two whistleblowers.

The United States has filed a complaint under the False Claims Act in the U.S. District Court for the District of Idaho against Stevens-Henager College, Inc. and its owner, the Center for Excellence in Higher Education, for allegedly illegally compensating recruiters. Stevens-Henager operates a chain of colleges in Idaho and Utah that focus on “career-oriented programs,” offering degrees in healthcare, business, technology and graphic arts. The college’s website states that it is “a private, nonprofit college,” although the complaint describes the institution as a “for-profit” operation.

The United States intervened in the federal suit, which was originally filed by two whistleblowers, Katie Brooks and Nannette Wride. According to the complaint, both Brooks and Wride worked for the college as admissions consultants, during which time they allege they “became aware of Stevens-Henager’s incentive compensation practices for admissions employees.”

The government alleges that the college falsely certified compliance with federal law that prohibits a university from paying incentive-based compensation to its admissions recruiters based on the number of students they recruit.  Congress enacted this prohibition in Title IV of the Higher Education Act to curtail the enrollment of unqualified students, high student loan default rates, and the waste of student loans and grant funds.

The complaint alleges that at Stevens-Henager, “a recruiter could double his or her income by recruiting a large number of students, so long as a few graduated. Conversely, the reward per student completion was reduced or entirely withheld if the consultant had not enrolled a sufficiently high number of students.” The complaint further alleges that “[w]ith this lucrative incentive compensation program and constant performance reminders to its recruiters, Stevens-Henager directly or indirectly encouraged its recruiters to enroll anyone who was willing to apply for federal funds regardless of the students’ likelihood of success or ability to benefit from Stevens-Henager’s educational programs.  In addition, the complaint alleges that “Stevens-Henager wrongfully procured funding for its own benefit and abused the Title IV program’s purposes.  Further, this irresponsible recruitment saddles unqualified students with large debts that are difficult or impossible to repay, leading to defaults that ultimately cost the government millions of dollars.”

Stevens-Henager allegedly made “false statements” to the Department of Education about its recruiting practices and used safe harbors of the Higher Education Act to feign compliance, while operating in violation of the law.

In June 2010, the Department of Education proposed eliminating the safe harbors, noting that “the elimination of the safe harbors was necessary” and that “the Department’s experience demonstrates that unscrupulous actors routinely rely upon these safe harbors to circumvent the intent of Section 487(a)(20) of the HEA [Higher Education Act]. The safe harbors were eliminated in October 2011, with the Department of Education concluding that “rather than serving to effectuate the goals intended by Congress... the safe harbors have served to obstruct those objectives,” according to the complaint.

According to a Department of Justice press release, Assistant Attorney General for the Civil Division, Stuart F. Delery, stated, “Congress has made clear that colleges should not pay improper incentives to admissions recruiters. . . . The Department of Justice and the Department of Education are working together to combat unlawful recruitment practices that can harm students and result in the waste of taxpayer funds.” 

Similarly, Wendy Olson, U.S. Attorney for the District of Idaho, stated, “Fighting fraud and protecting federal tax dollars from abuse is a priority for this office. . . . The False Claims Act is an important tool for doing just that.  Whistleblowers are necessary to our ongoing efforts to combat fraud, waste and abuse.”

The suit against Stevens-Henager College is not the first time that the government has used the False Claims Act to crack down on recruitment practices that violate the law. Over the years, the government has intervened in dozens of suits where whistleblowers complained of incentive-based compensation tied to recruitment practices. Institutions must remain vigilant that bonuses, commissions, or other incentives are not tied to how successfully recruiters or admissions staff enroll students. 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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