For-Profit School to Pay U.S. up to $2.5 Million for Submitting False Federal Student Financial Aid Claims

American Commercial Colleges Inc. (ACC) has agreed to pay the United States up to $2.5 million, plus interest, to resolve allegations that it violated the civil False Claims Act by falsely certifying that it complied with certain eligibility requirements of the federal student aid programs, the Justice Department announced today.

To maintain eligibility to participate in federal student aid programs authorized by Title IV of the Higher Education Act of 1965, for-profit colleges such as ACC must obtain no more than ninety percent of their annual revenues from Title IV student aid programs. At least ten percent of their revenues must come from other sources, such as payments from students using their own funds or private loans independent of Title IV.

Congress enacted this “90/10 Rule” based on the belief that quality schools should be able to attract at least a portion of their funding from private sources, and not rely solely upon the Federal Government.

The civil settlement resolves allegations that ACC violated the law when it orchestrated certain short-term private student loans that ACC repaid with federal Title IV funds to artificially inflate the amount of private funding ACC counted for purposes of the 90/10 Rule. The short-term loans at issue in this case were not sought or obtained by students on their own; rather, ACC orchestrated the loans for the sole purpose of manipulating its 90/10 Rule calculations.

“American taxpayers have a right to expect federal student aid to be used as intended by Congress -- to help students obtain a quality education from an eligible institution,” said Stuart F. Delery, Acting Assistant Attorney General for the Department of Justice’s Civil Division. “The Department of Justice is committed to making sure that for-profit colleges play by the rules and that Title IV funds are used as intended.”

Under the False Claims Act settlement, ACC, a privately-owned college operating several campuses in Texas, will pay the United States $1 million, plus interest, over five years, and could be obligated to pay an additional $1.5 million under the terms of the agreement.

“Misuse of taxpayers’ dollars cannot be tolerated – not only for the sake of taxpayers, but especially in the case of innocent individuals who seek to improve their lives through a quality education,” said U.S. Attorney for the Northern District of Texas Sarah R. Saldaña.

Today’s settlement resolves allegations brought by Shawn Clark and Juan Delgado, former directors of ACC campuses in Odessa and Abilene, respectively, under the whistleblower, provisions of the False Claims Act, which permit private citizens with knowledge of fraud against the government to bring an action on behalf of the United States and to share in any recovery. Messrs. Clark and Delgado will receive $170,000 of the $1 million fixed portion of the government’s recovery, and would receive an additional $255,000 if ACC becomes obligated to pay the maximum $1.5 million contingent portion of the settlement.

This case was handled by the Civil Division of the Department of Justice, the U.S. Attorney’s Office for the Northern District of Texas; and the Department of Education’s Office of Inspector General and Office of General Counsel.

The lawsuit is captioned United States ex rel. Clark, et al., v. American Commercial Colleges, Inc., No. 5:10-cv-00129 (N.D. Tex.). The claims settled by this agreement are allegations only, and there has been no determination of liability.