The College of DuPage, a Glen Ellyn, Ill. community college, identified 46 alleged members of a financial-aid fraud ring. The 44 students and two organizers were participating in a scam in which they enrolled in student financial aid—like Pell Grants or Stafford loans—money for personal use, reported The Chronicle of Higher Education.
According to Chicago area radio station WBBM, the so-called straw students—all of whom reported income of less than $7,000—registered for the minimum amount of classes required and participated in the courses until federal aid was distributed. Almost as soon the financial aid was disbursed they withdrew from class and received a refund check.
The students then signed the checks over to the two organizers—one of whom lived in Illinois, the other out of state—who promised a percentage to the students for providing their personal information. The scam came to light in May when the college’s bank became concerned about six student aid refund checks having third party endorsements. Of the six checks uncovered two were endorsed to one person and four were endorsed to another, reports the Chicago Daily Herald.
After the discovery of the six suspicious checks, DuPage’s information technology department conducted an audit to identify students who enrolled in online classes in the spring semester, were also eligible for financial aid, and withdrew or were dropped from classes shortly after financial aid was distributed. According to the Daily Herald, the audit found 44 students who fit the profile and had questionable similarities in their home addresses and phone numbers, as well as the credit card numbers attached to tuition payment plans and the third parties who received the refund checks.
Aside from a reported income of less than $7,000, the registration information showed that all 44 students claimed to have a GED or other high school equivalency diploma, and that many also claimed to have previously attended the University of Phoenix, Arapahoe Community College in Colorado, and Des Moines Area Community College in Iowa, reports the Daily Herald. The discovery prevented 69 additional students from perpetrating a similar fraud during the College of DuPage’s summer semester.
An internal analysis conducted by the school determined that the College of DuPage has lost approximately $354,000 to possible fraud in the last four semesters alone, reports the Elgin Courier-News. A statement from the school describes fraud-based accounts as making up 39.3% of the College of DuPage’s total accounts receivable balance for the recent summer term.
School officials planned on pursuing legal action against the students and organizers in Illinois county court; however, under advice of counsel, they referred the matter to the Department of Education.
According to the Glen Ellyn News, the department of education’s inspector general determined that the students might be participating in a nationwide fraud ring that had already come across the department’s radar. The ring, and others like it, primarily target community colleges and other open enrollment institutions that offer online classes with lower tuition.
Hundreds of Fraud Rings, Millions of Dollars
According to a 2011 report from the inspector general’s office, the scammers are able to exploit the fact that most schools are not required to verify the identities of students enrolled in online classes. The lack of verification makes it easy for fraud rings to use the identity of students—with or without their knowledge—to enroll and receive financial aid.
The New York Times reports that since the law was changed in 2005 to allow schools with over 50% of their students participating in online courses to receive financial aid 215 people in 42 fraud rings have been convicted of financial aid fraud and have been ordered to repay $7.5 million in restitution and fees. However, since the Department of Education only prosecutes the ringleaders the scale of fraud is not accurately represented.
The biggest target for fraudulent financial aid applications is the federal Pell Grant program, which is why the scammers are often called “Pell runners.” The National Association of Student Financial Aid Administrators estimates that while the rate of improper Pell Grant payments is down from 3.12% in 2010 to 2.7% in 2011, the dollar amount has increased—from an estimated $600 million in 2010 to $1 billion in 2011. The Department of Education reports that even a 0.42% reduction in improper Pell Grant payments saves $300 million.
Fraud rings have not only been active in community colleges, they have also targeted some of the largest for-profit colleges. In May, 13 people pled guilty in a South Carolina Federal Court to engaging in a conspiracy that began in 2006 and caused $689,000 of financial aid funds to be fraudulently distributed to ineligible individuals enrolled in online programs at three of the nation’s largest for-profit colleges, including the University of Phoenix, reported the Charleston Post Courier.
