Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

Public Hearing May 23, 2012

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U.S. DEPARTMENT OF EDUCATION (ED)

 OFFICE OF POST SECONDARY EDUCATION 

Transcription for Negotiated Rulemaking 

Sessions and Public Hearings 2012

Deliverable 4: Transcription of Public Hearing 

held at South Mountain Community College, 

Student Union Building, Room 100-ABC, 7050 

South 24th Street, Phoenix, Arizona 85042 on 

May 23, 2012

The public hearings began as noticed in the 

Federal Register at 9:00 a.m.
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

Public Hearing May 23, 2012

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TABLE OF CONTENTS

Opening Remarks ............................ 3

Public Comment

- Jim Berg, Apollo Group, Inc. ....... 7

- Dr. Patricia Hurley, Glendale ..... 25

 Community College 

- Robert Voytek, Coconino County .... 41

 College

- Kenneth Clarke, Paradise Valley ... 48

 Community College

- Sheri Jones, Ashford University ... 52

- Darren Christman, TouchNet ........ 60

- Ricardo Montano, Mesa Community ... 66

 College

Adjournment ............................... 72
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

Public Hearing May 23, 2012

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1 P-R-O-C-E-E-D-I-N-G-S

2 (9:03 a.m.)

3 MS. TALWALKER: Welcome. My name 

4 is Ajita Talwalker. I am Senior Policy 

5 Advisor in the Office of the Under Secretary 

6 at the Department of Education. And I wanted 

7 to begin by welcoming you all on behalf of 

8 the Department of Education to this public 

9 hearing, and also to introduce colleagues 

10 from the Department who will be participating 

11 in the hearing today.

12 We have Lynn Mahaffie, who is the 

13 Senior Director for Policy Coordination, 

14 Development and Accreditation Service in the 

15 Office of Postsecondary Education; and Sally 

16 Wanner, who is an attorney in the 

17 Postsecondary Division of the Office of the 

18 General Counsel.

19 We appreciate your interest and 

20 the time that you are taking to share your 

21 thoughts and ideas and recommendations with 

22 us. 
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Public Hearing May 23, 2012

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1 As you know, we published a 

2 notice in the Federal Register expressing our 

3 intent to convene a committee to develop 

4 regulations designed to prevent fraud and 

5 abuse in the Title IV programs, particularly 

6 in light of ever-changing advances in 

7 technology. 

8 Our intent is to ensure that 

9 Title IV funds are used properly and are, in 

10 fact, provided to eligible individuals for 

11 legitimate postsecondary pursuits. The 

12 hearing, we feel, is a first step in that 

13 process.

14 The Department will be holding a 

15 second public hearing next week, March - May 

31st 16 in Washington, D.C., and we are also 

17 accepting written comments through our 

18 electronic system.

19 In September of 2011, the Office 

20 of the Inspector General issued findings 

21 outlining concerns about fraud in the 

22 distance education programs. As a result, 
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Public Hearing May 23, 2012

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1 the Department issued a "Dear Colleague" 

2 letter, GEN-11-17, alerting institutions to 

3 the issue and providing guidance to assist in 

4 addressing it.

5 We are here in Arizona because 

6 institutions in this state have been 

7 particularly -- played a significant role in 

8 identifying, detecting, and combating these 

9 types of fraud and abuse.

10 Since the OIG's report was 

11 released, we have established an internal 

12 task force that takes a closer look at the 

13 issue, presented a topic at several 

14 conferences, including the Federal Student 

15 Aid Conference last fall, and we -- in that 

16 context we see that regulatory changes might 

17 be appropriate.

18 Along with the issue of fraud in 

19 the Title IV programs, we are interested in 

20 looking at potential issues around the use 

21 of debit cards and other forms of -- other 

22 mechanisms for disbursing federal student aid 
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Public Hearing May 23, 2012

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1 funds, and as well as improving and 

2 streamlining the campus-based aid programs.

3 It is important to remember that 

4 these regulations are being developed in the 

5 context of current law -- that is, that we 

6 can't change provisions in the Higher 

7 Education Act through our regulations, so 

8 that some issues such as the allocation 

9 formula for campus-based aid programs would 

10 not be germane to this conversation.

11 We don't want to constrain 

12 anyone's comments in this regard, but we 

13 recognize -- want you to recognize that that 

14 is a limitation in terms of our actions.

