Education Department Chases 'Pell Runners' Who Threaten Aid Program

David K. Purdy for The Chronicle

Laurie Wolf, executive dean of student services at Des Moines Area Community College, says it has been the target of students who stay enrolled only long enough to get Pell Grant money.
August 28, 2011

When a prospective student called her office 15 times in one day to ask when his federal aid would be disbursed, Laurie A. Wolf, executive dean of student services at Des Moines Area Community College, became suspicious.

"He'd say things like, 'I want my money,' or 'When can I get my money?'" she said. "Something didn't seem right."

She pulled his student-aid record and discovered that he had received aid from seven other colleges. When she requested transcripts, he vanished.

The student, she believes, was a "Pell runner," a scam artist who bounces from college to college, staying just long enough to receive a Pell Grant refund. Runners represent a small fraction of the 9.5 million students who received Pell Grants last year, but their numbers appear to be growing, particularly at community colleges, say financial-aid administrators and Educational Department officials. Their fraud costs taxpayers untold thousands and drives up colleges' default rates when the students take out loans as well.

"The word is out there that this is something you can do to exploit the aid programs," said David A. Bergeron, deputy assistant secretary for policy in the Office of Postsecondary Education. He said the Education Department takes the problem seriously and is working to identify those who are abusing the system.

"In the current budget situation, where every dollar is hard to come by, we're particularly concerned," he said.

The cost of the Pell program has doubled over the past three years, leaving lawmakers scrambling to find enough money for the grants. So far, appropriators have been able to preserve the program through cuts in other areas. But it remains vulnerable as Congress prepares to slash $2.5-trillion from the federal deficit.

Colleges that suspect students of committing financial-aid fraud can report the cases to the Education Department's inspector general. Over the past two years, the number of colleges doing so has increased significantly, said Catherine Grant, a spokeswoman for the agency. Some aid administrators are asking the department for help in catching the runners.

But many student-aid advocates say the problem is being blown out of proportion. They argue that some fraud is inevitable in a $34-billion government program and worry that drawing attention to it will undercut their efforts to shield the Pell program from budget cuts. In interviews, they used words like "outlier," "limited," and "minuscule" to describe the scope of the fraud.

"This to me was a blip, and then it got called something catchy," said Justin Draeger, president of the National Association of Student Financial Aid Administrators. "Now people are talking about it at our national conference."

What's in a Name?

The origins of the term "Pell runner" are a mystery. Several aid administrators said they first heard it at Nasfaa's annual conference in July, when Mr. Bergeron used it in an Education Department forum. Ms. Wolf attributed the phrase to Mark Kantrowitz, an oft-quoted expert on student aid, but he doesn't think he coined it.

The word "runner" implies illicit activity, Mr. Kantrowitz explained (think drug runners); it also refers to the carpets that line hallways, evoking the image of someone dragging out Pell receipt over a long period of time, he said.

For-profit colleges refer to such individuals as "stipend chasers," said Terry W. Hartle, senior vice president for government relations at the American Council on Education.

But Pell runners most often exploit community colleges, where tuition is low and the payoff is the highest. In the 2010-11 academic year, when the maximum Pell Grant was $5,550, the average community college charged just $2,713, according to the College Board. After tuition, a student who got the maximum award would get $2,837 back for books and other expenses.

Pell runners pocket that money, flunk out, and then move on to the next college. They can repeat the process up to nine times before they exhaust their eligibility for Pell Grants.

Some runners will shop around for the colleges with the lowest tuition, to maximize their refunds. Many of the cheapest options are in the Southwest and West, where costs averaged just $1,964 and $1,594, respectively, last year.

Lee M. Carrillo, director of financial aid at Central New Mexico Community College, had his first encounter with Pell runners last fall, when colleagues in the enrollment office asked him to investigate a group of students who were calling every day to see when they would get their aid. He found that they were hopping from college to college, enrolling in online courses, and then failing out. The "ringleader" appeared to be a female student, who would call colleges pretending to be different applicants.

Suspecting fraud, he reported the individuals to the Education Department's inspector general and put a hold in their records to alert other colleges. He said colleagues at two colleges since hit by the scam had called to thank him for the warning.

