A qui tam attorney from the national whistleblower law firm Levy Konigsberg LLP discusses the final rules governing gainful employment requirements for for-profit colleges issued by the Department of Education and the implications for False Claims Act whistleblowers.

NEW YORK, New York, November 4, 2014 – National whistleblower law firm Levy Konigsberg LLP (“LK”), has issued commentary on the long-awaited gainful employment regulations issued by the Department of Education (DOE). The final rules were announced by a DOE press release on October 30, 2014.1

The rules were issued as part of the Obama Administration’s ongoing attempts to reign in federal student aid spending to for-profit colleges. Numerous reports have highlighted the predatory marketing, poor student outcomes, and high student loan default rates associated with the for-profit education industry.2

Whistleblowers, or qui tam “relators,” have successfully used the False Claims Act to hold for-profit colleges responsible for defrauding the federal student aid programs. The False Claims Act is a federal law that provides for rewards to whistleblowers that step forward with information showing fraud against government-funded programs. The most common violation alleged by whistleblowers has been colleges’ payment of compensation to student recruiters based on enrollment numbers (the “incentive compensation” rule). Other suits have accused colleges of falsifying graduate employment statistics, student attendance records, or other data that is reported to state and federal agencies.

The final rules on gainful employment require that schools justify their costs through their graduates’ ability to earn more money – the debt-to-earnings rate or DTE. Specifically, the regulations grade schools as pass, borderline, or fail to depend upon their student’s loan payments as a proportion of their total and discretionary income after graduation. Programs whose students’ loan payments are less than 20% of total income or 8% of discretionary income “pass”; programs where their students’ loan payments are more than 30% of total income or 12% of discretionary income “fail.” Programs between these two ranges are considered “borderline” and schools whose programs fail 2 of 3 consecutive years, or are borderline for 4 straight years, will be ineligible for Title IV student aid funding.

The gainful employment rules open up a new area of compliance that could form the basis for False Claims Act whistleblower claims. Based upon DOE estimates, “about 840,000 students are currently enrolled in programs that would not pass – and of those students, 99 percent of them are in programs at for-profit institutions.”3 The new regulations will go into effect on July 1, 2015.

A prior rule relating to gainful employment was struck down by a federal court in 2012 for failing to adequately tie the gainful employment requirements to the purposes of the student loan programs.

Several commentators have criticized the new rules as not strict enough to meaningfully deter abuses by for-profit colleges.4 Regardless of whether the new rules go far enough, “False Claims Act whistleblowers will continue to play a vital role in helping the government identify violations of the federal student aid regulations. Unless these schools are held accountable for complying with Title IV requirements, they will continue to unfairly profit at the expense of students and taxpayers,” noted Levy Konigsberg. With over $137 billion dollars in federal student aid disbursed in 2013, the potential for fraud – and rewards to whistleblowers – is significant.5

Individuals with evidence of fraud involving the federal student aid programs can contact the whistleblower attorneys at LK for a free and confidential consultation by calling (800) 315-3806 or submitting an online inquiry on this website.


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