Online education programs at community colleges and for-profit schools have "serious" vulnerability to financial-aid fraud rings, which have become a growing problem, according to letter by a government watchdog agency made public on Thursday.
The federal letter mentions a "recent" fraud ring at Tempe-based Rio Salado College that led to 64 people indicted, convicted and sentenced for their part in a $538,000 financial-aid scam. No further details were available.
Corporate representatives for the U.S.’ largest for-profit school, University of Phoenix, say that they already have aggressive-fraud detection measures in place and that it works closely with federal officials. An analyst said it was unclear what long-term impact the issue would have on other schools in the industry but said there may be indirect costs if companies must ramp up monitoring.
While the Department of Education’s Office of the Inspector General opened 16 distance-learning fraud-ring investigations in 2005, that swelled to 100 in August, according to a letter dated Monday and made public Thursday.
Since 2005, 215 fraud-ring participants have been convicted of criminal charges.
The Office of the Inspector General called for several changes to root out the problem. They range from requiring schools to take more steps to verify students’ identities, to reducing student aid awards and working with law-enforcement agencies to prevent aid scammers from using prison inmates’ identities.
At issue is taxpayer-funded federal financial aid, grants and loans known as Title IV funds, that help students pay for education expenses.
Usually a fraud operation’s ringleader will enroll one or two "straw" students in a distance-education program in exchange for a portion of the financial-aid award.
Apollo Group, parent company for the University of Phoenix, flags suspicious students during the enrollment process and has referred "hundreds" of alleged fraud cases to the Department of Education, said James Berg, an Apollo vice president who handles ethics and compliance issues.
Those steps have helped decrease the number of suspected fraud cases, which has averaged from 600 to 700 a month for the past two years. In recent months, that number has fallen to less than 400 a month, he said. University of Phoenix has nearly 400,000 students.
Officials at Phoenix-based Grand Canyon Education, parent of Grand Canyon University, could not be reached.
An analyst said that the fraud problem likely involves a small number of students, but it could impact for-profit schools because of higher expenses for monitoring or they may feel the sting of additional bad publicity.
"Indirectly, it could cost the for-profit players, even the better ones," said analyst Peter Wahlstrom of Morningstar.