College 90/10 Rule Fraud: Private Loans, Federal Repayment

A college can use circular financing to make false claims of compliance with the 90/10 rule, booking private loans as outside revenue while using federal aid to repay them. If you work in financial aid, the business office or school management, you may know both how a receipt was classified and where the repayment came from. The annual calculation can show private money while the payment records tell a federal-money story.

This page follows the loan, the repayment and the revenue certification that keeps a college eligible for aid. Our broader explanation of government education funding follows the different programs and payers behind school payments.

What Does the College 90/10 Rule Measure?

The college 90/10 rule requires a proprietary school to receive at least 10% of its qualifying revenue from nonfederal sources. The calculation measures the source of qualifying receipts, using the rule’s cash-basis calculation. Continued access to federal aid is at stake: two consecutive failures mean at least two fiscal years of ineligibility.

For a finance employee, the important comparison is the school’s calculation against the receipts assigned to it. Adtalem’s annual filing illustrates the distinction, reporting institutional cash-basis ratios separately from its corporate financial results.

The broader federal-assistance calculation applies to fiscal years beginning January 1, 2023 or later, as the Federal Student Aid handbook’s revenue-test discussion explains. Before that change, the historical calculation at issue in the American Commercial Colleges case focused on Title IV funding. Adtalem’s filing identifies veterans’ benefits and Defense tuition assistance among the funds counted in the expanded federal category. The rule preserves an exception for non-Title-IV funds paid directly to students for expenses other than tuition, fees and institutional charges.

How Can Private Loans Make Federal Aid Look Nonfederal?

Private loans repaid from federal aid can make a college’s 90/10 calculation show outside support even though federal money finances the repayment. American Commercial Colleges supplies a concrete example. The Texas for-profit college awarded career diplomas and industry certifications and participated in federal student loan and grant programs.

In the Justice Department’s accounts of the criminal guilty pleas, the company admitted converting federal aid to support the appearance of compliance with the nonfederal-revenue requirement. The accounts describe short-term private student loans during 2007 to 2009, their treatment as nonfederal revenue, delayed federal receipts, and the use or intended use of later federal aid to repay the loans. The private financing supplied the receipt the revenue calculation needed. Federal aid supplied, or was intended to supply, the repayment.

Those criminal accounts report approximately $953,897 in private loans and approximately $972,794 in converted federal aid. The company admitted the use of federal money in its guilty plea. The civil agreement separately addressed the allegations about its certifications.

For someone inside the business office, the connection runs through both sides of the loan: the school’s receipt and the money used to clear the debt. In the company’s admission, federal aid repaid or was intended to repay the private loans. We see federal money paying for its own disguise.

What Did American Commercial Colleges Agree to Pay?

American Commercial Colleges agreed to a fixed $1 million civil principal obligation over five years and up to $1.5 million in additional payments tied to revenue. Its settlement agreement records that whistleblowers alleged false certifications of compliance with the revenue rule to maintain access to Title IV aid. The Justice Department joined part of their case on behalf of the Education Department.

The whistleblowers were former campus directors. The agreement entitled them collectively to 17% of each settlement payment the United States received.

Which Records Show Circular Financing?

The records that show circular financing connect the private loan, the school’s receipt, the student ledger, the federal aid and the repayment. Our work on financial aid fraud evidence brings those records together with the certification and the decisions behind it. In this mechanism, stopping at the receipt leaves the source of repayment out of view.

The following comparisons follow the transactions described in the American Commercial Colleges criminal account. They are the questions we examine with an insider who knows the financing:

Different employees may see different parts of that sequence. The financial-aid office holds award and disbursement information, while the bursar or business office holds the student ledger, cash receipts, bank reconciliations and returns. Compliance staff and executives may hold audits, regulator notices and decisions about corrections. The administrative requirements handbook requires schools to reconcile conflicting information across offices.

The source records also show how a contradiction reached the people responsible for a submission. An instruction to classify a receipt, a warning about the repayment source and the calculation ultimately approved can connect the money to a decision. We work through that connection with you, including what each person knew when the school made its representation.

Delayed Aid Can Change the Revenue Picture

The timing of federal aid can affect the revenue calculation, which is why delayed federal receipts appear in the American Commercial Colleges criminal account. Federal Student Aid’s disbursement handbook expressly rejects delaying disbursement to pass the revenue test. The instruction behind a delay belongs beside the ledger date and the bank event.

For an employee who was told to hold a disbursement, the useful connection is between that direction and the school’s revenue calculation. Award records, disbursement records and the business office’s cash records show different parts of the payment’s movement. Communications about the timing can explain why the entries fall where they do.

Connecting the Revenue Certification to Federal Payments

A false-revenue case connects the school’s representation to its access to government money and the payments that followed. In American Commercial Colleges, the whistleblowers alleged that false certifications preserved eligibility for federal student aid. The company’s separately admitted criminal conduct explains how the financing could support that appearance of compliance.

The connection between a school representation and a false claim includes who knew the underlying facts and why the representation mattered to the payment decision. For a revenue case, we examine the classification instructions, the approved calculation, the certification and the resulting aid payments. Agency notices and the school’s response can help show what the school and the payer understood.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. The loan records and internal decisions give us a concrete starting point for assessing a case with you. Our role is to connect what you know about the school to the public money its representations brought in.

When You Know What Repaid the Loan

If you know why a private tuition loan was repaid with federal aid, speak with our whistleblower experts about the financing and the certification. We build the case with you around the actual money, the revenue calculation and the decisions inside the school. We bring in education fraud whistleblower lawyers who understand student-aid revenue rules and stay beside you through the process.