Department of Education Dear Colleague Letter Regarding Distance Education Fraud Rings
On Oct. 20, 2011, the Department of Education issued a Dear Colleague Letter which offers "an overview of the fraud schemes that the Department’s Inspector General (IG) detected, and recommends immediate steps that institutions can take to detect and prevent fraud."
"In this letter, we also describe further actions that institutions can take and that the Federal government is committed to taking, including increasing technical assistance to institutions of higher education, the convening of a Department-wide task force on distance education fraud, and plans for recommending legislative and regulatory changes to address the relevant issues." …
"The Inspector General's Report identified an increasing number of cases involving large, loosely affiliated groups of individuals (fraud rings) who conspire to defraud title IV programs through distance education programs. These fraud rings generally target institutions with low tuition in the context of distance education programs and involve a ringleader who:
- Obtains identifying information from straw students – individuals who willingly provide the information – including some who were incarcerated, by promising financial gain.
- Completes multiple financial aid applications using the information collected (name, Social Security number, date of birth, etc.).
- Applies for admission under the institution’s open admissions program, where little or no third-party documentation is required.
- Participates in the amount of on-line interaction necessary to establish participation in the academic program and secure disbursements under an institution’s procedures.
"Once the ringleader has submitted the Federal student financial aid application and completed enrollment at the institution, the institution draws down Federal student aid funds, deducts the institutional charges assessed the straw student, and disburses the credit balances to the straw student by check or debit card. Straw students then give a portion of the proceeds to the ringleaders while keeping the remaining portion. If needed to secure disbursements under an institution’s procedures, a ringleader may also participate as the straw student in sufficient academic work to appear to be an eligible student."
…"more needs to be done by all institutions to prevent, identify, and report suspected distance education fraud in the Federal student aid programs and enable the successful prosecution of offenders." …
"Detecting fraud before funds have been disbursed is the best way to combat this crime. We therefore seek the help of institutions and advise that you take the following additional actions to identify and prevent the kind of student aid fraud identified in the IG’s report:"
- Implement automated protocols that monitor information in your student information data system to identify instances where a number of students –
- Use the same Internet Protocol (IP) address to complete and submit an admissions application.
- Use the same IP address to participate in the on-line academic program.
- Use the same e-mail address to submit an admissions application.
- Use the same e-mail address to participate in the on-line academic program
- Appear to reside in a geographic location that is anomalous to the locations of most students in the program.
- Modify your disbursement rules for students participating exclusively in distance learning programs, which would immediately reduce the amount that fraud ring participants can receive. Institutions have the authority to:
- Delay disbursement of Title IV funds until the student has participated in the distance education program for a longer and more substantiated period of time (e.g., until an exam has been given, completed, and graded or a paper has been submitted).
- Make more frequent disbursements of Title IV funds so that not all of the payment period’s award is disbursed at the beginning of the period.
…"The Department is taking this issue very seriously and has established a Department-wide anti-fraud ring task force, chaired by Jeff Baker, Director, Policy Liaison and Implementation in Federal Student Aid, to address the issues raised in the IG’s report as well as emerging future threats. If you have comments and suggestions that you believe will help us address fraud rings or have specific concerns that do not rise to a level that you believe appropriate to refer to the IG, please contact the task force at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or call 202-377-4340."
"Finally, we have added sessions to the upcoming FSA Conference in Las Vegas scheduled for November 29-December 2, 2011, to more fully discuss the IG report and possible institutional responses. We plan to release additional guidance after those sessions and will also consider suggestions for additional statutory and regulatory changes to help institutions combat fraud and protect students and taxpayers from fraudulent activity."
Sincerely,
James W. Runcie, Chief Operating Officer, Federal Student Aid, and
Eduardo M. Ochoa, Assistant Secretary for Postsecondary Education
U.S. Department of Education
Investigative Program Advisory Report
Office of the Inspector General, U.S. Department of Education
The Department of Education does need to stop the abuse and fraud that is taking place with respect to the distance education fraud rings. Community colleges are also concerned about this fraud and, I am sure, will take all of the necessary steps to help reign it in and prevent it from occurring. However, the Inspector General made the following recommendations to reign in this abuse:
- Where will colleges store this information? How will they maintain student privacy and proper security for this data, should it be collected?
