"[Lori and her husband] claim they were under the impression they might be breaking rules, but not laws," the source says. "They feel they were manipulated by those involved and are planning that as part of their defense."
"They realize how serious the charges are, but feel that once the judge hears their story he will see they had no bad intentions," the source adds.
Loughlin and Giannulli are accused of paying $500,000 in bribes to get their daughters, 19-year-old Olivia and 20-year-old Bella, admitted to the University of Southern California as recruits for the crew team, even though neither of them participated in the sport.
"They in no way felt they were money laundering," the source says. "They thought the money would be used for a donation and to benefit the school. Even so, this has been one of the toughest decisions of Lori‘s life."
The charge of conspiracy to commit mail and wire fraud and honest services mail and wire fraud provides for a maximum sentence of 20 years in prison, three years of supervised release, and a fine of $250,000 or twice the gross gain or loss, whichever is greater. The charge of conspiracy to commit money laundering provides for a maximum sentence of 20 years in prison, three years of supervised release, and a fine of $500,000 or twice the value of the property involved in the money laundering.
Ultimately, if convicted and sentenced to the maximum extent of the law, Loughlin could face up to 40 years in jail. But many experts agree that the chance of sentencing that severe is almost nonexistent.
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Why Lori Loughlin Didn't Think She'd Get Jail Time in College Admissions Scandal (Source)
However, the source tells ET that hearing the total amount of potential jail time she could be facing if convicted left the former When Calls the Heart star in tears.
"When Lori heard the number of years she could spend in prison she broke down crying. The thought of being separated from her loved ones for years brought her to her knees," the source says. "She has watched as the other families cut deals but her husband feels they are not guilty and should plead not guilty."
According to the source, the couple's friends are "incredibly worried" about their decision to plead not guilty.
"[Their friends] have explained to them that they cannot just plead ignorance," the source continues. "In the end, she trusts those who are advising her and somehow believes there is a chance she will go free."
Another source recently told ET that, up until the second superseding indictment, Loughlin didn't believe she would face the possibility of serving time in prison.
"Lori still believed in the end she would just get a slap on the wrist," the source claimed. "At this point she is getting complete clarity and she’s scared and in terrible shape."
"The reality of this situation has finally hit her like a ton of bricks," the source added. "It wasn’t until she was faced with [the] additional [charge] that she saw the true ramifications."
Watch the video below for the latest news on the college admissions scandal.