15 Again, the purpose of this 

16 hearing is to -- for us to hear from you. We 

17 will not engage in a lot of dialogue or 

18 discussion or debate or address questions 

19 about what issues may be ultimately included 

20 in the negotiations. And we will use the 

21 information that you provide to us in these 

22 hearings, as well as any written comments 
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Public Hearing May 23, 2012

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1 that are submitted, to inform the next 

2 negotiated rulemaking process.

3 We expect to announce this next 

4 round during the summer through, again, a 

5 notice in the Federal Register that will 

6 specify both the subject matter content for 

7 the negotiations as well as request nominees 

8 for the upcoming negotiating sessions.

9 So I wanted to thank you again 

10 for coming, and I think that will lead us to 

11 our first presenter, which I do not have a 

12 list for.

13 MS. MAHAFFIE: Mr. Berg?

14 MS. TALWALKER: Jim Berg from the 

15 Apollo Group.

16 MR. BERG: Good morning. Thank 

17 you very much. My name is Jim Berg, and I am 

18 Vice President and Chief Ethics and 

19 Compliance Officer of Apollo.

20 I have general responsibility for 

21 the detection and prevention of fraud within 

22 Apollo and its subsidiaries. These include 
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1 the University of Phoenix, Western 

2 International University, or West as we call 

3 it, and the Institute for Professional 

4 Development. All three of these subsidiaries 

5 operate in the United States, and they all 

6 three manage or administer student financial 

7 aid assistance pursuant to Title IV.

8 I want to take an opportunity at 

9 the beginning here to commend the Department 

10 of Education for the leadership that you all 

11 have shown in drawing public attention to the 

12 various -- very serious problem of fraud in 

13 student financial aid.

14 The series of public hearings 

15 that you are holding, and the subsequent 

16 negotiated rulemaking procedure that you are 

17 instituting, will in our view shed light on 

18 the dimensions of the problem and of the 

19 steps that are now being taken to defeat 

20 those who would defraud.

21 I also want to take a moment at 

22 the beginning to commend the Office of 
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Public Hearing May 23, 2012

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1 Inspector General of the Education 

2 Department. The OIG's dedication in pursuing 

3 fraud and in helping education institutions 

4 develop means to combat fraud has been 

5 indispensable to the process, we believe.

6 My organization is proud to have 

7 an excellent working relationship with the 

8 OIG and its special agents, and we have 

9 learned much from them.

10 In recent years, higher education 

11 has seen tremendous growth in student 

12 financial aid and Title IV. In conjunction 

13 with this growth, the number of people 

14 attempting to defraud the government has also 

15 increased. Schools with lower tuition costs, 

16 associate programs, open enrollment models, 

17 or those offering online modalities are often 

18 targeted by these fraudsters.

19 However, no educational 

20 institution that participates in Title IV 

21 programs is immune. For the last four years, 

22 Apollo Group has worked diligently to develop 
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1 an effective student financial aid fraud 

2 prevention and detection program.

3 The Apollo program uses 

4 sophisticated techniques to identify 

5 potential Title IV fraud and to prevent the 

6 disbursement of Title IV funds to potential 

7 and current students who attempt to provide 

8 falsified information. The fraud prevention 

9 and detection program also fulfills our 

10 requirement to comply with the red flag rules 

11 of the Federal Trade Commission that requires 

12 certain institutions to develop an ID theft 

13 prevention program.

14 Apollo also has recently joined 

15 with other local and national institutions to 

16 collaborate further on fraud prevention 

17 methods and techniques. We believe that 

18 fraud prevention must be a priority at all 

19 institutions of higher education and within 

20 the Department of Education.

21 To this date, Apollo's program 

22 has experienced I think some great measures 
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Public Hearing May 23, 2012

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1 of success. We attribute this largely to our 

2 creation of a dedicated fraud prevention 

3 team. We refer to them internally as our 

4 fraud squad, and they have T-shirts that say 

5 Fraud Squad. So when they appear you know 

6 that they are very serious about their work.

7 Since 2008, four full-time staff 

8 members have been trained as experts in

9 identification and verification of potential 

10 fraud schemes and students. Now, since fraud 

11 prevention starts at the front line of any 

12 organization, a complete commitment to 

13 employee education across the organization 

14 is, we think, the most effective way to

15 recognize the red flags or suspicious 

16 activities that are useful in identifying 

17 potential fraudsters.

18 Our employee awareness campaigns 

19 include formal training, teleconferences, 

20 webinars, job aids, and regular compliance 

21 alerts. And our employees are also provided 

22 easy access to an internal reporting system 
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1 where suspicious and potentially fraudulent 

2 activities that they spot may be submitted 

3 directly to the fraud squad for their 

4 assessment and action.