- This proposed regulation would be patently discriminatory toward distance education students, for no good reason other than to reduce the amount of money awarded to needy students. Most distance learning students take courses at a distance because they need to - because they are working during normal class hours, they live too far from campus, they are taking care of their children or other family members at home, they are disabled, or because the course they need to graduate is offered at a time that conflicts with another class.
- The fact that these students are learning at a distance does not mean they are any less needy than traditional students - most are working and trying to make ends meet just like any other student. Traditional face-to-face students could be living with their parents or have their house paid off. Regardless of the format in which they learn - most community college students are working adults and should have the opportunity to apply for student financial aid.
For example:
- Many institutions require instructors to take "attendance" for the first two weeks of class. Instructors do this in an online environment by requiring students to login to the learning management system, post assignments, and participate in class discussions.
- Many institutions don't release financial aid funds to students until after first two weeks completed
- At many institutions, faculty are required to report on active participation for sixty percent of the semester, student is withdrawn if he or she is not participating
- Students have to complete 67 percent of the courses attempted to make Satisfactory Academic Progress or SAP, i.e. withdrawing from too many courses will affect their ability to collect financial aid
- Many online courses require students to show a photo id to take a proctored mid term and final. Proctored exams are usually held at the discretion of the instructor. So for example, instructors will ask students to take tests in a proctored environment in an multiple choice test or if cheating is easier, such as in a math class.
- ITC polled its members and found that 97.9 percent of students are required to use a login and password to access their course material - in accordance with the regulations the Department of Education imposed in accordance with the reauthorization of the Higher Education Opportunities Act in 2008.
Christine Mullins
Executive Director
Instructional Technology Council
Articles in the Press on this Issue
As Online Courses Grow, So Does Financial Aid Fraud - by Tamar Lewin, Oct. 13, 2011, New York Times
Hitting Hard on Fraud - by Paul Fain, Oct. 11, 2011, Inside Higher Ed
Fraud and Online Learning - Editorial, Oct. 5, 2011, New York Times
Thieves Scam Aid From Online Education Sites - by Larry Abramson, Oct. 5. 2011, National Public Radio
Lawmakers Call for Crackdown on Student-Aid Fraud in Online Programs - by Kelly Field, Sept. 28, 2011, Chronicle of Higher Education
State Authorization for Institutions that Offer Distance Education to Out-of-State Students
On July 12, 2011, the U.S. District Court for the District of Columbia struck down the Department of Education's Oct. 20, 2010 regulation that higher education institutions must obtain state authorization to legally offer distance or correspondence courses to students in a state in which it is not physically located, i.e. out-of-state students. The ruling came in response to a lawsuit the Association of Private Sector Colleges and Universities filed in January on behalf of the for-profit colleges it represents.
On Sept. 8, 2011, the U.S. Department of Education submitted the necessary paperwork to the U.S. Court of Appeals to petition Judge Collyer's District of Columbia District Circuit Court decision. Since Judge Collyer "vacated" the Department's Oct. 20, 2010 regulation on proceedural grounds, the Department could issue a Notice of Proposed Rulemaking (NPRM) to rectify it. Higher education institutions would be granted the appropriate opportunity to submit their comments on the proposed regulation. Note that Judge Collyer let stand other "program integrity" rules to which the for-profit colleges had objected—"those that effectively bar incentive compensation for recruiters, and that hold colleges accountable if they misrepresent their programs and results."
The Department's proposed Oct. 20, 2010 regulation raised awareness among states about the variety and scope of out-of-state distance education programs and alerted them to the fact that they can legally make higher education institutions obtain authorization to teach the students who reside in their states—online or by any other means. Many are scrambling to get their regulations for out-of-state distance education institutions in order.
