[jeffkrol]

The government’s incentive compensation ban was designed to stop companies from signing up unqualified students for their aid money. The False Claims Act, the basis for the government’s lawsuit, provides for triple damages, and since the complaint said all the government student aid came from such claims, the damages could be as much as $33 billion. As a practical matter, though, such huge cases are usually settled for far less than the maximum damages.

Since 1986, the government has recovered more than $25 billion in false-claim cases, many of them based on pharmaceutical company marketing, hospitals overbilling or defense contractor fraud. Given their explosive growth, for-profit colleges — which now serve more than 10 percent of the students enrolled in higher education, yet account for about half of all defaults on student loans — could become a new prime source for such cases.

According to the 122-page complaint, Education Management got $2.2 billion of federal financial aid in fiscal 2010, making up 89.3 percent of its net revenues.

The states joining in the suit are California, Florida, Illinois and Indiana.

The complaint said the company had a “boiler-room style sales culture” in which recruiters were instructed to use high-pressure sales techniques and inflated claims about career placement to increase student enrollment, regardless of applicants’ qualifications.

http://www.nytimes.com/2011/08/09/education/09forprofit.html