Government Investigation Finds High Risk of Fraud in Distance Learning Education

Sep 28, 2011 Issues: Education


WASHINGTON, D.C. – A new, alarming report issued by the Department of Education’s Office Of Inspector General (OIG) raises serious concerns about fraud vulnerabilities among distance learning programs. The report shows examples of individuals conspiring to defraud Title IV programs of the Higher Education Act by enrolling significant numbers of “straw” students in distance education programs and keeping excess federal aid funds above tuition and fees before dropping out. U.S. Rep. George Miller (D-CA), senior Democrat on the Education and the Workforce Committee, and U.S. Rep. Ruben Hinojosa, Ranking Member on the Subcommittee On Higher Education And Workforce Training, sent U.S. Secretary of Education Arne Duncan a letter today urging proactive and swift action to remedy the situation, as well as more information and regular updates regarding timeframes, actions, and recommendations of the intradepartment work group they are putting together.

“This report is deeply troubling for students, for colleges and for taxpayers. Federal funds should never be in danger of fraud or abuse, but this report shows us that criminals are actively exploiting the space where federal funding meets the growing world of online education.  The federal government needs to catch up to these schemes. The Department needs to take this very seriously and move swiftly to better detect and prevent fraudulent activity,” said Miller. “The federal government plays an important role in helping to make the dream of a college degree a reality for millions of students, but this means that this comes with a tremendous responsibility to protect and oversee those taxpayer dollars.”

The report shows that since 2005, the OIG and the Department of Justice (DOJ) have obtained criminal convictions for 215 participants from 42 different fraud rings, and have obtained orders for over $7.5 million in restitution and fines. However, the Inspector General notes that these convictions do not represent the full scope of the problem, and neither they nor DOJ have sufficient resources to fully convict all fraudulent individuals. In response, the Department of Education is convening an intradepartmental work group to discuss options and solutions to this problem.

In the course of its investigations, the IG found:

  • Fraud rings are most likely to be found at lower cost, open-enrollment institutions, which have little to no entry requirements, to maximize the student aid “refund” straw students receive.
  • Many of these straw students failed basic student aid eligibility requirements, such as not having a valid high school diploma or equivalent degree (such as a GED).  
  • Some ringleaders used social security numbers of individuals currently incarcerated in federal or state prison. Such individuals are not eligible to receive Federal student aid. In one case, 15 inmates’ identities were used to obtain over $100,000 in funds.

The IG recommended a number of steps that ED could take, including improving verification of student identity through the FAFSA and enrollment processes and improving system and data processes to more easily identify fraud. The IG also recommended reaching out to institutions to highlight their obligation to disburse federal student aid only to eligible students.

To read Miller’s letter, click here