Financial Aid

Financial Aid Fraud

Fraud in Postsecondary Distance Education Programs

On October 2011, the Office of Postsecondary Education (a Division of the Department of Education) wrote a guidance letter to address potential fraud in the Federal student aid programs at institutions of higher education that offer distance education programs. The letter provided an overview of the fraud schemes that the Department’s Inspector General (IG) detected, and recommended immediate steps that institutions could take to detect and prevent fraud. In this letter, they also described further actions that institutions could take, that included increasing technical assistance to institutions of higher education, convening of a Department-wide task force on distance education fraud, and plans for recommending legislative and regulatory changes to address the relevant issues.

The Dear Colleague letter emphasized that "more need[ed] to be done by all institutions to prevent, identify, and report suspected distance education fraud in the Federal student aid programs and enable the successful prosecution of offenders."  The letter emphasized that "it [was] imperative that institutions comply with all existing statutory and regulatory requirements to disburse aid only to eligible students" and "identify and resolve discrepancies in student information} in order" to ensure that all requirements regarding “regular student” status are met" and that suspected fraud was reported to the Office's Inspector General to "help curb these abuses and ensure that Federal student aid is provided to needy students as intended."

See below for a list of Best Practices outlined in the Dear Colleague letter that will help your institution to prevent and detect Fraud.

Fraud Rings: What they are

The Department of Educations Inspector General issued a report about fraud rings, loosely affiliated groups of individuals operating on distance education programs offered by conspiring to defraud title IV.  These fraud rings target institutions with low tuition in the context of distance education programs and involve a ringleader who:

The ringleader has submitted the Federal student financial aid application and completed enrollment at the institution, the institution draws down Federal student aid funds, deducts the institutional charges assessed the straw student, and disburses the credit balances to the straw student by check or debit card.  Straw students then give a portion of the proceeds to the ringleaders while keeping the remaining portion.  If needed to secure disbursements under an institution’s procedures, a ringleader may also participate as the straw student in sufficient academic work to appear to be an eligible student.

This threat of fraud rings is expected to grow along with the expansion of distance education.

What to Do If you Suspect or Detect Fraud at a SUNY Campus

At SUNY, any time you suspect Fraud or Abuse, you should follow the SUNY Fraud Policy and Fraud Procedure.  The procedure mandates that you set up a fraud hotline or other mechanism at your campus, and also that you report all suspected or detected frauds at your campus to University Audit using a standardized form (Form A - Fraud Incident Report).

The Department of Education has established a Department-wide anti-fraud ring task force to address the issues raised in the IG’s report as well as emerging future threats. Contract Information: FraudTaskForce@ed.gov or call 202-377-4340.

How to Protect From Fraud Rings

Procedures Recommended in the 2011 Dear Colleague Letter

  1. Follow Accreditation Procedures:
    • Under 34 CFR 602.17(g), accrediting agencies are required to review the policies and procedures institutions have in place to verify the identity of the students enrolled in those courses and programs. Institutions should follow these reviewed processes to help detect efforts to defraud the Federal student aid programs.  
  2. Take steps necessary to ensure that students are academically engaged prior to disbursing Title IV student aid funds.
    • Under 34 CFR 668.21(a), if students do not begin attendance, Title IV funds must be returned.
    • If an institution suspects potential fraud to question an applicant’s intent to seriously pursue the academic program by requiring the student to demonstrate that he or she has an academic purpose in order to establish eligibility for Federal student aid.  If a student does not demonstrate academic purpose or resolve other concerns regarding identity or eligibility, the institution should not disburse Title IV funds.
  3. According to the guidance, detecting fraud before funds have been disbursed is the best way to combat this crime.  The guidance advises institutions to take the following additional actions to identify and prevent the kind of student aid fraud identified in the IG’s report:
    • Implement automated protocols that monitor information in your student information data system to identify instances where a number of students –
      • Use the same Internet Protocol (IP) address to complete and submit an admissions application.
      • Use the same IP address to participate in the on-line academic program.
      • Use the same e-mail address to submit an admissions application.
      • Use the same e-mail address to participate in the on-line academic program
      • Appear to reside in a geographic location that is anomalous to the locations of most students in the program.
    • Modify your disbursement rules for students participating exclusively in distance learning programs, which would immediately reduce the amount that fraud ring participants can receive.  Institutions have the authority to:
      • Delay disbursement of Title IV funds until the student has participated in the distance education program for a longer and more substantiated period of time (e.g., until an exam has been given, completed, and graded or a paper has been submitted).
      • Make more frequent disbursements of Title IV funds so that not all of the payment period’s award is disbursed at the beginning of the period.
    • Recent program integrity rules include two additional requirements that help identify potential fraud. 
      • 1. Institutions are required to have procedures in place to address what may appear to be a fraudulent claim of high school completion (according to 34 CFR 668.16(p)). 
        • High school completion information is now on the Free Application for Federal Student Aid (FAFSA),
        • The Department of Education may in our annual verification notice (published in the Federal Register pursuant to recently-revised verification regulations found in Subpart E of 34 C.F.R. Part 668) specify certain additional items that would need to be verified, including high school diploma information and applicant identity for all or some of an institution’s Title IV applicants who are engaged in distance education.  The selection of these applicants for verification may be based on common addresses and other patterns and discrepancies noted in the OIG’s investigations.  Institutions are encouraged to verify identity of individuals whenever the institution, through use of similar methods and triggering events, finds cause for doing so as a best practice for preventing fraud.

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