Pell-Running FEB 26, 2013
Pell-Running Such “students” are called Pell runners. They have figured out how to profit from a federal program meant to make higher education more affordable, and their fraud actually drives up tuition for honest students fraud continues at many.
The Pell Grant Program, intended to help lower-income students afford college, began in 1972.
In 2003, the U.S. General Accounting Office (GAO) estimated that Pell grant fraud accounted for about $300 million in grants per year—about 3 percent of total money handed out.
Not long ago at a North Carolina community college, there always seemed to be fewer cars in the parking lot the week after Pell grant checks were sent out. And one instructor noticed that some students weren’t taking the final in her class. Why? They hadn’t studied and knew they were going to fail—but they had received their checks.
Such “students” are called Pell runners. They have figured out how to profit from a federal program meant to make higher education more affordable, and their fraud actually drives up tuition for honest students. While times have changed at the school mentioned above, fraud continues at many.
A decade later, the program has more than tripled in scope (roughly doubling between 2008 and 2010), and fraud seems to be as bad as ever. One expert, Mark Kantrowitz of FinAid.org, believes that Pell grant fraud still runs at about 3.6 percent or more than $1 billion a year.
The Obama administration reported that “improper payments”—money distributed erroneously due either to fraud or mistakes—to Pell recipients totaled 2.7 percent of disbursements in 2011. Kantrowitz’s higher number is based on the number of students who receive grants but never obtain degrees.
Considering that the Education Department doesn’t have the manpower to track down all fraudsters, Kantrowitz’s estimate may be closer to reality.
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There are two primary ways is abused. One is the Pell runner described above. Students obtain grants—up to $5,500, receiving directly whatever money is left over after tuition and fees are paid. Then they drop out of school without finishing any courses.
Federal law makes this scam possible. Grantees are allowed to attend school for 12 semesters (six years) in total before they lose eligibility for more money. There are no academic requirements to obtain a Pell grant; the only requirements are based on income and the cost of attending school. And there is no graduation requirement.
The other form of student aid abuse is more complex. It tends to be aimed at online education and is designed to make off with Pell grants and federal student loans as well. Criminals form rings, in which the leader recruits multiple “straw students” who apply for the grants and loans, then shares the haul with them.
Such fraud has lately become easier to commit due to the rise of online education, since students don’t even have to appear in person. In 2011, the Education Department reported a “dramatic” increase in financial aid scams involving online education, opening 100 investigations in the first 8 months of 2011, compared to just 16 investigations in 2005.
The report found that “straw students drop or withdraw from programs after they receive their and then kick back a portion of the funds to the ringleader and, if applicable, a recruiter.”
In one case, the Office of the Inspector General (OIG) investigated and prosecuted all 64 individuals in a fraud ring that targeted Rio Salado College in Arizona. However, the OIG normally only prosecutes the ringleaders, simply because it lacks the manpower to pursue all of the fraudsters. “Prosecuting all the participants placed a significant burden on the criminal justice system,” wrote William Hamel of the OIG, in the 2011 report.
The Apollo Group, the for-profit company that owns the University of Phoenix (the largest private school in the country), has found over 21,500 fraudulent students since 2008.
(Most of the University of Phoenix’s students take online classes.) James Berg, Apollo’s vice president for ethics and compliance, told the Pope Center that about 0.4 percent of students were caught trying to commit fraud in the fourth quarter of 2012.
Apollo has referred over 700 fraud rings to the inspector general, with the average involving 19 students, according to Inside Higher Ed.
Outside of criminal rings, Pell grant running tends to occur at community colleges and technical colleges, because tuition is low.
Louisiana’s technical colleges, which focus on job training, until recently charged less than $1,000 per year to attend. But they found a couple years ago that as much as 12 percent of grant money went to Pell runners. The legislature is raising tuition, according to the Chronicle of Higher Education. That will reduce the incentive to steal the difference between tuition and the grant, but it makes education more expensive for honest students. https://www.jamesgmartin.center/2013/02/pell-running/
California’s community colleges are reporting a rise in financial aid fraud. In January, suspected bots represented 1 in 4 college applicants. Schools have given away millions to these scams, and college officials say fraudsters are getting smarter with the help of AI.
The Pell Grant Program, intended to help lower-income students afford college, began in 1972. In 2003, the U.S. General Accounting Office (GAO) estimated that Pell grant fraud accounted for about $300 million in grants per year—about 3 percent of total money handed out.
Since fall 2021, California’s community colleges have given more than $5 million to Pell runners, according to monthly reports they sent to the California Community Colleges Chancellor’s Office. Colleges also report they’ve given nearly $1.5 million in state and local aid to these scammers.
The chancellor’s office began requiring the state’s 116 community colleges to submit these reports three years ago, after fraud cases surged.
At the time, the office said it suspected 20% of college applicants were fraudulent. Because of the COVID-19 pandemic, the federal government loosened some restrictions around financial aid, making it easier for students to prove they were eligible, and provided special one-time grants to help keep them enrolled.
Once these pandemic-era exceptions ended in 2023 and some classes returned to in-person instruction, college officials said they expected fraud to subside.
It hasn’t. In January, the chancellor’s office suspected 25% of college applicants were fraudulent, said Paul Feist, a spokesperson for the office.
“This is getting significantly worse,” said Todd Coston, an associate vice chancellor with the Kern Community College District. He said that last year, “something changed and all of a sudden everything spiked like crazy.”
Online classes that historically don’t fill up were suddenly overwhelmed with students — a sign that many of them might be fake — Coston said. Administrators at other large districts, including the Los Rios Community College District in Sacramento, the Mt. San Antonio Community College District in Walnut, California and the Los Angeles Community College District, told CalMatters that fraudsters are evading each new cybersecurity strategy.
The reason for the reported increase in fraud is because the chancellor’s office and college administrators are getting better at detecting it, he said. Since 2022, the state has allocated more than $125 million for fraud detection, cybersecurity and other changes in the online application process at community colleges.
The reports the colleges submitted don’t include how much fraud they prevented.
The rise in suspected fraud coincides with years of efforts, both at the state and local level, to increase access to community college. Schools are reducing fees — or making college free — while legislators have worked to simplify and expand financial aid. Those efforts accelerated during the pandemic, when community colleges saw record declines in enrollment.
https://calmatters.org/education/higher-education/2024/04/financial-aid-fraud/#:~:text=In%20summary,with%20the%20help%20of%20AI.
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