5 Additionally, we have put in 

6 place an orientation program, which is a 

7 three-week, no-cost requirement for all new 

8 degree students entering with 24 credits or 

9 less. We put this program in effect for a 

10 number of reasons, primarily because we 

11 wanted to make sure that the students 

12 entering our universities who did not have 

13 prior credits, and who did not have prior 

14 experience living with going to college, were 

15 given an opportunity to understand what 

16 college life is like, what kinds of 

17 requirements would be placed upon them, et 

18 cetera.

19 And as a result, we are seeing --

20 we believe that the participants in our 

21 orientation course are better able to persist 

22 in their work than before the institution of 
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1 the orientation class. However, the program 

2 has also proven to be a very serious 

3 safeguard against fraud in that it provides a 

4 buffer period prior to disbursement of 

5 financial aid, through which those who are 

6 only attempting to collect financial aid are 

7 not likely to persist.

8 The bottom line here is that 

9 those engaged in criminal activity are 

10 usually unwilling to wait to complete the 

11 three-week orientation program before the 

12 disbursement of aid. And so when they find 

13 out about this program they tend to 

14 disappear, which is good.

15 The historical statistics related 

16 to potential Title IV fraud scheme population 

17 at Apollo are outlined in the written 

18 statement that I have provided to you all. 

19 And I just want to review a few of those with 

20 you this morning.

21 We have flagged 17,600 

22 participants -- or potential fraudsters in 
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1 our process. This constitutes just about 1.8 

2 percent of all of the individuals who have 

3 registered over the same period. And I think 

4 we have also learned that that statistic --

5 1.8 percent, 1.7 percent, somewhere under two 

6 percent -- seems to be consistent across 

7 other organizations, across other schools. 

8 We don't have complete data on that, but from 

9 what we have heard we think that that number 

10 is probably a pretty good estimate of the 

11 dimension of the fraud problem.

12 As we look at the fraud schemes 

13 that we have been able to detect, they 

14 typically will have 19 participants, 

15 typically one or more ring leaders and then 

16 19 other individuals.

17 We have referred 886 fraud 

18 schemes to the Office of Inspector General, 

19 and from those referrals there are 12 cases 

20 that have resulted in indictments of the 

21 participants. Now, each of those cases would 

22 very likely include a high number of people, 
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1 so the number of individuals indicted is 

2 greater than the 12 cases.

3 In my written statement, we have 

4 several paragraphs that define for you 

5 exactly how our fraud detection and 

6 prevention system works. I won't go into 

7 that detail here in this oral statement, but 

8 the material is all in there. And it is 

9 material that we are sharing with other 

10 educational institutions, believing as we do 

11 that the more that we all unite together to 

12 fight this problem the better off it will be 

13 for all of us.

14 One of the main goals of our 

15 program is to prevent the disbursement or 

16 misuse of Title IV funds and student debt to 

17 the university. Students who are flagged for 

18 fraud prior to receiving any disbursements 

19 are considered caught by Apollo. We measure 

20 success in catching fraudulent students and 

21 ring leaders prior to funding by tracking a 

22 monthly catch rate, and the catch rate is the 
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1 percentage of students not receiving funds.

2 The number of individuals flagged 

3 and the percentage of those caught is 

4 displayed in a chart in my written statement. 

5 I just want to highlight two months.

6 We have displayed about two years 

7 of data here on a monthly basis. And if I 

8 look back at the chart, I would highlight the 

9 two months of January 2011 and March 2012. 

10 In January 2011, we flagged the highest 

11 number in one month that we ever have of 

12 potential fraud students. That number is 

13 almost 1,100 in one month.

14 And we are pleased that of those 

15 1,100 we were able to prevent the 

16 disbursement of financial aid to 82 percent 

17 of them. So that is our catch rate for that 

18 particular month.

19 In March of 2012, some 15 months 

20 later, the number of students -- potential 

21 fraudsters who we flagged that month was 

22 under 200. And since January `11, the number 
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1 flagged per month has generally been coming 

2 down.

3 Also, in March of 2012, we were 

4 able to catch or prevent disbursement of 

5 financial aid to 85 percent of those who we 

6 had flagged. One thing about this chart that 

7 is interesting, I believe, is the decline in 

8 the numbers of individuals who we are 

9 flagging. I think there are a couple of 

10 reasons for that.