Many states require institutional authorization for each out-of-state college that has a point of presence within its borders. Unfortunately, most have divergent definitions for what constitutes "presence"—it could be triggered when the out-of-state institution advertises its online courses to its residents, employs instructors, offers online courses to more than one state resident, offers in-state clinical internships, has a recruitment office, or contracts with a local college to provide online students with library access. State laws and regulations can be confusing. For example, in which states do military students reside if they are stationed abroad? What about students who move during the academic year? What happens if the state office ignores an institution’s request? States can act as they see fit, and institutions must, as always, comply with state law.
Many colleges are taking a wait-and-see approach. If your college decides to pursue state approvals, the State Higher Education Executive Officers (SHEEO) has created several directories they are regularly updating to help institutions. These include a state-by-state summary of regulations and fees and a state-by-state contact list of state regulators to obtain approval from states in which your out-of-state online students reside. See below.
ITC is concerned that these restrictions—however well–intentioned they might be to increase state and institutional accountablity to students—could hamper the distance education efforts at legitimate, accredited community colleges. The result could limit distance education opportunities for students—especially for those students who reside in states that have few distance learners—because instititions determine it is too costly or labor intensive to obtain the necessary state authorizations to teach them online.
The good news is that the Council of State Governments, and various regional groups such as the Southern Regional Education Board, have created working groups to draft reciprocity agreements or inter-state compacts among states—so institutions do not have to apply to 50 different states for approval, and each state doesn't receive approval requests from 3,000 different higher education institutions. Once the compact language is drafted during the 2012 year, state legislatures will be invited to sign onto or adopt the reciprocity agreement which would become effective in that particular state.
Please take a look at their draft agreement here! It was just releases on April 27, 2012 and they are asking for your review and comments.
ITC will keep you informed about any developments! Thank you goes to David Baime, senior vice president for government relations and research at the American Association of Community Colleges, for helping stay abreast of the twists and turns on this issue! Stay tuned!
Christine Mullins
Executive Director
Instructional Technology Council
What Should Distance Education Institutions Do?
Institutions should consult legal counsel as to their next steps, in light of the U.S. District Court for the District of Columbia's July 12, 2011 decision. Should they continue to seek authorization from every state in which they have correspondence or online students? Should they wait to receive notice from the appropriate state agencies before they take the necessary steps to obtain the proper authorization? Due to increased awareness about their legal right to demand authorization from out-of-state institutions that teach their constituents, many states will probably require higher education institutions to obtain the proper authorizations even though they haven't required them in the past. Other states could decide they lack the necessary resources to implement any new procedures or follow up with colleges that don't comply. Every state will be different.
Student Complaint Process: Institutions Must Make Documents Available
The Department of Education imposed a new regulation that came into effect on July 1, 2011 - that affects student financial aid for online and face-to-face learning. This regulation was not "vacated" or over-ruled by the U.S. District Court's on July 12, 2011.
- Institutions must make their accreditation status, and documents that demonstrate their state, federal or tribal approval or licensing, available to students on request.
- Institutions must also "provide its students or prospective students with contact information for filing complaints with its accreditor and with its State approval or licensing entity and any other relevant State official or agency that would appropriately handle a student’s complaint."
§ 668.43 (b) Institutional Information
(b) The institution must make available for review to any enrolled or prospective student upon request, a copy of the documents describing the institution’s accreditation and its State, Federal, or tribal approval or licensing. The institution must also provide its students or prospective students with contact information for filing complaints with its accreditor and with its State approval or licensing entity and any other relevant State official or agency that would appropriately handle a student’s complaint. - Electronic Code of Federal Regulations
SHEEO Link to State-by-State Directory of Web sites for Student Complaint Processes - updated on July 12, 2011. The U.S. Department of Education has stated that linking to the entire SHEEO list is not acceptable. Each institution needs to provide the information directly to current and prospective students. (SHEEO warns that their state-by-state list is provided for advisory purposes and that each institution is responsible for verifying their information.)
Examples of College and University Web sites:
Loraine County Community College
Oregon State University Extended Campus
State Authorization Resources
On May 19, 2011, the State Higher Education Executive Officers (SHEEO) released its updated state-by-state summary of regulations and fees, and a state-by-state contact list of state regulators to obtain approval from states in which your out-of-state online students reside.
