Student Loan Fraud – A National Problem Gone Global


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.

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