Attempts to Combat Fraud
Apollo Group—parent company of for-profit college University of Phoenix—has identified more than 15,000 fraudulently enrolled students, mostly at its open enrollment institution Axia College. According to Inside Higher Ed the company has referred approximately 750 fraud rings to the Department of Education’s Inspector General, with the average ring involving 19 students.
Since 2008, when Apollo first became aware of the problem of fraudulent enrollment, the company has been on the frontlines of adapting to the problem. The evolution of the company’s practices has led to over 80% of students fraudulently enrolled at one of Apollo’s schools being caught before they receive financial aid, reports Inside Higher Ed.
USA Today reported that one of the most successful tactics Apollo Group has employed to combat fraud has been requiring new students to participate in a three-week orientation program. In addition to assessing new students’ college readiness the orientation course has the dual benefit of removing fraudulent students, who will have to complete the course in order to receive financial aid.
In an October 2011 Dear Colleague Letter the Department of Education encouraged schools throughout the country to follow Apollo Group’s lead and modify their financial aid disbursement policies to combat fraud. Amongst the leaders in combating financial aid fraud has been Rio Salado College in Arizona.
In 2009 65 individuals were indicted for participating in a student loan fraud ring that misappropriated nearly $540,000 from Rio Salado College. The fraud was perpetrated over 16 months, ranging from July 2006 to October 2007, reported the Arizona Republic.
To combat future financial aid fraud, Rio Salado College adopted a 16-point plan which includes enhanced training and heightened security procedures for the school’s financial aid department—staff use Google Earth to verify that buildings exist at the addresses students provide. Rio Salado’s plan also adds increased requirements for students and changes the way financial aid is distributed.
Previously the college distributed financial aid as a lump sum at the beginning of each semester; now the school distributes the funds incrementally throughout the academic term and the school waits two weeks before distributing the first payment.
Before they can receive their first financial aid check students have to complete an orientation course and, in order to continue receiving financial aid funds throughout the semester, students have to continually exhibit satisfactory academic performance.
While few schools are going as far as Rio Salado in their attempts to combat financial aid fraud, many are adopting some form of student verification procedure. According to USA Today, Des Moines Area Community College now requires all enrollees—including online students—to attend an in-person orientation and Lansing Community College delays disbursement of some aid for several weeks, and requires faculty to report the names of students who don’t come to class for the first two weeks.
Legislative Action: A Double-Edged Sword
Attempts to combat financial aid fraud have not been limited to policies at individual colleges. The Department of Education issued recommendations last fall advising schools to begin verifying student’ identities and start monitoring student information for instances of multiple admissions applications coming from the same IP and e-mail addresses.
The department also recommends that schools flag applications from students who “appear to reside in a geographic location that is anomalous to the location of most students in the program.” A recent Senate appropriations bill included one of the Department of Education’s statutory suggestions for combating financial aid fraud.
The proposed legislation, an omnibus appropriations bill for the Departments of Labor, Health and Human Services, and Education, contains a provision that prevents students taking online courses from claiming room and board and other miscellaneous personal expenses—like a computer—as part of the costs of attending college when applying for a Pell Grant.
While the proposed change left some observers initially confused, the recommendation for reducing federal aid to distance education students was included in the Department of Education’s Office of the Inspector General report as both a way to reduce refund checks to fraud rings and as a way to reduce the overall amount of debt students accrue while in college.
The inspector general’s report cites the case of one Rio Salado defendant who was able to secure $7,060 in financial aid despite taking classes that only cost $600 in tuition and fees. Some online education advocates find the proposed reductions in financial aid to online students an unnecessary overreaction.
In a written statement Christine Mullins, executive director of the Instructional Technology Council, an organization affiliated with the American Association of Community Colleges, described the proposed regulation as “patently discriminatory toward distance education students,” whom she characterized as no less needy “than traditional students.”
Russell Poulin, deputy director for research and analysis with the Western Interstate Commission for Higher Education, wrote that reducing the amount of financial aid distance education students receive as part of an effort to curtail fraud will unfairly penalize more of the innocent than the guilty, and is akin to “a bank stopping its online baking for all customers because a few used the internet to rob the bank.”
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