Acting as if they attended the same seminars on how to rip off the U.S. Department of Education, groups of fraudsters operating independently used stolen personal identity information and “straw students”―who have no intention of earning a credential―to steal $770,000 through California online schools and community colleges.

Federal prosecutors announced this week that 21 individuals were indicted for seven separate scams at 15 schools. The fraud rings were preying on community colleges and what are known as “distance education” schools, which offer education programs that are solely delivered over the internet. Some of the “students” never step foot on a campus.

The scammers targeted federal student aid, including Pell Grants. Only a finite number of the grants are made available each year, so that money obtained through fraud deprives deserving students of the aid. Federal Title IV aid programs are said to be particularly vulnerable to online fraud because they were designed back when education via the internet was delivered to classrooms with students in attendance.

Schools involved included: Santa Barbara City College, Cerro Coso Community College, Bakersfield College, Antelope Valley College, Barstow Community College, San Diego City College, Axia College at the University of Phoenix and Capella University. The investigation was conducted by the Education Department’s Office of Inspector General, with cooperation from the U.S. Attorney’s Office in California’s Eastern District. 

In one case, five suspects from Stockton and one from Tracy allegedly ripped off the Department of Education for $285,000 over a four-year period ending in June 2011. They were indicted in a scheme that used stolen personal identity information to apply for federal student aid. Some of the victims were severely handicapped and unable to read or write.

In another case, two men from Antelope, California, were accused of fraudulently obtaining $200,000 in aid by recruiting 50 “straw students” to apply for aid using bogus qualifications. The scam was run at American River College, Sacramento City College and Cosumnes River College. The suspects allegedly took half the money and gave the rest to the “students,” who, according to the indictment, were known to be ineligible for the funds. In some cases, the identities of individuals incarcerated in state prison were used in aid applications.   

Seventeen of the 21 arrests were made in the last month. All but one of the accused pleaded innocent and are out on bail. The could face fines and up to 20 years in jail if convicted.

A report in mid-2011 said that federal investigators had busted up 42 fraud rings since 2005.

–Ken Broder

To Learn More:

Financial Aid at California Colleges Hit by Scams, Officials Say (by Larry Gordon, Los Angeles Times)

Indictments Handed Down in 7 Separate Student Loan Fraud Scams (U.S. Department of Education) (pdf)

21 Californians Charged in Student Aid Scam (by Nanette Miranda, KABC)

Hitting Hard on Fraud (by Paul Fain, Inside Higher Ed)

Distance Education Fraud Rings (U.S. Department of Education) (pdf)