Here are the links on the SHEEO Web site:
State Authorization Resources and Directory
State Authorization - State Agency Responses - Version 1.0 Released Sept. 2, 2011
Distance Education and State Regulation - Fees Summary, by State (.pdf)
Updated June 9, 2011
Links to Student Complaint Process, by State (.pdf)
Updated May 24, 2011
Preliminary Contact List of State Regulators (.pdf)
Updated June 9, 2011
Several states (and statewide distance learning organizations) are looking to establish reciprocity agreements – so each will recognize the distance educational courses/programs in each other’s states. In October 2010, the Lumina Foundation awarded a $300,000 grant to the President's Forum, which based at Excelsior College in Albany, NY, to lead a task force of regulators and regionally accredited institutions offering online degree programs to explore the potential for reciprocal agreements that lead to greater acceptance of other states’ regulatory decisions. The terms of the grant are through September 2012. See the press release.
Additional ResourcesState Authorization for Institutions Offering Distance Education to Out-of-State Students
Jan. 25, 2011, Overview Article by Christine Mullins, executive director, Instructional Technology Council
ACE, Other Groups Ask Department of Education to Rescind State Authorization Rule
March 2, 2011, American Council on Education
ACE and 59 higher education and accrediting organizations sent a letter Wednesday to the Department of Education asking Sec. Arne Duncan to rescind the so-called state authorization regulation released in October as part of the final package of program integrity rules.
'Breathing Room' on State Authorization
April 21, 2011, Article by Doug Lederman, Inside Higher Ed. “The Education Department did not go nearly as far as college leaders would have liked in backing away from a new rule requiring colleges to get approval from every state in which they operate distance education programs. But in announcing Tuesday that, for the next three years, the agency would not meaningfully punish institutions that have shown "good faith" efforts to get such approval, the federal government sought to provide some additional latitude, its officials say.”
Clarifying New Federal Regulations on State Authorization of Distance Education
Dec. 7, 2010. Webinar in which presenter Fred Sellers, Senior Policy Analyst, U.S. Department of Education, explains the background and provides an overview of this new regulation. Sponsored by WCET.
See Fred Sellers' Presentation Slides
Educause – Information Web site
Electronic Campus - Southern Regional Educational Board – Information Web site
Sample Overview Information Sheet. Sue Day‐Perroots from West Virginia University shared a document that SREB believes is a good idea for colleges to create when it applies for out-of-state authorization. It essentially creates an information sheet about the institution and its online programming with specific information on the format of the programs. WVU intends to share this with states in which it is enrolling students when it contacts them for approval.
SREB has submitted a proposed 16-state reciprocal 'free trade zone' arrangement to the Department of Education for review. "No action has been taken and likely won’t while legal actions are underway (not by us) challenging the new regulations. We believe the ‘free trade zone’ meets the spirit of the new regulations. But until we have that approval from federal representatives, we believe institutions need to prepare to satisfy the new requirements," Bruce Chaloux, director of the Electronic Campus of the Southern Regional Education Board.
H.R. 2117, the Protecting Academic Freedom in Higher Education Act.
On June 15, 2011, the House Committee on Education and the Workforce passed H.R. 2117, a bill Congresswoman Virginia Foxx (NC-05) sponsored to bar the Department of Education from implementing this regulation that requires institutions to obtain state authorization to offer distance education courses to out-of-state students. The full House will vote on this legislation next, followed by the relevant committees in the U.S. Senate.
The American Council on Education, American Association of Community Colleges, and other educational associations, thanked Ms. Fox on Friday, June 10, 2011 for introducing this legislation.
Possible Setback for Program Integrity Rules by Libby A. Nelson, June 16, 2011, Inside Higher Ed
Notes from the House Education and the Workforce Committee Mark-Up, June 15, 2011
House Panel Votes to Repeal 'Credit Hour' and 'State Authorization' Rules, June 15, 2011, by Armando Montaño, Chronicle of Higher Ed.
