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Financial Aid Fraud Rings

Student Authentication and the Higher Education Opportunity Act

State Authorization for Institutions that Offer Distance Education to Out-of-State Students

Best Practice Strategies to Promote Academic Integrity in Online Education

Broadband Access

Financial Aid Fraud Rings

On February 14, 2014, the Office of the Inspector General for the U.S. Department of Education (OIG) released the report, "Title IV of the Higher Education Act Programs: Additional Safeguards are Needed to Help Mitigate the Risks that are Unique to the Distance Education Environment." In this final report, the OIG requires the Department to develop and implement a “corrective action plan” (CAP) within 30 days (by March 14, 2014) that addresses student financial aid fraud, with a particular focus on distance education.  The CAP must “set forth specific action items, and targeted completion dates, necessary to implement final corrective actions on the findings and recommendations contained in this final audit report.

”This “corrective action plan” (CAP) could recommend costly and unfair regulations on distance education programs at colleges and universities, which the OIG states “is the fastest growing segment of higher education and creates unique oversight challenges and increases the risk of school noncompliance with the law and regulations.  Distance education also creates new opportunities for fraud, abuse, and waste in the Title IV programs.”

The report recommends the Department of Education:

1. “Develop regulations that require schools to verify the identity of all distance education students at the time of enrollment.” Colleges currently only need to authenticate students by ensuring they use a secure login and passcode.  The OIG proposes requiring colleges obtain from students, “proof of name, high school diploma, educational transcripts, or college admission test scores” to “help corroborate identity and ensure the student intends to obtain an education.”

The OIG also proposes having “independent public accountants, not accrediting agencies, to assess the effectiveness of schools’ processes for verifying a student’s identity.”  This would be part of the “annual compliance audit.”

2. “Amend the regulations to require more frequent disbursements of Title IV funds. The disbursements should coincide with the timing of institutional charges and other expenses, such as child or dependent care expenses and monthly Internet fees.”

3. “Amend the regulations expressly to apply the definition of attendance in 34 C.F.R. § 668.22(l)(7) to the regulations for returning Title IV funds for students who do not begin attendance.”

4. “Issue guidance that clearly explains what is considered acceptable evidence of a distance education student’s academic attendance.”

5. “Work with Congress to revise the HEA so that schools are required to develop cost of attendance budgets applicable to the student’s actual educational needs and not include costs that are unnecessary to complete the student’s program of study.”

This last recommendation probably refers to the distance learning student use of student financial aid funds to pay for living expenses, which Congress rejected last year, but it is not clear.

It is unclear whether the Department will adopt any or all of the OIG recommendations, or whether it would have the legal authority to impose any proposed regulations without eliciting public comment or without Congressional authorization, but it is certainly a possibility for which ITC members need to be prepared.  The OIG report is vague in many areas -- we hope the details will be reasonable and manageable.  However, the comments in the Inside Higher Ed article below indicate that officials from the Department of Education and members of Congress could support some of the more onerous OIG recommendations.

ITC and the American Association of Community Colleges have always strongly recommended that colleges implement policies and procedures that prevent, catch, and help local, state and federal government agencies prosecute the perpetrators of these crimes.However, distance educators and students should not have to accept unfair regulations that will not solve the problems outlined in the OIG report.  This is a message we need to convey to Congress as our representatives and senators take steps to reauthorize the Higher Education Act in the upcoming year.We’ll keep you informed about this as it develops!

Here is an article about this issue that appeared yesterday in Inside Higher Ed.

Risk Management
Feb. 26, 2014, Inside Higher Ed

by Carl Straumsheim

“The U.S. Education Department needs to do more to ensure the billions of dollars it offers in financial aid aren’t wasted on students who fraudulently enroll in distance education programs, the department's Office of Inspector General has concluded in a critical new report.”

“Identity verification tops the list of recommendations outlined in the report, which urges institutions to reject the idea that a username and password are enough to guarantee that students are who they claim to be. ‘A login and passcode ensure only that someone logging in to a course is using the same login and passcode assigned to the person who enrolled,’ the report reads. ‘Without effective enrollment processes at a school, a login and passcode do not ensure that the person is enrolling under a valid name and intending to obtain an education.’” . . .

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."


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:

Recommendation 1b. "Collect and retain IP information for such student during application, enrollment and attendance."
  • Where will colleges store this information? How will they maintain student privacy and proper security for this data, should it be collected?
Recommendation 4.  The most troubling recommendation from the Inspector General, is that the Department, "seek statutory changes to the cost of attendance calculation for students enrolled in distance education programs under the HEA to limit the payment for room and board, and other costs that distance education programs do not incur."
  • 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.

Community colleges are eager to maintain their reputations as law-abiding, upstanding members of the learning community. They need to maintain their accreditation status and want to do what is right. Most have safeguards to protect against this fraud.  Many community colleges put new procedures and policies in place in response to the Higher Education Opportunities Act of 2008 which drew attention to the issue of student authentication. It is also true that in many ways technology allows institutions to document a student's participation more comprehensively and easily than in a face-to-face setting. These procedures are often lacking in face-to-face settings.

