Ed Yourdon/Flickr
The explosion of online college course offerings and online financial aid transactions has created a substantial risk of fraud – and regulators should craft new rules to clamp down on theft, according to a new report from the U.S. Department of Education Office of Inspector General.
The report [PDF] reveals that the inspector general has opened a growing number of investigations into financial aid fraud rings in which the leaders enroll dozens or even hundreds of “straw” students in college courses, using their Social Security numbers either with their permission or through identity theft.
The ringleaders then apply for federal aid for all the straw students and reap thousands of dollars in Pell grants and subsidized loans – all for people who never attend a single class.
In some cases, swindlers enrolled incarcerated inmates in online classes, converting federal financial aid checks into money orders sent to the inmates in prison. The Department of Education does not have a data-matching agreement with the Department of Justice for its Bureau of Prisons.
The number of fraud ring investigations opened by the office has increased from 16 in 2005 to 100 this year. Since 2005, the office’s investigations have resulted in orders for $7.5 million in restitution and fines. That’s 42 fraud rings and 215 fraudsters. It’s just a small slice of the total fraud, though, because the office says it doesn’t have the resources to prosecute all of the people who participate in these schemes.
Help us do more.
Just two years ago, officials at the Los Rios Community College District in Sacramento uncovered a fraud ring when they discovered 54 people enrolled at American River College had the same addresses, the same course enrollments and had all failed or withdrawn from class, according to the complaint.
The ringleader in the case, Nakesha Sharrieff, fraudulently applied for federal financial aid for more than 60 people, most of whom participated willingly by providing their personal information, according to the plea agreement.
Sharrieff pleaded guilty in February to mail fraud and aggravated identity theft and was sentenced in May to five years and 10 months in prison, three years of supervised release and $234,515 in restitution. She was the fourth defendant to plead guilty in the case.
The inspector general’s report said fraud rings primarily target community colleges and other institutions that have open enrollment, online classes and low tuition. That’s because students can avoid admissions requirements and they can maximize their payout.
Financial aid funds are intended to cover not just students’ tuition, but also other education-related expenses, such as books, housing and transportation. At the California Community Colleges, low-income students qualify for fee waivers – meaning fraudsters could pocket the entire financial aid check without spending any on tuition.
Colleges are not required to confirm the identities of students who apply for federal financial aid, and particularly for online programs and classes, they may never require a student’s physical presence.
“There’s no real need for students to come to the college campuses,” said Roy Beckhorn, director of financial aid systems for the Los Rios Community College District. “That’s a great resource for the students. And most of our students are using this access in a very responsible way. It does open that door for those who have the desire to do fraudulent applications.”
Beckhorn didn't want to disclose specifics on how Los Rios tries to identify potential fraud, but he said the district has developed built-in processes for catching such schemes.
"The key to it was the communication between the departments and when something looks suspicious to actually act upon it," Beckhorn said.
The federal government flags a certain number of financial aid applications for verification, which requires that colleges make sure a student’s application information is correct. But Beckhorn said savvy fraudsters know how to avoid setting off any of the triggers that would require such verification.
And colleges work hard to distribute financial aid to students within the first week of classes to make sure students can cover their educational expenses. That means cheaters can cash the checks without ever showing up to class.
Beckhorn said Los Rios makes a point to verify that students who received financial aid actually stayed in their classes. If they didn’t, the college demands repayment of aid. Students who don’t pay within 45 days are reported to the federal government and are not supposed to be eligible for further aid, he said.
But not all colleges do the same, and the federal government does not require it. So in some cases at other colleges, cheaters can become repeat offenders.
Among several recommendations, the inspector general’s report proposes that the Department of Education seek a data-matching agreement with the Department of Justice for its Bureau of Prisons.
The report also recommends requiring that online-only colleges verify student identities. It's unclear how many institutions such a requirement would affect; the Department of Education does not track exclusively online institutions in that way, a spokeswoman said.
That proposal would not affect the Los Rios Community College District, but Beckhorn expressed reservations about the underlying concept.
“It’s a large workload to say you want to check the identity of every student,” he said. “You would slow down the financial aid process if you’re checking on everybody. I think there’s better ways to do that than to put that on the college itself.”
Meanwhile, a spokeswoman for the Department of Education said a special task force on financial aid fraud is working to identify steps it can take immediately to cut down on these schemes. These discussions have focused on possible changes to the federal financial aid process, she said.
Comments
via Twitter