No Going Back, June 24, 2011, by Libby A. Nelson, Inside Higher Ed
National Association of College and University Business Officers – Information Web site
Ohio Learning Network – Information Web site
Online Learning Across State Borders
January 2011. For a free copy of this Eduventures report contact Blair Maloney at
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
or 617-532-6063.
Oregon State University – Information Web site
"In an effort to address compliance with the US Department of Education’s Program Integrity rules pursuant to the revised Higher Education Act, OSU has prepared state-by-state documents summarizing information we have gathered regarding individual state’s regulatory environments."
SHEEO - State Authorization Resources and Directory
Distance Education and State Regulation - Fees Summary, by State (.pdf)
Updated June 9, 2011
Links to Student Complaint Process, by State (.pdf)
Updated May 24, 2011
Preliminary Contact List of State Regulators (.pdf)
Updated June 9, 2011
State Authorization Resources and Directory - April 21, 2011 Press Release
The Federalization of Higher Education?
March 28, 2011, Comments by Paul Lingenfelter, President, State Higher Education Executive Officers
The State of State Regulation of Cross-Border Postsecondary Education: A Survey and Report on the Bases for the Assertion of State Authority to Regulate Distance Learning
2006 by Michael B. Goldstein, Aaron D. Lacey and Nicholas S. Janiga, Dow, Lohnes and Albertson
'State Authorization' Struck Down
July 13, 2011, Article by Doug Lederman, IInside Higher Ed
"Late Tuesday colleges and universities got at least a temporary reprieve from the part of the rule to which they most object—its application to online programs in which even one student from a state enrolls. A federal judge voided that part of the regulation in a ruling that otherwise upheld rules the department crafted over the past 18 months to try to protect the integrity of federal financial aid programs." . . .
State Authorization Reciprocity Agreement April, 2012 -- Working Draft
The States of Online Regulation
Jan. 21, 2011, Article by Steve Kolowich, Inside Higher Ed
University of Massachusetts - Information Web Site
UMassOnline has compiled a list of contacts for state agencies that regulate higher education. This is the list that UMassOnline used while sending the official inquiry letter.
University System of Georgia Alert to Members
Sample Authorization Request Letter – from Dr. Lynda Noble, Associate Vice Chancellor for Faculty Affairs, Board of Regents, University System of Georgia
U.S. Department of Education Regulation
Oct. 29, 2010 “If an institution is offering postsecondary education through distance or correspondence education to students in a State in which it is not physically located, the institution must meet any State requirements for it to be legally offering postsecondary distance or correspondence education in that State. We are further providing that an institution must be able to document upon request by the Department that it has the applicable State approval.” Amendments to the Higher Education Act, Program Integrity Issues, State Authorization, Section §600.9
U.S. Department of Education’s – First Dear Colleague Letter
May 17, 2011
U.S. Department of Education – Second Dear Colleague Letter
April 20, 2011
U.S. District Court for the District of Columbia
July 12, 2011. Decision to strike down the regulation that higher education institutions must obtain state authorization to legally offer distance or correspondence courses to students in a state in which it is not physically located, i.e. out-of-state students.
WCET Web Site for Additional Resources
Broadband Access
ITC is a member of the Schools, Health and Libraries Broadband Coalition whose mission is to improve the broadband capabilities of schools, libraries and health care providers so that they can enhance the quality and availability of the essential services they provide to the public and serve underserved and unserved populations more effectively. Connecting these anchor institutions with high-capacity broadband will generally provide the greatest benefits to those people who need it most – rural, low-income, disabled, elderly, societally and economically disadvantaged, and other unserved and underserved segments of the population. Building high-capacity broadband to these anchor institutions will also create jobs. Whether it is laying fiber optic cable or constructing antennas to provide high-bandwidth wireless capabilities, these investments in our future will provide thousands of American workers with high-tech employment.
