The New York Institute of Technology and Cardean Learning, a for-profit online education company, will have to pay back $4 million for orchestrating a scheme to suck federal funds out of unsuspecting students, according to court documents obtained by the Voice.
NYIT, a not-for-profit college with a 14,000-plus student body, contracted with Cardean in 2003 to allow students at an online-based school, Ellis College, to receive federal loan and grant aid through NYIT’s partnership with the U.S. Department of Education. In exchange for enabling Cardean to tap into those federal funds, NYIT received a cut of the college’s revenue, documents say.
We reported in August on the mega bucks that for-profit institutions rake in while preying on the emotions and naivety of those with aspirations of attending college. NYIT and Cardean Learning jumped into the fray with the rest of the vulture-like institutions by syphoning funds out of individuals eligible for thousands of dollars in federal loans and grants.
“Repeatedly, we see federal programs intended to help students being exploited through fraud. Here, the defendants abused federal student loan and grant programs, which give low-income students who could not otherwise avail themselves of a higher education the opportunity to do so,” Manhattan U.S. Attorney Preet Bharara said in a release.
Of the 14,500 students enrolled at NYIT, more than 3,000 of them attended Ellis College by 2007. And, even though Ellis College students cannot take classes at NYIT, they are awarded degrees from the institution. That year, $17 million of the $107 million that NYIT received in federal funding went to Ellis College students.
An investigation by Bharara’s office and the USED’s Office of Inspector General revealed that Cardean violated the Title IV mandate that prohibits recruiters from receiving compensation-based incentives for enrolling more students — a practice that is proven to generate higher loan-default rates.
The investigation found that recruiters received bonuses of up to 150 percent of their base-salary for hitting certain enrollment marks, documents say. As a part of the settlement, NYIT admitted that it failed to provide adequate oversight of Cardean’s practices.
NYIT will have to pay $2.5 million and Cardean will have to pay $1.5 million as a part of a settlement deal with the USED and the Manhattan U.S. Attorney’s Office. The settlement announcement comes just a week after the federal authorities formerly filed a lawsuit against the two educational institutions.