Loughlin and her husband, Mossimo Giannulli, pleaded not guilty Monday to conspiracy to commit mail fraud and conspiracy to commit money laundering.
Each of the charges is punishable by up to 20 years in prison.
“Lori doesn’t understand why she’s getting so much criticism for pleading not guilty,” the source said. “People must not realize that she had no choice. The plea deal has been taken off the table, and this is the only way they’ve been told she and Mossimo can avoid jail time and get another plea (deal). They are hoping justice will prevail.”
However, a law enforcement source familiar with the investigation told CNN last week that neither Loughlin nor her husband have engaged in substantial plea discussions. And the same source has said prosecutors will be seeking jail time for every defendant, regardless of their plea.
Prosecutors say Loughlin and Giannulli paid $500,000 to a fake charity to get their two daughters accepted into the University of Southern California, falsely designating them as crew team recruits.
“She is focused on repairing her relationship with (her daughter) Olivia,” the source added. “Things are very tense.”
Loughlin is among 15 other wealthy parents who did not initially plead guilty in the federal investigation and were slapped with the secondary charge of conspiring to launder bribes and other payments to Rick Singer, the mastermind behind the scam, in a superseding indictment earlier this month.
Actress Felicity Huffman pleaded guilty to paying $15,000 to facilitate cheating for her daughter on the SATs. In a statement, she expressed “deep regret and shame over what I have done.” She has a plea hearing set for May 21 in federal court in Boston, prosecutors said on Twitter.
Despite Loughlin being dropped from her Netflix TV show “Fuller House” and multiple shows on the Hallmark Channel, including “When Calls The Heart,” she is still hoping that she has a future in Hollywood following the scandal.
“(Lori) is hoping she can move past this and get back to work and doing what she loves,” the source said.
CORRECTION: This story has been updated to correct the date of Felicity Huffman’s plea hearing.
CNN’s Mark Morales contributed to this report.