On Jan. 27, 2010, ITC submitted comments to the Federal Communications Commission (FCC) stating that community colleges and universities need high-speed, high-capacity access to the Internet. The FCC sought public comment for its soon-to-be-released National Broadband Plan "that seeks to ensure that every American has access to broadband capability and establishes clear benchmarks for meeting that goal." ITC wrote, "higher education institutions need bandwidth that is far greater than the bandwidth needed by individual households; they need high-speed, high-capacity broadband capabilities to provide robust, quality, instructional programming, in an online environment, to their students who might be located in rural areas, working adults, caregivers, disabled, returning veterans, or simply students who want to earn their educational credentials to expand their job skills, educational and career opportunities."
On July 13, 2011, ITC submitted comments to the FCC regarding the proposed Connect America Fund. The National Broadband plan recommends the FCC "replace all of the legacy High-Cost programs with a new program that preserves the connectivity that Americans have today and advances universal broadband in the 21st century. CAF will enable all U.S. households to access a network that is capable of providing both high-quality voice-grade service and broadband that satisfies the National Broadband Availability Target." ITC asked the FCC to consider broadening its focus beyond providing broadband services to residential consumers to include affordable, high-capacity broadband for community colleges and universities, libraries and other anchor institutions.
 ITC Comments to FCC re Connect America Fund - July 2011 | [ ] | 57 Kb |
| ITC Comments to FCC re National Broadband Plan - January 2010 | [ ] | 241 Kb |
US UCAN - In July 2010, the NTIA’s BTOP grant program awarded US UCAN $62.5 million to create a national advanced network infrastructure to help connect “America's community anchor institutions − schools, libraries, community colleges, health centers and public safety organizations − to support advanced applications not possible with today's typical Internet service." The grant recipients have a short timeframe (one to three years) to show Congress that broadband networks and individual connections at anchor institutions can enhance opportunities for student learning, workforce development and other community initiatives.
The leaders of the US UCAN project invite community colleges to get involved in this ambitious undertaking. David Lambert, executive director, said US UCAN is looking to support local and regional broadband projects that are “technically coherent, offer cost-effective business models, work with regional networks, and are executable, seamless, and sustainable.” He has quoted Blair Levin, author of the FCC’s Broadband Plan, in saying that US UCAN aims to foster, “a community of sophisticated buyers” for broadband services.
Broadband Technology Opportunities Program (BTOP)
Student Authentication and the Higher Education Opportunity Act
The Higher Education Opportunity Act (Public Law 110-315) (HEOA) was enacted on August 14, 2008, and reauthorizes the Higher Education Act of 1965. ITC informed members about the language in the Act which addressed the issue of how institutions authenticate their distance learning students. The legislation could have imposed costly and unwieldy regulations on the distance learning operations at community colleges. AACC and ITC were able to convince the negotiated rule-making committee to approve language that gives colleges the authority to choose the best process or technology for authenticating distance learning students. The rules give colleges a safe harbor – institutions can safely use a secure login and pass code to authenticate students, a method most colleges already use. In October 2009 the Department of Education released its final regulations which addressed this issue.
Higher Education Opportunities Act Final Regulations
602.17 Application of standards in reaching an accreditation decision.
(g) Requires institutions that offer distance education or correspondence education to have processes in place through which the institution establishes that the student who registers in a distance education or correspondence education course or program is the same student who participates in and completes the course or program and receives the academic credit. The agency meets this requirement if it—
(1) Requires institutions to verify the identity of a student who participates in class or coursework by using, at the option of the institution, methods such as—
(i) A secure login and pass code;
(ii) proctored examinations; and
(iii) New or other technologies and practices that are effective in verifying student identification;
(2) Makes clear in writing that institutions must use processes that protect student privacy and notify students of projected additional student charges associated with verification of student identity, if any, at the time of registration or enrollment.
Best Practice Strategies to Promote Academic Integrity in Online Education
This list of best practice strategies is based on “Institutional Policies/Practices and Course Design Strategies to Promote Academic Integrity in Online Education,” produced by WCET in February 2009 and updated in April 2009. In May 2009, the Instructional Technology Council (ITC) surveyed its membership to invite feedback and additional strategies to enhance the WCET work. This June 2009 document reflects the combined contributions of WCET, the UT TeleCampus of the University of Texas System, and ITC. This work is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States license.
