DOJ investigating Universities recruiting unqualified students — $450 Million case against for profit University going to trial on this issue

A $450 million Department of Justice lawsuit against the Academy of Art University alleges the University defrauded the government out of millions in student loans and grants through an illegal recruitment incentives scheme is heading for trial after the U.S. Supreme Court denied an appeal by the school. The Federal Prosecutors say that the university–one of the largest in the nation accepted large numbers of unqualified candidates unlikely to pay back their government-backed loans. According to media reports, the university still maintains a 100 percent acceptance rate despite a low graduation rate.

The lawsuit came from former recruiters who filed the case under the False Claims Act which allows individuals to bring actions on behalf of the federal and state governments for fraud. It allows the whistleblowers to collect up to 30 percent of what the government collects. The allegations state that recruiters were given bonuses based on the number of students employees could recruit. If they missed the goals their pay was reduced.

Since 2006 the University collected over $1.5 billion in federal student loans. It owns over 40 buildings in an upscale portion of San Francisco.

A similar lawsuit against online University of Phoenix was settled in 2009 for $78.5 million. In 2015, the for-profit education company Education Management Corporation (EDMC) paid $102.8 million to settle claims of fraudulent recruiting practices in violation of the Department of Educations guidelines for recruiting. The assertions were that the Corporation operated high-pressure boiler rooms where admissions personnel were paid on the basis of the number of students enrolled.

The grants collected from the federal moneys by the University may be kept of students stay enrolled for 60 percent f the semester.