For example:

  • Colleges have instituted various additional “hoops” which most fraudulent students are unwilling to jump through since they could jeopardize their ability to win “easy money” and avoid detection. For example, faculty may be required to report on active student participation for at least 60 percent of the course semester, and withdraw students who do not participate. Other colleges require that students complete an orientation (a step that has also improved completion rates) and exhibit satisfactory academic performance before financial aid is disbursed.
  • Students have to complete 67 percent of the courses in which they enroll to make Satisfactory Academic Progress or SAP. In other words, withdrawing from too many courses will affect their ability to collect financial aid.
  • Face-to-face instructors might take attendance for the first two weeks of class. In an online environment, students must login to the learning management system, post assignments or complete periodic quizzes, and participate in online class discussions. Sometimes colleges ask faculty to increase their level of academic activity early in the semester, to ensure enrolled students are legitimate.
  • Many institutions do not release financial aid funds to students until after their first two weeks of class are completed. Partial payments are disbursed throughout the academic term to limit any losses from fraudulent students.
  • Many online courses require students to show a photo id to take proctored mid-term and final exams, at the discretion of the instructor.  So, for example, instructors might ask students to take written tests and quizzes throughout the year, turn in a written term paper at the end of the semester, or take a multiple choice or math test in a proctored environment.  Faculty must report instances of cheating to the college administration, so it can keep track of repeat or suspicious offences.
  • ITC polled its membersand 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 with the reauthorization of the Higher Education Opportunities Act in 2008.
  • Colleges have provided enhanced training for financial aid staff, to give them the confidence to turn away threatening students.  Fraudulent “students” are often belligerent and intimidate financial aid staff relentlessly.  For example, they threaten to file Equal Employment Opportunity Commission (EEOC) complaints, notify the college president, and alert their congressman if they do not receive “their” financial aid money immediately.  Staff need to be empowered to deny financial aid to anyone they deem suspicious.
  • Financial aid staff are also trained to look twice at students who list multiple home addresses or groups that use similar IP and home addresses, or exhibit an unusual enrollment cluster.  Staff at Rio Salado College even used Google Earth to verify that homes exist at the given address, rather than a field or office park.

Public Hearings on Financial Aid Fraud and Invitation for Written Comments
Department of Education, May 23 and May 31, 2012

On May 23 and May 31, 2012, the Department of Education held public hearings on student financial aid at South Mountain Community College in Phoenix, Arizona and at the U.S. Department of Education in Washington, DC. respectively.

The U.S. Department of Education "intends to begin talks in September on new federal student-aid regulations, specifically relating to the use of debit cards to disburse financial aid. In a notice set to appear in Tuesday’s Federal Register, the department announced it would accept comments from the public on a new negotiated rule-making committee. The department is forming the panel in response to a report last fall about organized fraud rings that exploit distance-learningprograms to collect student aid. Department officials have been working to crack down on 'Pell runners,' scam artists who bounce from college to college receiving Pell Grant refunds. The department also plans to propose regulations to streamlinecampus-based student-aid programs." See the article in the Chronicle of Higher Education on April 30, 2012.

See the written comments ITC submitted on May 31, 2012 to the U.S. Department of Education on this issue on behalf of its members. 

Educause's written comments argue that perpetrators will be able to fairly easily modify the technologies they use to enroll as students to obtain financial aid, if the Department makes colleges use a specific technology to combat this fraud. Also, with regard to student authentication, "identity verification standards and processes in the online space continue to take shape, such that effective, affordable solutions have yet to emerge. [Making institutions use specific technologies to authenticate students] may pose particular difficulties for the institutions primarily impacted by financial aid fraud in distance education programs—community colleges and other open enrollment institutions that many times serve economically disadvantaged student populations and thus are often resource-challenged themselves."

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 LearningEditorial, Oct. 5, 2011, New York Times

Thieves Scam Aid From Online Education Sitesby Larry Abramson, Oct. 5. 2011, National Public Radio

Lawmakers Call for Crackdown on Student-Aid Fraud in Online Programsby Kelly Field, Sept. 28, 2011, Chronicle of Higher Education

Preventing Abuse in Federal  Student Aid: Community College Practices - by David S. Baime and Christophe Mullin, American Association of Community Colleges.  AACC provides member colleges with some strategies on how to prevent abuse within the federal student aid programs, with a focus on Pell Grants. These recommended strategies derive primarily from a meeting held at AACC’s offices on Jan. 20, 2012.  Findings from this gathering and other developments make it clear that community colleges across the country are working actively to prevent any abuse of student aid. However, because not all campuses may be aware of the full range of activities community colleges are employing to prevent abuse, AACC is providing this material to share practices that colleges have found to be successful in curbing financial aid abuse.


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.


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.

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)