"I put a stop to her and her little shenanigans," he said.

Inspector General Investigates

Fraud in the federal student-aid programs is nothing new, of course. As far back as the 1970s, members of Congress were worried that students were getting Pell Grants for noneducational purposes. During the 1972 reauthorization of the Higher Education Act, an anecdote about a Pell Grant recipient who bought a "little red Corvette" became a cause célèbre among Republican lawmakers, said Mr. Hartle.

In the late 1990s and early 2000s, hundreds of families and financial-aid consultants were found guilty of falsifying financial-aid applications to receive student aid and were forced to repay more than $1.6-million to the federal government. The inspector general conducted an audit of the Pell Grant program, and the Senate held hearings on the fraud.

More recently, the boom in online learning has fueled an increase in sophisticated "fraud rings" exploiting low-cost institutions. In one of the highest-profile cases, a Phoenix woman and her associates recruited dozens of "straw students" to apply for aid, then skimmed off a portion for themselves. Sixty-four people were sentenced in the scheme, and the ringleader was sent to prison.

The Education Department's Ms. Grant said her office was investigating 74 fraud rings and has worked with the Office of Federal Student Aid since 2010 to identify risks to the student-aid programs. The inspector general is also conducting an audit to determine whether the department is doing enough to root out fraud in distance education.

Pell runners and fraud rings use similar techniques, but they differ in key ways. While the rings depend on straw students, or identity theft, to commit their crimes, Pell runners tend to operate independently and on their own behalf. They are also more likely to be transient, moving from college to college until they reach the 18-semester limit for receiving Pell Grants.

There are no official statistics on the number of Pell runners, and distinguishing between a scam artist and a serial student can be tricky. Mr. Kantrowitz estimated that up to 3 percent of Pell money goes to Pell runners, based on the share of students who get multiple grants but no degrees.

Catching the Runners

The percentages are higher at some of the nation's cheapest community colleges. Joe D. May, president of the Louisiana Community and Technical College system, said the proportion of money going to Pell runners at his colleges had gotten as high as 12 percent when system leaders came up with a simple solution: raise tuition. In June the state Legislature passed a bill that will gradually double tuition at the state's technical colleges, from an average of $1,000 a year to $2,000.

It's a "controversial" solution, he said, "but we believed it was the right approach."

"We weren't trying to put an additional financial burden on students," Mr. May added. "We were trying to eliminate a loophole."

Officials of the National Association of Student Financial Aid Administrators are asking the government for help in identifying Pell runners. They want the Education Department to flag students who have received aid from multiple institutions, to determine who merits a closer look. As of now, institutions must rely on students' self-reporting or check their claims against federal aid databases. Many colleges don't have the resources to follow up on every student.

Meanwhile, some colleges are taking steps to cut off aid to scammers sooner. Lansing Community College, which was a victim of an online fraud ring that was prosecuted by the inspector general, recently began evaluating students' academic progress each term rather than yearly, said Stephanie Bogard Trapp, director of financial aid. It has also started disbursing the grants in two installments, rather than upfront, she said. If an instructor reports a student as withdrawn by the midpoint of the term, the student won't get the second half of the grant.

In California, which has the country's least costly community colleges, multiple disbursements are common. But many of the colleges won't give students the second grant until after the state-set "census date," when faculty are required to report on attendance.

At Northern Virginia Community College, one of the nation's largest two-year colleges, administrators are starting some students with poor academic histories on academic warning status. If they fail to make academic progress during their first term, they are placed on suspension and become ineligible for the remainder of their Pell Grants, barring an appeal, said Joan A. Zanders, director of financial aid.

Ms. Zanders said aid administrators at community colleges need to be "more diligent than ever before" as they seek to provide access while protecting taxpayers from fraud and abuse.

Ultimately, though, the biggest loss may be to the runners, who are depriving themselves of a college education and trading thousands of dollars in additional lifetime earnings for a quick buck.

"It's a huge cost to them and to society, all so they can pocket a few thousand dollars," said Mr. May.