Education Department Calls on Colleges to Help Stop Student-Aid Fraud

October 20, 2011

The Education Department is urging colleges to take steps to protect the federal student-aid programs from fraud, less than a month after its Office of Inspector General issued a report detailing the growth of organized fraud rings that exploit distance-education programs.

In a letter made public Thursday evening, the department asks colleges to develop ways of detecting groups of students who use the same Internet Protocol or e-mail addresses to apply and participate in online programs, as well as students who live outside the institution's normal area of coverage.

The letter also suggests that institutions delay the disbursement of federal funds until a student has participated in the distance-education program for a "longer and more substantiated period of time," and to award aid in multiple disbursements.

Fraud rings are typically comprised of one or more "ring leaders" who recruit "straw students" to enroll in distance-education programs in exchange for a cut of the student-aid refunds they receive after their tuition is paid. These rings often target low-cost community colleges, to maximize the refunds the straw students receive.

"We take fraud extremely seriously and safeguarding taxpayer funds is our top priority," Secretary of Education Arne Duncan said in a statement.

He said the department would work with Congress and colleges "to ensure we have all the tools we need to prevent criminal elements from defrauding federal student-aid dollars."