Education watchdog: Potential $847m in loan fraud

AP News
Posted: Jun 05, 2013 4:25 PM

WASHINGTON (AP) — The number of college students who are suspected of engaging in loan fraud has increased 82 percent since 2009, the Education Department's watchdog reported Wednesday on the eve of congressional action to keep rates on those loans low.

Suspected fraudulent awards increased from 18,719 students to 34,007 since 2009, according to the inspector general's report. That amounts to $874 million in potentially fraudulent student aid and, of that, auditors were confident the government lost $187 million.

That number is a very small slice of the more than almost 54 million students who borrowed for their education through federal programs during that time but is likely to complicate the future for a program that is up for congressional review.

"These programs are inherently risky because of their complexity, the amount of funds involved, the number of program participants and the characteristics of student populations," the report's authors wrote in their biannual report to Congress. "Our efforts in this area seek not only to protect federal student aid funds from waste, fraud and abuse, but also to protect the interests of the next generation of our nation's leaders — America's students."

Lawmakers in the Democratic-led Senate on Thursday were set to consider legislation to prevent interest rates on subsidized Stafford student loans doubling from 3.4 percent to 6.8 percent on July 1.

The Republican-led House already has passed its own version of student loan legislation that would provide relief for some students in the short term, but would mean potentially higher rates in future years if commercially available interest rates increase.

President Barack Obama has threatened to veto the House version, which ties student loan interest rates to 10-year Treasury notes, with the loans' interest rates resetting every year.

The inspector general's report detailing fraud was unlikely to encourage undecided lawmakers. Critics of the student loan programs routinely cite fraud and abuse as reasons to oppose it, even though the program generates substantial revenues for the government.

The Education Department previously wrote that more than 53.8 million recipients received almost than $510 billion in federal student financial aid during the 2009-2012 window.

The Congressional Budget Office estimates federal loans issued this year will generate a net gain of almost $51 billion. Over the last five years, that sum is almost $120 billion.

The head of the Education Department's watchdog arm has blamed fraud rings that target online and long-distance programs.

"Large, loosely affiliated groups of criminals who seek to exploit distance education programs in order to fraudulently obtain federal student aid because all aspects of distance education take place through the Internet — admission, student aid, course instruction — students are not required to present themselves in person at any point and institutions are not required to verify prospective and enrolled students' identities," Education Inspector General Kathleen Tighe told members of the House Oversight and Government Reform Committee in March.

"Fraud rings mainly target lower cost institutions, because the federal student aid awards are sufficient to pay institutional charges such as tuition, and the student receives the award balance to use for other educational expenses, such as books, room and board and commuting," she added.


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