11 First of all -- and this is 

12 something that we are very pleased about --

13 we have heard anecdotally from fraudsters 

14 themselves that they are avoiding our 

15 universities, particularly the University of 

16 Phoenix, because word has gotten out that we 

17 are going after fraudsters, and we are 

18 referring them to the OIG. So we are 

19 becoming perhaps less of a favored target for 

20 these fraud ring leaders.

21 The other thing that is 

22 happening, I believe, is that there is a 
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1 slight, slow, but nevertheless improvement in 

2 the economy over this period of time. And we 

3 certainly did see, with the onset of the 

4 recession in late 2008 and early 2009, we saw 

5 a lot more people moving in the direction of 

6 finding alternative means of income, fraud 

7 being one of them.

8 But as we -- as the unemployment 

9 rate slowly declines, as more jobs are 

10 available in the private sector, people may 

11 be going back to work, and the incidence of 

12 fraud may be overall decreasing. That has 

13 just been our experience. We don't 

14 necessarily have a wide variety of numbers to 

15 talk to you about that would indicate that 

16 that is truly a national trend, but it seems 

17 to make sense given the numbers that we have 

18 seen.

19 We consider these fraud schemes 

20 and fraud attempts as very serious detriments 

21 to the educational process, as well as to the 

22 missions and goals of our education 
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1 subsidiaries. As such, all student financial 

2 aid fraud that we identified is referred 

3 directly to the U.S. Education Department's 

4 OIG through regular communications with 

5 supervisors and field agents.

6 The Apollo fraud team meets 

7 regularly with OIG officials to discuss fraud 

8 trends, understand required information, 

9 resulting in the highest quality of referrals 

10 and subsequent prosecutions by the U.S. 

11 Attorney’s Office, and to develop cooperative 

12 best practices in alerting the OIG, postal 

13 inspectors, state, local, and other law 

14 enforcement agencies.

15 We provide each month a referral 

16 package that contains very specific 

17 information. We have worked with the OIG in 

18 particular to define the information that 

19 they need and that they will find most 

20 useful. By providing the best possible case 

21 referral information and in applying 

22 consistent communication on changes or 
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1 developments in case research, we believe 

2 that we can continue to work to support the 

3 goals of the Office of Inspector General in 

4 bringing these individuals to justice.

5 There are some additional 

6 opportunities, we believe, to detect and 

7 prevent and deal with student financial aid 

8 fraud beyond the work that is being done by 

9 many colleges and universities. Education 

10 Department resources, such as the Central 

11 Processing System and the NSLDS, the National 

12 Student Loan Data System, could be used to 

13 run reports and perform trending to offer 

14 insight into a student's loan and funding 

15 history that could indicate fraudulent 

16 patterns. I think this idea was identified 

17 in a recent OIG report.

18 Other red flag resources, such as 

19 access to incarceration history or the 

20 development of a hot address warehouse, 

21 similar to what is done in the banking 

22 industry, may also prove useful as 
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1 information to schools. What we have 

2 certainly found is that some of the fraud 

3 ring leaders or the fraud participants will 

4 provide an address that is nothing more than 

5 a vacant lot, and so they might try that with 

6 us. It might not work with us. Then, they 

7 move to another school and another school and 

8 another school.

9 So some kind of centralized 

10 database that would contain some of the 

11 information that either we or other schools 

12 have discovered as red flags or indicators of 

13 fraud would be very, very useful to all of 

14 us.

15 Some have suggested that all 

16 funds that are to be given to students be 

17 processed via electronic fund transfers. In 

18 fact, in the notification for this hearing, 

19 that was one of the ideas that was put 

20 forward.

21 It can be argued that commonality 

22 in bank accounts identified in the electronic 
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1 fund transfer process could then be used as a 

2 red flag, and there certainly would be a 

3 reduction in cost because of reduced paper 

4 transactions.

5 If this suggestion is considered, 

6 we believe that very great care should be 

7 taken in order to avoid an increase in costs 

8 to students where fees associated with debit 

9 cards or other banking services can be 

10 applied to them.

11 An even more significant concern 

12 in this area is the inability of some 

13 students even to establish a banking 

14 relationship due to poor or insufficient 

15 credit history. This concern will be most 

16 prevalent among those students who have not 

17 traditionally been served by our educational 

18 system.

