Impact of Title IV fraud

Wasted student aid and administrator resources
By: | Issue: June, 2017
May 26, 2017

Criminals who receive financial aid fraudulently basically steal money from bona fide students and institutions. Beyond the loss of education funds, efforts to squeeze out fraud can also make financial aid more elusive for those who need it.

“To crack down on fraud, we may have to put more hoops to jump through in order to obtain aid,” says Karen McCarthy, director of policy analysis at the National Association of Student Financial Aid Administrators. “But it’s a really difficult situation, because we don’t want to make it more burdensome for other students to get the financial aid they need.”

Fraud can also:

  • deplete resources in institutions’ financial aid offices. “If institutions are chasing down fraud, that diverts their staff resources from other financial aid tasks, such as counseling with students about aid and helping those with special circumstances,” McCarthy says.
  • negatively affect a college’s cohort default rate. That’s because criminals secure loans that they, of course, never plan to repay, says LeRodrick Terry, vice president of student affairs at Rio Salado College in Arizona.

While colleges and universities must report potential fraud to the Department of Education, federal resources for investigating such cases are limited.

That often means “schools are left to fend for themselves, which involves focusing on quick identification of the fraud before any real money is disbursed and stolen by the individual,” says Robert Ritz, senior vice president of student financial services at Liberty University in Virginia.

Even when potential fraud is identified and stopped at one school, the individuals often disappear quickly, reemerging at another school, adds Ritz. “There are tens of millions of dollars of potential Title IV fraud going unaddressed.”

Detecting and preventing fraud eats away at staff time and money.

For example, Liberty’s Student Financial Services Office employs 10 people focused solely on fraud. “Individuals attempting to steal federal aid money submit many false documents, and call and email schools while demanding the attention of staff and even faculty, which pulls resources away from legitimate students,” Ritz says.

Nancy Mann Jackson is an Alabama-based writer.