A national for-profit beauty school will pay the government and six whistleblowers $11 million to settle allegations that it used a series of fraud tactics to maximize financial aid funding from the government. Marinello Schools of Beauty—once one of the largest for-profit beauty schools in the U.S.—settled a whistleblower lawsuit filed by former employees in May, months after the school abruptly shut down all 56 of its campuses nationwide. The terms of the for-profit school whistleblower settlement were only recently made public this month.
In February, the U.S. Department of Education stated in a letter that it would no longer provide federal student aid money to 21 Marinello campuses in California and two in Nevada after discovering the school knowingly requested federal aid for students who didn’t have a high school diploma. In order to qualify for federal financial aid, students must have a valid high school diploma.
The Department of Education further stated that Marinello failed to properly award funds for some students and charged fees to students who were taking too long to finish their programs. According to the letter, Marinello also failed to provide proper training in cosmetology and barbering as outlined in its curriculum, which left a number of students who supposedly ‘graduated’ from the program unable to cut hair. These are just a few of the accusations outlined in the Department of Education’s investigation, which coincided with an ongoing whistleblower lawsuit that had been filed by six former Marinello employees.
The Marinello whistleblowers—who were once financial aid officers, career services managers, instructors, and campus director—claimed that the school created false high school diplomas for at least 23 students in order to enroll them. The Department of Education and the whistleblower lawsuit both claimed that the school enrolled these students after steering them into a fake high school diploma program. The whistleblower lawsuit also claimed that the school didn’t verify or didn’t require students to prove that they had graduated from high school prior to enrollment.
The lawsuit further alleged that the school falsified attendance records by claiming that students who had missed 13 consecutive days were still attending class. If a student doesn’t show up to school for 14 consecutive days, the school is required to give back the federal student aid money allocated for that student.
Lastly, the Marinello for-profit school whistleblower lawsuit claimed the school encouraged students to falsify their income information on financial aid applications in order to receive more funding.
According to MarketWatch, the government’s share of the settlement is only a small fraction of the money beauty school received from the government over the years. Marinello reportedly collected more than $51 million in federal financial aid in the 2014 – 2015 school year alone.
Thousands of Former Students Left in Limbo
Sarah Moore wasn’t surprised to hear that her former school would be shuttering its doors. The 21-year-old graduated last December from a 1,500-hour cosmetology program at a Marinello campus in Connecticut. “My campus had no director, no financial aid representative, and no admissions instructor from November on, and they were anticipated to close in April,” she told the Los Angeles Times.
After graduating from her program, Moore said she received letters from the school saying she still owed $800 but gave no explanation as to why. She called the Marinello corporate offices and explained that her payments were satisfied with financial aid. Days later, she got another letter from the school, this time saying she owed $3,000.
These days, Moore says works as a waitress in Ohio because Marinello will not release her student transcript until she pays what the school says she owes. Her student records are necessary for her to get her cosmetology license and start her career.
For-Profit School Whistleblower
Marinello is one of many for-profit colleges to come under government scrutiny in recent years. The Obama administration has been scrutinizing for-profit schools since 2009. In the wake of the Great Recession, for-profit schools marketed themselves heavily to unemployed workers seeking new professional skills.
As more students enrolled in these schools, federal and state regulators began to take notice. Graduation rates plummeted while student loan defaults increased dramatically. Many left schools saddled with crippling debt and little in the way of new skills to help secure employment.
Despite federal and state regulators declaring that some of these for-profit schools use improper tactics (inflating graduation rates and job placement statistics among graduates, for example), rarely do these schools pay fines or receive serious reprimands.
Why is this the case? For one thing, for-profit schools often force students to sign agreements upon enrolling that basically prohibit them from participating in class action lawsuits against schools if wrongdoing is suspected. In the event of wrongdoing, students that took out loans have to petition the government to get their money back; in other words, any returned funds come from taxpayers, not the for-profit schools.
Whistleblowers are one of the most valuable weapons the government has in fighting fraud among for-profit schools. As a result of the for-profit school whistleblower lawsuit against Marinello, the school was forced to turn over $11 million, much of which will go back to the government. The Justice Department did not intervene in the case, so the whistleblowers will likely receive between 25 and 30 percent of the recovery.