19 Also, on a related topic, many of 

20 the fraudsters, many of the students 

21 involved, particularly those involved in 

22 fraud rings, are themselves victims of 
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1 identity theft. And they need relief from 

2 the adverse credit sooner rather than later 

3 when courts eventually take legal action or 

4 in situations where no prosecution is likely.

5 Many of these individuals don't 

6 even know that their identity, which they 

7 might have sold for a small amount of money 

8 to a fraud ring leader, is being used in the 

9 way that the ring leader is using them. And 

10 so only subsequently do they find out that 

11 something had happened that their identity 

12 was stolen, that it was used for fraudulent 

13 purposes. Through no fault of their own, 

14 they are in some ways innocent victims of the 

15 process.

16 And I think in cases of proven 

17 student fraud, schools also need relief from 

18 the adverse effect of defaulted loans. And, 

19 therefore, these loans ought to be excluded 

20 from the default rate formula. The 

21 regulations that might ultimately emerge from 

22 the neg-reg process that you all foresee 
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1 could address these types of issues.

2 Any regulations that are created 

3 should also provide guidelines, we believe, 

4 on court-ordered restitution such as how 

5 payments are applied and on the order of 

6 application. It is a common practice that as 

7 part of the prosecution and related court 

8 process restitution is required. In this 

9 case, restitution should be whole, because 

10 federal programs must be refunded in their 

11 entirety.

12 We also believe that institutions 

13 should be held harmless for any Title IV 

14 funds retained if the school acted in good 

15 faith at the time of certification and 

16 disbursement.

17 So, in conclusion, I just want to 

18 say again how much my organization, Apollo, 

19 and the universities that we represent 

20 appreciate the opportunity to provide these 

21 oral comments and the written comments as 

22 well. And we look forward to participating 
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1 in the rulemaking and the public comment 

2 process that will unfold in the coming 

3 months.

4 I just want to say that we very 

5 firmly believe that sharing information and 

6 regular communication and research into best 

7 practices throughout the industry will serve 

8 to increase the success of all of these fraud 

9 detection and prevention programs and will 

10 preserve precious student financial 

11 assistance resources for those who have a 

12 legitimate claim to them.

13 Thank you very much.

14 MS. MAHAFFIE: Thank you very 

15 much for sharing your comments -

16 MR. BERG: Sure. Absolutely.

17 MS. MAHAFFIE: -- and for the 

18 work that you are doing in this area.

19 We have nobody else signed up 

20 until later in the day, so if there is 

21 anybody else who would like to come up, 

22 please -
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1 DR. HURLEY: Well, I am the 

2 person who signed up, and I am here, so I can 

3 move up on the calendar. 

4 MS. MAHAFFIE: Great. Please.

5 DR. HURLEY: I'm Dr. Pat Hurley 

6 from Glendale Community College in 

7 California. And as co-chair of the Federal 

8 Issues Committee for WASFAA, the Western 

9 Association of Student Financial Aid 

10 Administrators, welcome to our region.

11 WASFAA will be preparing comments 

12 and mailing them to you by the end of the 

13 week. I am here speaking on behalf of the 

14 California Community College Student 

15 Financial Aid Association this morning.

16 The California Community Colleges 

17 is the largest higher education system in the 

18 country. We have 112 community colleges, 

19 serve almost three million students, and the 

20 CCSFAA, the Community College Financial Aid 

21 Association, represents the student financial 

22 aid administrators and officers in the 
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1 colleges in that system. 

2 And we very much thank you for 

3 the opportunity to address the issues of 

4 fraud and abuse and some possible campus5 based issues that will be going to neg-reg. 

6 On fraud and abuse, we are the largest and 

7 lowest cost system of higher education in the 

8 country, and recognize the need to locate and 

9 control fraud and abuse in Title IV programs 

10 at our institutions, but are concerned about 

11 creating unduly burdensome regulations in 

12 this area. Because each occasion of fraud 

13 can be very unique, we think it will be 

14 difficult to develop regulations that address 

15 all potential abuses.

16 However, we do believe that with 

17 the assistance of the Department in providing 

18 institutions additional tools to identify 

19 potential fraudulent behavior, colleges 

20 themselves will be better equipped to address 

21 cases of fraud as they occur, and in that 

22 vein we offer some recommendations.
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1 Number one is to develop profiles 

2 for possible Pell runners, and I think Mr. 

3 Berg alluded to this in his statement, or 

4 other types of fraudulent behavior and 

5 utilize the ISIR record to alert institutions 

6 when the student falls into that category. 

