A federal investigation into fraudulent grant and loan applications could affect two-year colleges more than universities. As reported earlier, organized fraud rings have been using phantom distance education students to apply for financial aid. These individuals have no intention of attending school, but take the money and run.
The reason community colleges are attractive targets is because two-year college tuition is cheaper.
Under current rules, students are allowed to spend any leftover money after tuition and fees are paid on living expenses. Therefore, the cheaper the tuition, the more lucrative the scam. Reportedly, university groups are urging federal authorities to clamp down by insisting that all aid money be used for fees directly paid to the institution. Hypothetically this would make the scams less attractive, but might also reduce opportunity for needy students who are better off at a community college for a host of reasons.
The fraud is more prevalent now because of the expansion of distance education in recent years. It's easier to pull off now than it used to be.
Here's how the scam works, according to the official federal report:
Fraud rings generally are comprised of one or more ringleaders who facilitate enrolling "straw students" in distance education programs in exchange for receiving a portion of the Title IV funds that the institution disburses to the straw students. Straw students willingly provide their identities to fraudulently obtain Title IV funds and enroll in on-line programs at eligible institutions. Some of the larger eases DIG has investigated involve recruiters who bring in additional straw students and a portion of the Title IV funds goes to both the recruiter and the ringleader for their personal use.
Because Title IV applicants and enrollees are not required to have their identities confirmed, and because institutions do not always otherwise verify students' identities for their own purposes, ringleaders with access to a computer and the Internet can apply for Title IV funds at institutions around the country using the identities of multiple straw students.
Fraud ring participants exploit the Department's Title IV application systems, which are designed to encourage electronic access to Title IV assistance. The Department provides personal identification numbers (PINs) used to sign the federal Application for Financial Student Assistance (FAFSA) and student loan promissory notes, as well as to access accounts online, in response to any online submission of a valid name, date of birth, and Social Security number (SSN). 3 The Department delivers PINs electronically to any specified email address (previously the Department required PINs to be mailed to a permanent address on record, a security precaution frequently utilized for bank ATM cards). Because valid SSNs are used, and the straw students arc not currently in default, the applications from the fraud rings satisfy edits and matches in the Department's Central Processing System (CPS), resulting in issuance of Institutional Student Information Records (lSIRs). The ISIRS are utilized by institutions to award Title IV funds.
Comments