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What Is Financial Aid Fraud?

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  • Written By: Terry Masters
  • Edited By: A. Joseph
  • Last Modified Date: 07 November 2016
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Financial aid fraud is the attempt to materially mislead a school, funding agency or guarantor to allow a student to pay tuition with money for which he or she would not otherwise qualify. This type of fraud can be perpetrated by parents or students. Schools develop systematic approaches to detect fraud, although one of the chief deterrents tends to be the threat of expulsion if the fraud is detected and proven. Fraud that results in money in the perpetrator's pocket, rather than in the school's account to pay down a tuition bill, is more likely to be criminally prosecuted.

School tuition is a significant expense. Financial aid is designed to help needy students make up the difference between what their families can afford to pay and the cost of attendance. It involves a combination of loans and grants from the school, government entities or private lenders. The pool of funds available for financial aid is limited, so awards made to students who technically are ineligible take away resources from students who truly need the help and qualify for it.

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Establishing need is a key component of the financial aid application process and is the basis for award decisions. Parents are required to reveal their household income, assets and liabilities so the school can determine eligibility. One of the traditional avenues of financial aid fraud is misrepresentations made by parents in disclosing their finances. Schools have exposed cases where parents have lied about their income and assets, about the number of children they have in college, about their own enrollment in college or about their marital status.

Practical examples of financial aid fraud include 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 still are married. Parents who engage in this type of fraud tend to think of it as a necessary dodging of the system, because the eligibility determination assumes a level of liquidity that the parents may not, in fact, have available. It is a major crime, however, particularly when government agencies are involved.

Another type of financial aid fraud is student-based. It is dependent upon misrepresenting the student's registration status or even his or her very existence. Online schools, where the student attends classes over the Internet and has few in-person contacts with faculty members, have been the victim of large-scale financial aid fraud schemes. Perpetrators assume a student's identity to obtain aid in his or her name, to attend online classes in his or her stead and to pocket the balance of the aid award that did not go directly toward tuition.

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