7 One example might be students who 

8 have received aid from more than two 

9 institutions within three years. It is very 

10 likely -- a lot of students receive aid from 

11 two if they are transfer students. But if 

12 within three years it has been more than two, 

13 then they might be hopping around, and that 

14 might be an indication of fraudulent 

15 behavior.

16 By providing a common code on the 

17 ISIR records, schools could take measures to 

18 investigate the reason for the students' 

19 frequent change of school and determine if 

20 the students should continue to receive 

21 federal student aid.

22 Our second recommendation is to 
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1 provide institutions the ability to suspend a 

2 student's financial aid eligibility if fraud 

3 or abuse is suspected. At this point, there 

4 is no provision -- if a case is turned over 

5 to the Inspector General's office, we are 

6 often advised to continue funding the student 

7 until legal action is taken. And this would 

8 give us some way to at least halt 

9 disbursements to a student who is -- who we 

10 suspect of fraudulent behavior.

11 Another recommendation is to 

12 provide a flag on NSLDS to report students 

13 who owe federal student repayment to the 

14 institution. That would prevent the student 

15 from receiving aid at another institution 

16 unless the overpayment is resolved. 

17 Currently, this is allowed for students who 

18 are referred to the Department of Ed by 

19 institutions for repayment of a federal 

20 grant. However, more frequently institutions 

21 adjust the award and it ceases to be a 

22 federal overpayment. It becomes an 
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1 institutional overpayment or a debt to the 

2 institution and doesn't get recorded, and 

3 because of that isn't reported to NSLDS, and 

4 the block on the student receiving aid at any 

5 institution, which occurs if -- for 

6 overpayments reported to the Department of 

7 Ed, doesn't happen in these instances.

8 So there is nothing preventing the 

9 student from registering at another 

10 institution, receiving aid, and at another 

11 repeating the behavior. And because of our 

12 systems, most institutions that have some of 

13 the major computer systems -- most 

14 overpayments, if a student drops -- receives 

15 aid and drops out of class become an 

16 institutional debt, not a financial debt.

17 So we are recommending that the 

18 NSLDS system be expanded to allow 

19 institutions to report outstanding federal 

20 overpayments regardless of whether the 

21 overpayments are assumed by the institution 

22 or referred to the Department of Education 
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1 for collection. 

2 In either case, the institution 

3 should be able to report the overpayment 

4 through NSLDS that provides a flag or a 

5 comment on the ISIR record preventing further 

6 aid eligibility until the overpayment is 

7 resolved and removed from the system. And 

8 that would prevent students from hopping 

9 around to different schools, because they 

10 would be ineligible for aid at another 

11 school.

12 A fourth recommendation is to 

13 allow institutions to refer students who 

14 receive aid and then never attend classes to 

15 the Department -- to be referred to the 

16 Department of Ed for collection. Despite the 

17 new regulations requiring institutions to 

18 disburse Pell Grant funds for books and 

19 supplies within the first week of the 

20 semester, under current regulations it is 

21 still considered an institutional liability 

22 if the student receives aid and subsequently 
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1 never enrolls. And we are not allowed to 

2 refer those cases to the Department of Ed to 

3 be collected by the Department of Ed as an 

4 overpayment. It becomes an institutional 

5 liability.

6 Since many cases of fraud include 

7 students who received aid and did not attend 

8 classes, it makes sense to use ISIR 

9 information to prevent them from receiving 

10 further aid at another school unless 

11 specifically approved by a financial aid 

12 office. And that would be -- I don't know if 

13 that would be a procedural change or a 

14 regulatory change.

15 Recommendation five is to expand 

16 FERPA regulations to provide institutions 

17 with sufficient protection to exchange 

18 information on fraudulent cases or suspected 

19 fraudulent students. While we respect the 

20 confidentiality of student records and the 

21 danger of labeling innocent students, some of 

22 the best prevention results from information 
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1 that is shared among institutions, either by 

2 student transcripts or informal anecdotal

3 exchanges of information.

4 Our sixth recommendation is do not 

5 allow students convicted of fraud to remain 

6 eligible for federal student aid. This 

7 should be a permanent disqualification. 

8 Currently, they are eligible unless as part 

9 of their conviction the Judge sentences them 

10 to no longer being eligible for aid. And 

11 that doesn't make sense to us, if they have 

12 already been convicted of defrauding the 

13 government that we should be giving them 

14 additional funding.

