Financial Aid 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.
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 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
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.
State Authorization for Institutions that Offer Distance Education to Out-of-State Students
On June 5, 2012, the U.S. Court of Appeals agreed with a decision the U.S. District Court made a year earlier, on July 12, 2011, to strike down the Department of Education's Oct. 20, 2010 regulation that higher education institutions would suffer consequences if they did not obtain state authorization to offer distance or correspondence courses to students in a state in which it is not physically located, i.e. out-of-state students. On July 27, 2012 the U.S. Department of Education sent higher education insitutions the Dear Colleague letter, Guidance on Program Integrity Regulations Relating to Legal Authorization by a State.
Judge Collyer had "vacated' the proposed regulation on proceedural grounds—the Department of Education did not give higher education institutions the appropriate opportunity to submit their comments on the proposed rule through a Notice of Proposed Rulemaking (NPRM) proceeding. Although the Department has left the door open for issuing the appropriate NPRM when Congress reauthorizes the Higher Education Act in 2013-14, colleges and universites have won a federal victory on this issue until then.
Unfortunatly colleges and universities are not "out of the woods." They must still pay attention to, and abide by, any state regulations that exist in the states in which they teach distance learning students. Regardless of these Court decisions, 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 states have updated their regulations for out-of-state distance education institutions.
Many states require that out-of-state institutions obtain authorization if they have a "point of presence" within their borders. Unfortunately, the definition for what constitutes "presence" differs for each state. Presence 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.
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. 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 October 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
Here are the links on the SHEEO Web site:
Directory of State Authorization Agencies and Lead Contacts (PDF)Compendium of State Laws and Regulatory Practices
- Survey Results, by State - Including Contact Information for Each Agency
- Student Complaint Process by State
- Fees Summary, by State
Additional Resources
State 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.
Backing Off on State Authorization - July 31, 2012, Article by Libby A. Nelson, Inside Higher Ed. “In a reversal of one of the most sweeping and controversial portions of its program integrity rules, the Education Department said Friday that it will no longer enforce a requirement that distance education programs obtain permission to operate in every state in which they enroll at least one student.”
'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. In this Webinar, 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
The Federalization of Higher Education? - March 28, 2011, Comments by Paul Lingenfelter, President, State Higher Education Executive Officers
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 relevant committees in the U.S. Senate did not follow the House action.
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, Inside 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
University System of Georgia - Information Web Site
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. Department of Education - Third Dear Colleage Letter - July 27, 2012
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.
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.
