Financial aid fraud is an attempt to deceive a school, funding agency, or guarantor into allowing a student to pay tuition with funds that he or she would not otherwise be eligible for. This type of deception can be carried out either parents or students. Although one of the most effective deterrents is the threat of expulsion if fraud is discovered and proven, schools develop systematic approaches to detect fraud. Fraud that results in money in the perpetrator’s pocket instead of the school’s account to pay down a tuition bill is more likely to be prosecuted criminally.
Tuition is a significant financial outlay. Financial aid is intended to assist low-income students in covering the gap between what their families can afford and the cost of attendance. It entails a combination of school loans and grants, as well as loans from government agencies and private lenders. Because the pool of funds available for financial aid is limited, awards to students who are technically ineligible divert resources away from students who truly need it and are eligible.
The determination of need is an important part of the financial aid application process and the foundation for award decisions. In order for the school to determine eligibility, parents must disclose their household income, assets, and liabilities. Misrepresentations made parents in disclosing their finances are a common source of financial aid fraud. Schools have discovered cases in which parents lied about their income and assets, the number of college-aged children they have, their own college enrollment, or their marital status.
Parents providing doctored versions of tax returns, hiding money in investments that can’t be easily traced through financial records, and claiming to be divorced and listing separate addresses for each parent even though they are still married are all examples of financial aid fraud. Because the eligibility determination assumes a level of liquidity that the parents may not have, parents who engage in this type of fraud see it as a necessary way to get around the system. However, it is a serious crime, especially when government agencies are involved.
Student-based fraud is another type of financial aid fraud. It is based on the student’s registration status or even his or her very existence being misrepresented. Large-scale financial aid fraud schemes have targeted online schools, where students attend classes over the Internet and have few in-person interactions with faculty members. Theft of a student’s identity allows perpetrators to obtain financial aid in his or her name, enroll in online classes in his or her place, and pocket the portion of the aid award that does not go toward tuition.