Crime Rings That Focus on Grants and Student Loans Detailed in Ed. Dept. Report

Crime rings that defraud the federal government of financial aid, including federal grants and federal student loans, have increased dramatically in recent years, according to a report released last week.

The report, "Distance Education Fraud Rings," but the U.S. Department of Education's Office of Inspector General, found that fraud-ring investigations — some of which involve over 400 participants — now account for about 17 percent of all cases under investigation by the inspector general's office.

Financial aid fraud rings are typically composed of one or more "ringleaders" who recruit "straw students" for their personal information, including social security numbers. The ringleaders then enroll the straw students in college courses, then pay for the courses with the ill-gotten grants and student loans. The straw borrowers, who have no intention of ever attending a class, pocket whatever is left over and give a cut to the ringleaders.

The fraud rings often target distance education programs provided by low-cost community colleges that allow ringleaders to maximize the refund the straw students receive after paying tuition.

According to the inspector general’s report, since 2005, 215 participants in 42 separate financial aid fraud rings have been convicted and $7.5 million in fraudulently-obtained student aid ordered returned to the federal treasury (“Lawmakers Call for Crackdown on Student-Aid Fraud in Online Programs,” The Chronicle of Higher Education, Sept. 28, 2011).

In response to the report, the top Democrats on the U.S. House of Representatives education committee wrote a letter Friday to Secretary of Education Arne Duncan urging the Education Department to “take swift action to address the issues identified in this report and ensure that the unique risks associated with distance education programs be appropriately anticipated and managed to protect the integrity of student assistance programs and the investment of taxpayer dollars.”

The letter, by Reps. George Miller of California and Rubén E. Hinojosa of Texas, also asked for “more information and regular updates” on the progress of an intradepartmental group established to combat online financial aid fraud rings.

The inspector general’s report includes several recommendations to strengthen the department’s defenses against fraud, including improving student identity verification and improving system processes for handling data.

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