DOGE Should Root Out Fraud in Federal Student Aid

When students attend college with the help of federal aid, the funds they receive are not merely intended to cover tuition, books, and fees; they can also be used for rent, groceries, gasoline, or other living expenses. In addition to the loan or Pell grant money going directly to their schools, students will often be sent a separate check to pay for these other expenses. For years, experts have observed a phenomenon in which some of these students, so-called “Pell runners,” have applied for aid, taken the leftover money, and disappeared.

Community colleges and other open-enrollment schools have conventionally been the most common targets for aid fraud because their costs and entrance requirements are low, making it easy to enroll in a cheap program and pocket the difference between a Pell grant (up to $7,395 annually) and the cost of tuition and fees (which averages $3,780 annually). The fraud risk has increased over the years, however, due to the growing sophistication of identity theft and the growing chaos and ineptitude at the Department of Education’s Federal Student Aid (FSA) office. In 2023, the Department of Justice charged three California women with using prison inmates’ social security numbers to get nearly $1 million in student loans. Many similar cases have likely gone undetected.

FSA disburses over $120 billion in grants and loans each year. How much of that is fraud? It’s hard to say.

Community colleges make up about one-third of Pell disbursements ($8.7 billion annually) but only about four percent of total loan volume ($3.3 billion annually). In 2021, Chaffey College in California estimated that “20% of the traffic coming to the system’s online application portal is from bots and other ‘malicious’ actors.” If this can be extrapolated across the system, then the total fraud could easily be in the billions.

If aid fraud were indeed so widespread, its negative implications would be massive—not merely for taxpayers but also for students, who may be unfairly denied access to particular course sections, and many of the institutions they attend, which may be paying staff to run course sections filled with nonexistent students. That being said, it’s also worth noting that some colleges may have reason to turn a blind eye to perpetrators. Since the government pays schools first—before a student (real or fake) is ever asked to make a loan payment—colleges could stand to indirectly benefit from instances of fraud on their campuses. In a time of declining student enrollment and falling trust in higher education, fake students may be keeping some colleges afloat, giving them little reason to search when certain students never show up to class.

The real fraud in the system may go far beyond community colleges. While entrance requirements may be higher than ever, the move by some four-year programs to “test-optional” removes a significant barrier to fraud. This is especially true at the graduate level, where borrowing is unlimited up to the cost of attendance (a figure that is defined by the university). Speaking of attendance, one would think that a student never showing up to class would raise alarm, but many programs are not even required by the federal government to track who shows up.

Furthermore, loan payments that are calculated based on a borrower’s unverified, self-reported income—such as those under Joe Biden’s SAVE Plan—make the temptation for aid fraud all the greater. In 2019, the Government Accountability Office (GAO) found that 76,200 borrowers holding 11 percent of loan plans analyzed reported no income, despite likely earning (3,300 were likely making $100,000 or more). This would result in small or even zero-dollar monthly payments on billions borrowed from taxpayers.

When this GAO report was issued, then-Secretary of Education Betsy DeVos took steps to stamp out fraud, but the years of student loan pauses, attempts at large-scale loan forgiveness, and the Biden administration’s intentional efforts to sabotage the government’s ability to collect loan payments mean that many of the processes for verifying student information have either atrophied through disuse or been eliminated entirely. Be that as it may, all hope is not lost—Congress has the chance through the upcoming budget reconciliation process to hold colleges accountable by requiring them to cosign loans, potentially curbing their perverse incentive to ignore fraud.

We cannot know for sure how big the fraud problem is until we look. However, my guess is that DOGE’s critics, many of whom have been claiming that the fraud identified so far is small potatoes, will quickly cease their complaints as soon as FSA goes under the microscope. Once the true extent of the fraud is exposed and rooted out, the resultant savings will mean more money available for students to go to college and less taken from taxpayers who do not.

Reprinted with permission from AEI by Michael Brickman.

The opinions expressed by columnists are their own and do not necessarily represent the views of AMAC or AMAC Action.