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More financial aid fraud rings targeting online learning busted

As reported in Inside Higher Ed, the U.S. Department of Education (ED) Office of the Inspector General (OIG) and the U.S. Attorney for the Eastern District of California announced yesterday the indictment of 21 people in California who were involved in financial aid fraud rings targeting online learning programs at community colleges and low-cost for-profit institutions. (You can access the PDF file of the press release here.) Collectively, the accused allegedly obtained over $770,000 using other individuals’ identities, whether freely supplied by co-conspirators or stolen, to fraudulently register for admissions and financial aid. Given the low tuition-and-fee rates of the institutions targeted, the culprits would pose as students, apply for financial aid, and then pocket the student aid award funds disbursed from the institution after institutional charges were met.

In the press release, the OIG reiterates two key arguments that ED may use to drive for student identity verification mandates, either via the proposed rule-making the department announced earlier in the summer but has yet to initiate or as part of next year’s reauthorization of the Higher Education Act. First, while noting that no institutions participating in federal student aid programs are required to verify student identity, the OIG implies that the lack of a student’s physical presence in interacting with an online program or institution—i.e., that “students are not required to present themselves in person at any point”—creates a core vulnerability that allows fraud to occur. As a result, the OIG and subsequently the department have indicated interest in bolstering student identity verification in relation to online learning.

However, no one has yet identified a broadly effective and affordable approach to student identity verification in this context, as opposed to various authentication approaches, such as remote proctoring applications, which aim to ensure that the student registered for a class is the student taking an exam for the class. This question about affordability, which the higher education community raised in relation to rule-making for the provisions of the Higher Education Opportunity Act connecting authentication with academic integrity concerns, may become particularly important in the community’s engagement with ED on this issue. As the two sides discuss the nature and scope of the problem, they will need to explore the potential costs of any proposed identity verification approaches in relation to the actual amount of student aid funds lost due to this specific area of fraud.

Second, in my opinion, the release also reflects the OIG’s concern, stated in earlier reports and comments on this issue, that the difference between institutional charges and other allowed expenses (e.g., room and board) is too great in these cases. That has led OIG previously to recommend reducing eligible expenses for online distance education students. However, as I wrote in relation to the Senate Appropriations subcommittee proposal to eliminate living expenses and other personal expenses from the Pell Grant need calculation for online distance education students, this line of thinking strikes me a fundamentally flawed. If the unaltered need calculation for student aid, whether Pell or another program, indicates a student has need, then eliminating those expenses from consideration for online distance education students would seem to result in a larger degree of unmet need. It may indeed reduce the amount of money fraudsters might receive, but that should be weighed against the much greater aggregate amount of unmet financial need completely innocent students would likely have to bear as a result.

This concern about the potential for unmet financial need is particularly acute in relation to the institutions targeted by fraudsters. Community colleges and online institutions with low tuition rates often serve students facing significant financial challenges to pursuing postsecondary education, regardless of the way in which they pursue it. Reducing the amount of financial aid for which they qualify based on the way in which they receive instruction may require them to work more to cover the difference, impacting persistence and completion, or it might deter them from starting altogether. Given that other avenues for deterring financial aid fraud exist, such as staging disbursements over a greater period of time or tying them to course participation milestones, potentially denying the large mass of perfectly valid, committed online distance education students access to financial aid for which they would qualify if they learned on-campus instead of online seems like a difficult approach to sustain.

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