The U.S. Department of Education has cut off federal grants to the Michigan Jewish Institute in West Bloomfield.
In a February letter to the private college, the government says nearly 2,000 MJI students claimed to be studying abroad in Israel but weren't taking classes through the school.
The letter says those students received Pell Grants through MJI without "physically attending" classes, and none graduated.
"Rather, these full-time Israeli residents were 'enrolled' in MJI so MJI could obtain and use Pell Grants, partly to subsidize the education of full-time Israeli residents enrolled at Israeli educational institutions, and partly to fund its own activities," the letter said.
Pell Grants are are government-provided grants for low-income students. They don't have to be paid back and can total close to $6,000 per year.
The letter also accuses MJI of giving false information to its accrediting agency, the Accrediting Council for Independent Colleges and Schools, and of failing to exercise "adequate standards of administrative capability."
MJI has denied the allegations.
In a statement provided through Mort Meisner Associates, the school says it will "contest the action to the fullest extent possible."
"[The U.S. Department of Education's] decision is inaccurate, relies on hearsay, speculation and information that would not be admitted into any court of competent jurisdiction as credible evidence. It is arbitrary and capricious in the extreme," the statement said.
MJI says its students are enrolled either "entirely online" or in hybrid programs in which students take MJI courses and courses from a foreign institution.
Steve Ellis, a spokesman for the school, says MJI has "temporarily suspended its operations pending current negotiations with [the Department of Education]. [MJI] is hopeful of returning to full operations in the near future."
It's not clear whether MJI will face charges.