15 Recommendation seven is ironically 

16 the student loan program is the only Title IV 

17 entitlement program with annual loan limits 

18 ranging from $5,500 per year to $11,500 per 

19 year for undergraduates. This program is a 

20 potential target for fraud. Many schools, 

21 particularly community colleges, have long 

22 requested the ability to set institutional 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 policies governing the amount students may 

2 borrow.

3 In addition to helping curtail the 

4 growing student debt problem, this 

5 flexibility would assist colleges to control 

6 fraud and abuse on the part of students 

7 taking out federal student loans. And we 

8 know that this is part of your experimental 

9 site projects that are ongoing, and hopefully 

10 that will result in more authority on the 

11 part of institutions to help students curtail 

12 their debt and curtail some of the potential 

13 abuses.

14 In addition, when I was coming 

15 over here, part of what has been recommended 

16 is multiple disbursements, and most of the 

17 community colleges in our state do multiple 

18 disbursements. But one of the problems with 

19 that -- at my own institution, we disburse 

20 students 50 percent of their Pell Grant the 

21 week before classes start, and the remainder 

22 of their Pell Grant and all other Title IV 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 aid after our census date, or one month into 

2 the semester, so that we know that when the 

3 bulk of the aid is being disbursed the 

4 students have already attended classes for a 

5 month.

6 Another institution I was at 

7 disbursed on a monthly basis. But one of the 

8 problems with doing that has been since then 

9 an interpretation of the disbursement 

10 regulations saying that if you reduce a 

11 student's award at any point in the semester 

12 you also have to increase it throughout the 

13 semester, which is why many of us have 

14 established these census dates, and after 

15 that point we no longer adjust a student's 

16 award. But that makes it difficult for 

17 schools that want to do aid disbursements on 

18 a monthly basis. For example, if a student 

19 starts out full-time and you are disbursing 

20 their aid on a monthly basis as a full-time 

21 student and then they drop two classes three22 quarters of the way into the semester, 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 current regulations would require you to 

2 recalculate the student's entire eligibility 

3 down to a half-time basis. And if the 

4 student had received more than two of the 

5 four disbursements, the student would owe a 

6 repayment at that point in time.

7 And that is really -- more schools 

8 would do multiple disbursements if it wasn't 

9 disadvantaging the students who drop -- had 

10 to drop classes later in the semester. 

11 So one way to address that would 

12 be instead of recalculating the eligibility 

13 for the entire semester, saying that at the 

14 time of the disbursement, whatever the 

15 student's eligibility is what they are 

16 entitled to. And if they fall -- if their 

17 enrollment status changes, and their award 

18 falls below the amount already disbursed, 

19 they just are no longer disbursed any 

20 additional funds.

21 One of the other suggestions was 

22 debit cards. We are one of the few 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 institutions of the many in Southern 

2 California that currently are still 

3 disbursing funds via checks, and we are doing 

4 that because of the fees that are charged.

5 We have a very large, very low 

6 income immigrant population, and many of them 

7 are a little leery of establishing banking 

8 accounts, and in many cases would not. So, 

9 and we are concerned about the fees, but we 

10 probably, for cost saving measures, given the 

11 state budget, may be going in that direction. 

12 But that is a concern, is the fees that are 

13 charged in -- for a number of reasons by the 

14 debit card companies.

15 I would also recommend to you a 

16 report recently done by the American 

17 Association of Community Colleges on fraud 

18 and abuse and some of the recommendations 

19 that they gathered from some schools. We 

20 only have a few recommendations on the 

21 campus-based programs. We strongly support 

22 the President's initiative to increase the 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 work-study funding and change the formula, so 

2 that funds are directed to institutions that 

3 have high levels of low income students. We 

4 look forward to that.

5 Most of us -- and this goes into 

6 the SEOG awarding recommendation, which now 

7 requires you -- us to award students SEOG 

8 funds first to the lowest EFC students, which 

9 are zero EFC students, which is approximately 

10 -- which is over 60 percent of all of our aid 

11 filers at my institution. And we have about 

12 18,000 ISIRs this year.

13 So given the fact that we have 

14 very limited SEOG funds, we never get to 

15 students that do not have a zero EFC and that 

16 is true of all of our community colleges in 

17 the state. And those are often students who 

18 also get state grants and other funds. So we 

19 would like the opportunity to be able to move 

20 up that EFC chart and give students who have 

21 really comparable need but may not have as 

22 much other aid. 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 So instead of tying it to the 

2 lowest EFC of Pell eligibles, we would just 

3 recommend that SEOG awards be tied to Pell 

4 eligible students.

