Large-scale financial aid fraud uncovered in California

More than 60,000 fraudulent financial aid applications were uncovered as part of a suspected scheme to collect taxpayer money.

The federal government has not determined if any federal aid money was paid out to fake students.

California’s student aid agency has discovered that more than 60,000 financial aid applicants are not students at all, but likely fake accounts used in a fraudulent attempt to collect financial aid money. 

Authorities at the California Student Aid Commission (CSAC) identified the problem in late August, when a review of several months of records showed a spike in financial aid applications from students that all shared specific characteristics: They were all first-time college students over age 30, enrolling at a community college, seeking a degree, and making under $40,000 per year. These records were rife with incomplete or invalid contact information. CSAC administers financial aid within the state. 

A memo from CSAC’s executive director, dated Sept. 2, states that between 60,000 and 65,000 student records were fake. The memo states that the CSAC had already alerted the head of California’s community college system and the federal Department of Education to the issue. 

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A CSAC official with knowledge of the situation told Campus Reform that this incident “is the age-old Pell Grant fraud scheme,” in which “non-students attempt to apply for a Pell Grant, apply to enroll at a college to claim the Pell Grant, then drop out after having received a financial aid distribution.”

Pell Grants are handled at the federal level. Federal officials do not yet know if, or how much, federal money was disbursed to fraudulent applicants. A Department spokesperson tells Campus Reform that Federal Student Aid funding that should not have been paid out must be returned to the Department. 

Federal Student Aid’s chief operating officer, Richard Cordray, told Campus Reform, “Federal Student Aid is working with law enforcement partners and postsecondary institutions to stop the suspected financial aid fraud. While the investigation is ongoing, our work includes determining what, if any, federal taxpayer dollars were disbursed and recovering those funds. We notified financial aid administrators at thousands of institutions across the country and recommended actions they can take to prevent fraud, as well as protect individuals. We also will take the necessary steps to prevent this type of suspected fraud in the future.”

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The fraud appears to be contained within the state’s community college system. No irregular patterns were detected with the University of California or California State University,” according to the Los Angeles Times

The CSAC official who spoke with Campus Reform says colleges must constantly be on guard to protect against Pell Grant fraud. He said, “Pell fraud is not new by any means, it is very possible there is more out there, and likely that new ways of attempting it will occur in the future. All states and local campuses should be constantly scanning and checking their data, and most do with great diligence so as to not disburse funds to non-students.” 

No matter how much financial aid money was disbursed, colleges suffer as a result of this fraud. The CSAC official said the fallout from this scheme “is very labor-intensive and disruptive for campuses to deal with right at the start of the term. It diverts already limited resources away from serving actual students.”

Follow the author of this article on Twitter: @AngelaLMorabito