Feds Target Fraudulent Student-Aid Payments

More federal student-aid recipients are receiving loans and grants without going to school, resulting in millions of dollars in improper payments to people either acting alone or through organized crime.

The Department of Education last month said http://www2.ed.gov/about/offices/list/oig/semiann/sar66.pdf that $829 million in Pell Grants last year was "improper" and based on fraudulent filings or clerical errors, The Wall Street Journal reported.

That was down from the previous two years but up 86 percent from 2007, the Journal noted, adding that "improper payments through the federal student-loan program more than doubled last year from the year before to $614 million."

Citing department's inspector general, the newspaper reported that "more than 34,000 participants in crime rings improperly received federal student aid last year," a figure that was up 82 percent from 2009.

In January, the department began flagging Pell-Grant applicants who had received aid for three or more schools within a year. So far, 126,000 applicants, or about 1 percent of all those seeking aid, have been identified as fraudulent or questionable.

As a result, several large community colleges are starting to deny aid to applicants they believe abuse the system.

""We started seeing student borrowing that was just over the top with no explanation for why," said Joan Zanders, director of financial aid at Northern Virginia Community College. “We have individuals that have told me, 'I spent all this money on graduate school. I can't get a job. I'm living in somebody's basement. I can't afford to live. I need the money.'

"It's not so much about the education, it's the money," Zanders added.

Pell Grants — up to $5,500 annually — are for the neediest students and don't need to be repaid.

The government's "most popular" program, the Journal noted, is the Stafford loan, which provides a lifetime maximum of $57,500 to undergraduates and $138,500 to graduate students.

Most loan programs require no credit check, and federal student aid comes with few restrictions about how it can be spent. Schools usually deduct tuition, then issue a check to the student for the balance, supposedly for books, rent, and other living expenses.

Community colleges are targeted because they often have open enrollment and lower tuition rates, meaning the after-tuition payments to students usually are much higher.

According to the Journal, federal officials believe the Internet has made fraud and abuse of the loan program worse because borrowers can obtain aid by applying directly online without having to speak to a financial-aid officer.