Student Loan Fraud – A National Problem Gone Global

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Title IV of the Higher Education Act of 1965 enables qualified students to receive grants and loans so they can achieve their educational dreams. While government financial aid can help college students to have a better future, it also is an opportunity for fraudsters to take advantage of undeserved financial assistance. An article published in Fraud Magazine explains how student loan fraud is on the rise and how perpetrators are targeting Federal Student Aid (FSA) programs to accomplish their scams.

The story states that 53.8 million students received $509.9 billion in FSA funds between 2009 and 2012. In a recent report to Congress, the Department of Education Office of Inspector General found that the number of Student Financial Aid (SFA) recipients estimated to be participating in fraud rings had increased by 82 percent from 2009 to 2012. (This amounts to about 34,000 people causing an estimated loss of about $187 million over the three-year period.)

FSA programs have been hit hard by scammers because the loan process and educational institution enrollment process is usually completed via paper forms or online. It is rare that face-to-face interactions occur, making it more difficult to catch these criminals. Individual fraudsters are also tough to prosecute because it is difficult to prove intent. However, when fraud examiners can trace multiple individuals back to a fraud ring, the prosecution process becomes easier.

FSA programs are typically abused in these ways:

• Student applicants underreport their income levels or file an incorrect status on their Financial Application for Student Financial Aid (FASFA).

• Individuals without a high school diploma or GED fake their education status and receive financial assistance even though they are not eligible.

• Students enroll in classes without the intention of actually completing a degree, but collect the cash and then spend the financial aid on luxury items.

• Fraudsters steal identities and sign up for classes these unsuspecting students will never attend, just so they can get the FSA cash.

The article goes on to report that the United States is not the only country with a student financial aid problem. Student loan fraud rings are also alive and well in the United Kingdom, New Zealand and China. While FSA fraud schemes are growing in notoriety, so are the methods by which higher education institutions are implementing to put a stop to these crimes.

Many institutions have fraud teams that are able to analyze student records to find any anomalies that may point to fraudulent activities. Once detected, the institution usually turns over the records to the Department of Education for further investigation. (That should go a long way toward stopping fraudsters from receiving financial aid that they don’t deserve and helping those who are eligible for assistance to achieve their dreams for a better future.) However, with identity theft on the rise, wouldn’t it be great if these institutions started the process by verifying and authenticating the identity of the individual applying for FSA? That would certainly cut down on the success rates of a lot of fraud rings.

Source: Today’s ”Fraud of the Day” is based on an article titled, ”Skip Class and Collect the Cash,” written by Sarah O’Colmain and published in the May/June issue of Fraud Magazine.

Federal financial aid can help college students’ dreams come true. It can also line fraudsters’ pockets with undeserved, unearned “aid,” which costs taxpayers’ money and steals deserving students’ futures. The author outlines how ringleaders are committing this fraud and what universities and the general public can do to combat it.

In 2009, University of Phoenix fraud reports pinpointed 12 student records that all included the address of an Atwater, Calif., apartment complex — seven with the same apartment number (and presumably not the penthouse). Several months later, a university employee reported receiving a suspicious call from one of these students who appeared to be well-versed in school procedural information not normally known by first-time college applicants. The employee also noticed that the student’s phone number matched numbers listed on student accounts that were in or nearing collection status. The situation continued to grow in size and suspicion as more students, with matching demographic information, made blunders such as accidentally contacting school advisors using the email accounts of other scheme members rather than their own.

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Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.