Gov’t: Feds Struggling With Title IV Financial Aid Fraud

Reuters reports that the U.S. Department of Education Office of Inspector General recently released a study that uncovered serious cases of fraud committed by students at distance learning institutions such as for-profit colleges that mostly offer online courses.

During its investigation, the OIG identified loosely-affiliated groups of students who attempted to gain access to the Title IV loans without undergoing any kind of identity verification.

The OIG asked the department to require colleges to confirm student identity before disbursing funds and collect IP information for the students enrolling in online programs.

The OIG report, which was called “Distance Education Fraud Rings”, found that the Office of Federal Student Aid and the Office of Postsecondary Education were at risk from students at online-only courses. Although the eligibility requirements for the Title IV loans include being a high school graduate and enrolling in an eligible institution for the purposes of obtaining a degree, the investigation found that many who perpetrated the fraud failed to meet this requirement.

Many also did not have a high school diploma or its recognized equivalent. Lastly, some fraud rings have enrolled incarcerated inmates who are ineligible to receive Title IV funds under 34 C.F.R. 668.32(c).

The OIG had been specifically investigating fraud taking place in education programs that delivered classes exclusively through the Internet. Since Title IV programs were designed to distribute aid to schools where students are present and learning on site, its oversight setup wasn’t able to cope with the new paradigm. Since distance colleges and universities are not required to verify the identity of the students who receive the financial aid, nor do administrators expect to meet with their students face-to-face, this opens up an opportunity for fraudsters to use their own, or even stolen, identities to claim federal student aid.

Peter Walhstrom, an analyst for Morningstar, said that the new regulations will put a large financial and regulatory burden on the for-profit schools since they’ll be required to invest in ways to monitor and screen out potential fraud. If the government decides to lower the amount disbursed to online-only schools, that might also force them to charge higher tuition.