Fed Shocked To Find Student Loans Used For Anything But To Learn

– Fed Shocked To Find Student Loans Used For Anything But To Learn (ZeroHedge, June 24, 2013):

Since January, under pressure from the Fed, the Education Department has flagged 126,000 applicants attempting to pocket federal loans and grants without any intent of going to school. As the WSJ reports, officials are cracking down on fraud in student-aid programs after evidence of recipients – acting alone or as part of organized crime rings – misusing funds. “What we find are very poor students academically that are borrowing to the max, getting the maximum in their Pell grant and just going from school to school,” noted one director of financial aid, with roughly $829 million in Pell grants as “improper payments,” in the last year. Rather stunningly, more than 34,000 participants in crime rings improperly received federal student aid last year, up 82% from 2009. “We started seeing student borrowing that was just over the top with no explanation for why,” another director noted, adding “it’s not so much about the education, it’s the money.”

Most federal student aid requires no credit check and comes with few restrictions on how the money is spent and Federal officials say the Internet has helped fuel student aid fraud.

Via The WSJ,

Federal officials are cracking down on fraud in student-aid programs, responding to evidence that a growing number of recipients—acting alone or as part of organized crime rings—are pocketing federal loans and grants without any intent of going to school.

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Since January, the agency said it has flagged 126,000 applicants, about 1% of all those seeking aid for the 2013-2014 school year.

“What we find are very poor students academically that are borrowing to the max, getting the maximum in their Pell grant and just going from school to school,” said Rich Heath, director of financial aid at Anne Arundel Community College

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Roughly $829 million in Pell grants in the fiscal year that ended last September were “improper payments,” which includes fraud and disbursements

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More than 34,000 participants in crime rings improperly received federal student aid last year, up 82% from 2009

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“We started seeing student borrowing that was just over the top with no explanation for why,” Ms. Zanders said. “We have individuals that have told me, ‘I spent all this money on graduate school. I can’t get a job. I’m living in somebody’s basement. I can’t afford to live, I need the money.’ It’s not so much about the education, it’s the money.”

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Most federal student aid requires no credit check and comes with few restrictions on how the money is spent. Schools get the first cut of the grants and loans to cover tuition, then make checks to students for the remaining amount to pay for books, transportation expenses, rent and other living expenses for the semester.

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Community colleges are a chief target for fraud because they often have open enrollment, meaning anyone can attend regardless of their academic background, and low tuition. The lower the tuition, the more money is left over from a grant or loan to cover living expenses.

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Federal officials say the Internet has helped fuel student aid fraud. At community colleges and online schools, borrowers can often obtain tens of thousands of dollars in aid by applying via the Web, without ever stepping foot on campus or talking to a school official.