The University of Phoenix has identified more than 800 fraud rings.

Online programs at some colleges have stopped accepting student applications from states known as hotbeds for fraud rings that sign up students for courses, receive student loan payments, and disappear from the virtual classroom.

And some schools have created teams tasked with weeding out potential fraudsters who take millions in federally backed student loans every year, taking advantage of the relative anonymity of online classes.

Higher-education administrators from across the country gathered Jan. 27 for the annual Presidents’ Forum at the U.S. Chamber of Commerce in Washington, D.C., where student aid fraud was discussed after the U.S. Department of Education (ED) warned colleges of the prevalence of fraud in a Dear Colleague letter released last fall.

ED’s inspector general suggested online colleges improve student verification before student aid is dispersed–sometimes several thousand dollars per disbursement. Suggestions included taking note of students who sign up for and take online courses from the same IP address, or register with the same physical address.

Campus officials whose colleges have been burned by student aid fraud rings said they have temporarily stopped accepting students from states known for large numbers of fake students who find their way into courses to collect an aid check.

“I don’t think it’s too much of a push to say we’re at war with these fraud rings,” said James Berg, chief ethics and compliance officer for the Apollo Group, which operates the University of Phoenix, a for-profit institution with one of the country’s largest online programs. “We approach it that way. … [Online colleges] are all in this together. We’re all vulnerable to this.”

Widespread student aid fraud in online education could give ammunition to critics of web-based classes, said John Ebersole, president of the New York-based online school Excelsior College, which hosts the Presidents’ Forum.

“This provides fuel for those who criticize online learning, those who don’t understand and are skeptical of the value of online delivery,” Ebersole said. “These are issues that can take on a life of their own and discredit a form of education that we all believe in.”

Chris Bustamante, president of Rio Salado College in Arizona, said his community college won’t advertise or accept student applications from four states in the southeastern US.

Bustamante did not specify which states are included in the ban.

Bustamante said the leader of a fraud ring was convicted and sent to prison for three years after Rio Salado officials reported suspicious activities to the federal government and an investigation proved successful.

Before the fraud was discovered, Rio Salado’s financial aid officers were bombarded with phone calls from the same area code during course registration.

The frequency of registration requests from students with suspicious records forced the community college to adopt its application ban on four states.

“It’s not like we really need the business outside the state of Arizona,” he said, adding that the school would not seek authorization for its online programs in those states. “The risks are just too high.”

Rio Salado admissions officers now check the IP addresses and physical addresses of incoming students, checking for instances, for example, of a dozen students registering with an address of a one-bedroom apartment.

Bustamante said the school also uses Google Earth to scope student addresses and ensure they aren’t registering from a warehouse or undeveloped property.

The anti-fraud team formed by the University of Phoenix has identified more than 800 fraud rings nationwide in recent years, Berg said, with 16,000 people involved in those student aid fraud attempts.

There were 19 people in the average fraud rings discovered by the University of Phoenix. The school has referred 747 fraud rings to ED’s inspector general, Berg said.

Even when online college administrators suspect fraudulent information in a student application and withhold student aid payments, student threats to contact Congressional representatives about perceived violations of student loan rights often force a college’s hand, said Justin Draeger, president of the National Association of Student Financial Aid Administrators (NASFAA).

Restructuring the way students receive student aid payments, Draeger said, could better protect online programs against teams of fraudsters.

Colleges should consider “removing some temptation by limiting how much money students can borrow and how much they can receive,” he said.

Distributing aid disbursements “like paychecks”–mailing payments every two weeks–could also limit the frequency of student aid fraud among web-based programs, Draeger said.

Fraudsters often sign up for online courses and log into the learning management system (LMS) sites where faculty teach virtually so they don’t raise educators’ suspicion. Those students will vanish from the class after they receive their first student aid check, sent to a fraudulent address.

“Just logging [into an online class] shouldn’t count as participation in a course,” said Rob Robinson, assistant vice provost and director of educational technology at the University of Texas at San Antonio.

Requiring consistent participation in online class discussions, he said, would make it more difficult to defraud an online school.

“When we talk about a quality online courses, we’re talking about the level of interaction between the students and the faculty,” Robinson said. “We’ll always have bad actors who will try to game the system … but the more opportunities you have for interaction, the more chances for [fraud] detection.”


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