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Business and Policy Areas
Business and Policy Areas

Distance Education Fraud Rings Investigated

October 11, 2011

A recent report from the Office of the Inspector General (OIG) at the Department of Education details the results of investigations into fraud rings—sometimes involving hundreds of individuals—that have been targeting distance education programs in order to receive Title IV student aid. OIG makes a number of recommendations that would impact institutions.

The growth of distance education and changes to federal rules on eligibility for Title IV federal aid of students attending such programs have led to a rapid increase in organized fraud rings seeking to exploit vulnerabilities in the system. These rings involve one or more ringleader(s) who recruit straw students or use fraudulently obtained identities to enroll in distance education programs and apply for federal aid. According to the OIG:

Nearly all the individuals we identified as participants in fraud rings failed to meet the basic eligibility requirement of enrollment for the purpose of obtaining a degree, certificate, or other recognized credential. Many also did not have a high school diploma or its recognized equivalent. Lastly, some of the fraud rings have enrolled incarcerated inmates who are ineligible to receive Title IV funds under 34 CFR §668.32(c).

The straw students, or the ringleaders in their stead, enroll in online programs, apply for aid—including Pell grants and loans—and “attend” just enough classes to receive their credit balance refunds. The OIG has 100 investigations underway, and is considering 49 more, but believes that many more rings are operating. The volume of referrals from institutions is overwhelming available investigative resources.


Although similar fraud rings have been uncovered at traditional programs as well, distance education programs are particularly vulnerable. Community colleges, due to their open access policies and low tuition and fees (leading to larger credit balance refunds), are the most common targets. The vulnerabilities highlighted in the OIG report include:

  • No verification of identity
  • No required academic credentials, such as transcripts or test scores at open enrollment institutions
  • No in-person appearance required
  • FAFSA Free Application for Federal Student Aid) personal identification numbers (PINS) issued online, rather than mailed

OIG Recommendations

The OIG report concludes with nine recommendations for ED to consider. Several of them would impact institutions directly, including the following. These would:

  • Require institutions to confirm student identity as part of enrollment processes (regulatory change needed);
  • Require institutions to collect and retain IP addresses for distance education students during application, enrollment, and attendance;
  • Designate identity, high school graduation status, and statement of educational purpose as information required to be verified;
  • Change the cost of attendance calculation for students enrolled in distance education programs to limit payments for costs other than tuition and fees (statutory changes needed); and
  • Issue a Dear Colleague letter to: alert institutions to the problem of distance education fraud rings; highlight the institution’s obligations to disburse aid to only eligible students; identify best practices for institutions; and specify when ED will hold institutions responsible for disbursing Title IV aid to ineligible persons.

In response, ED is convening an interdepartmental team that will begin meeting this week to consider these and the other OIG recommendations. ED notes that, since regulatory or statutory change take too long to implement, it will likely focus on changes that can be made under existing rules.


Anne Gross
Vice President, Regulatory Affairs