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Financial Aid Fraud: How You May Be at Risk

Feb 20, 2012 Jennifer Williamson, Distance Columnist | 0 Comments

In this difficult economy, financial aid scams are growing more prevalent. Some scams are committed by individuals, others by vast networks of people or even the schools themselves—and all of them could have a negative effect on you, whether directly or indirectly. Here are a few of the types of financial aid scams out there—and how they may affect you.

Scams Targeting the Government

Pell runners. This is student aid fraud writ small. Some students apply to a college, get a check for a Pell grant, and then drop out of school. They don’t have to pay back the grant, so it’s essentially free money, and this type of scheme affects only the person perpetrating it—but this is still a form of fraud. Pell grants are not an infinite resource, and it leaves less money available to those who really need it for college.

Impersonation. This can be done by a single individual or an entire army of people posing as students to receive federal aid. The perpetrator often uses the names and personal details of others to apply to colleges with open enrollment policies—such as for-profit and community college institutions. When
they’re accepted, they receive Pell grants and federal loans
under the names of the people whose information they’ve stolen.

The school takes a certain amount from these loans in order to cover tuition, then returns the rest to the fraudster, ostensibly in order to cover living expenses and school costs. It’s a form of identity theft that could leave you, if you’re unlucky enough to be used as a “straw student,” on the hook for thousands of dollars in tuition aid for a school you didn’t attend.

Man with Fingers Crossed

There’s no way to defend against certain scams—other than to be vigilant in guarding your personal information.
Scams Targeting Students

A fee for federal aid. Some companies target the students themselves, not the federal government. The most common scam is a company or individual offering to fill out the FAFSA for you—for a fee. It’s true that the FAFSA is complicated, but it’s not one of those documents that can be filled out correctly only by a professional—and the first letter in the acronym stands for “Free.”

Most of the time, these fraudsters don’t fill out the FAFSA for you as well or carefully as you would if you did it on your own—it’s highly likely there will be mistakes that could have severe consequences for your student aid. They charge anywhere from a few hundred to a few thousand dollars for this service. And it’s not unusual for these people or organizations to promise to get you access to scholarships and aid that aren’t known to people who don’t know the secret formula. But there are no secret scholarships—so don’t fall for the hype.

Scholarship search scams.
There are also fraudulent organizations that will promise you access to special, secret scholarships for a fee. Sometimes they promise this as part of the service of filling out the FAFSA; other times, it’s unconnected. Sometimes they will tell you that you or your child has “qualified” for a selective scholarship-matching service, or that they require an up-front fee because the government wants to assure that only “serious” students apply. You should be aware that there are many places online offering legitimate scholarship databases for free, such as FinAid, the College Board, and FastWeb.

Scams Committed By Schools

Fraudulent employee compensation.
Recently, several for-profit schools have been found to compensate admissions employees based on their rates of student enrollment, rather than with a basic salary. This is illegal; it gives admissions officers incentive to misrepresent the school’s success rates and tuition in order to get more enrollments. Admissions officers working under these conditions may lie to you about how much the school costs, its quality, and its graduates’ success rates.

Bribery. In 2005, many nonprofit schools were found to be in cooperation with student loan lenders. The schools convinced students to choose that particular lender, regardless of whether that lender offered the best terms. In return, the lender paid the school and sometimes the employees involved directly.

If this happens to you, you may be strongly encouraged to use a particular lender in the financial aid process—or told that other lenders aren’t an option. You may also be ushered toward taking out a private loan even if you qualify for federal loans with lower interest rates and better terms. In some cases of this type of fraud, the school did not disclose to the student the amount of federal aid they actually qualified for—and encouraged them to take out more in private loans than they needed.

There’s no way to defend against certain scams—other than to be vigilant in guarding your personal information. With others, you should be very aware of what your own rights are. You have the right to know exactly how much federal aid you qualify for. You have the right to fill out the FAFSA for free. And you have the right to choose any private lender for private student loans. Be aware and well-informed, and you’re less likely to fall victim to certain types of student aid fraud.



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