Hitting Hard on Fraud

A fast-moving effort by the U.S. Education Department to crack down on financial aid fraud faces a common dilemma in higher education: how to protect the integrity of government aid coffers without harming students.

Fraud rings that use "straw students" to pilfer federal financial aid are a growing problem, particularly in online programs at largely open-access community colleges and for-profit institutions. But proposed regulatory fixes, even if well-meaning, could create layers of red tape for colleges and make it harder for some students to receive financial aid.

"It’s a balancing act," said Evan Montague, dean of students for Lansing Community College. Montague said the fraud rings are a threat, but that his college has adequate safeguards in place, thanks to a recent upgrade. He worries that the proposed federal policies would be an added "regulatory burden."

The department’s Office of the Inspector General has seen a dramatic increase in online education scams, according to a report released last month. The crimes typically feature a ringleader and phony students who enroll, receive federal aid and split the proceeds with the ringleader. Community colleges may be targeted more often than for-profits because they typically charge less in tuition, leaving more of a leftover aid balance for thieves to pocket.

Federal investigators have busted 42 fraud rings since 2005, resulting in $7.5 million in fines against the perpetrators, who range from savvy identity thieves with multiple aliases to illiterate straw students. But that’s just the tip of the iceberg, according to the report, and the department lacks the resources to pursue most of the cases it receives. Investigators were working on 49 new complaints about fraud rings as of August.

The rings first became a problem for the Apollo Group in 2008, said James Berg, Apollo’s vice president for ethics and compliance. Since then the company has identified over 15,000 fraudulent students, many of whom enrolled at its Axia College, an open enrollment institution. Apollo has referred about 750 fraud rings to the inspector general, with the average scheme the company has uncovered involving 19 students.

The report from the inspector general features nine recommendations to make it harder for fraudsters. They include requirements for colleges to confirm students’ identities and collect and retain their computer IP addresses, as well as a proposed statutory change to the cost of attendance calculation for students enrolled in online programs, which would limit federal aid payments for room and board, and for “other costs that distance education programs do not incur.”

Federal regulators, department officials and the Republican and Democratic leaders of the U.S. House of Representatives’ Committee on Education and the Workforce have weighed in with letters, urging quick action on the report. The department has formed a task force to create a “final corrective action plan” by November 10. Sara Gast, a department spokeswoman, said the task force would work closely with colleges to iron out the details of any possible new rules.

“The team is continuing to identify what actions can be undertaken swiftly that will have the most impact on curbing fraudulent practices,” Gast said in a statement, adding that the task force “is specifically looking at what steps in the student aid application process and systems changes could be implemented to flag potential fraudulent activity.”

Berg said Apollo devotes substantial resources to combating the rings, including employee training programs. Apollo’s "fraud squad" has improved what Berg calls its "catch rate," which refers to the percentage of phony students they can identify before the students receive federal aid. That rate was over 80 percent last month, Berg said. Apollo has regular meetings with staff from the inspector general’s office, which has studied the company’s fraud-prevention techniques.

"We’ve got antennae out there," said Berg, adding that "this is an industrywide issue."

Click through for full article text.


Leave a Reply

Be the First to Comment!

Notify of