5 And also, on SEOG, given the new 

6 six-year limit, lifetime limit on Pell 

7 Grants, it is unclear at this point if a 

8 student declines their Pell Grant -- and this 

9 happens at community -- is going to be 

10 happening frequently at community colleges 

11 for students who have been with us three or 

12 four years, which happens if they start with 

13 ESL or remedial classes and want to preserve 

14 their Pell for when they transfer. 

15 So students are already coming in 

16 and asking if they can decline their Pell 

17 Grant, so that they have it available to them 

18 when they go to a four-year school. But it 

19 is unclear whether that disqualifies a 

20 student from an SEOG award or not, because 

21 right now it is targeted to Pell recipients, 

22 and if that student would be defined as a 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 recipient or not, and we would like some 

2 clarification in the regulations.

3 So with that, I thank you again 

4 for coming west, and we look forward to some 

5 good results from the negotiated rulemaking.

6 Thank you.

7 MS. TALWALKER: I just had a 

8 question. Can you add a little bit about 

9 what specific in the FERPA regulations you 

10 feel inhibits the kind of communication 

11 between institutions about potential fraud 

12 and abuse? DR. HURLEY: If a 

13 student -- I think right now if a student is 

14 dismissed from the college, some institutions 

15 will put that on their transcript. Other 

16 than that, if -- our feeling is that since a 

17 school is identifying personally identifiable 

18 students, saying, "This student -- we found 

19 that this student ripped off our Pell Grant 

20 program," until that is proven, that that 

21 might -- that schools are very -- feel that 

22 that might be in violation of FERPA and are 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 very reluctant to change that kind of 

2 specific information. And we don't really 

3 have any other vehicle to do it.

4 But, obviously, if one school 

5 discovers a fraud ring, then the other 

6 schools would really like to know about it, 

7 because our experience is that they tend to 

8 move, particularly in an area like Southern 

9 California where you have -- we have over 30 

10 community colleges just in the L.A. and 

11 Orange County area.

12 So we find that a lot of students 

13 will move from college to college, not a lot, 

14 because, I mean, we don't often hear about 

15 it. But when we do, they tend to roam 

16 around. And if schools had some way where 

17 they were not in danger of liability of being 

18 able to exchange some of that information, 

19 that would be helpful. 

20 And one way maybe the -- you know, 

21 and maybe through the ISIR, in identifying 

22 the characteristics that usually -- that 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 might be typical of a Pell runner or somebody 

2 who is fraudulent, and blocking aid on the 

3 ISIR, because that then blocks aid at any 

4 institution.

5 MS. TALWALKER: Thank you.

6 DR. HURLEY: You're welcome.

7 MS. MAHAFFIE: Thank you very 

8 much. Is there anybody else who would like 

9 to provide comments at this time? 

10 MR. VOYTEK: I'm actually at 

11 11:25.

12 MS. MAHAFFIE: Okay. Great. 

13 Could you share your name and affiliation 

14 with us, please? 

15 MR. VOYTEK: Hello. My name is 

16 Robert Voytek. I am with Coconino County 

17 Community College in Flagstaff, Arizona. 

18 Coconino County Community College is a small 

19 community college, 6,000 students per year. 

20 We are actually the second largest land mass21 wise in the country, though. So think of 

22 Flagstaff, Grand Canyon, Navajo County, that 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 whole area of northern Arizona. That's us.

2 Distance education is vital to us 

3 to serve our constituents who are many miles 

4 away from our home location. 

5 We are a staff of six, so 

6 administrative capability is a constant issue 

7 with us. With the budget cuts over the 

8 years, tight budgets, obviously, we are a 

9 small staff, small school, and we have got 

10 big problems headed our way with the fraud 

11 rings.

12 Up at our little school, you would 

13 think nobody would come after us, but we are 

14 low cost. Arizona community colleges are 

15 lower in cost than the national average. So 

16 Arizona, as a state, is a target. And when 

17 we are a target, we are being looked at not 

18 only from within state but from far away. It 

19 is typical for us to know exactly where our 

20 students are from, and at Coconino a lot of 

21 times that address will be one mile from the 

22 Chevron station off Route 89A. That is 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 typical for us.

2 Two years ago we started getting 

3 distance students, about 20 of them from a 

4 town in Mississippi, but that was 

5 interesting. The Arizona Association of 

6 Student Financial Aid Administrators is a 

7 pretty tight-knit group, and two years ago we 

8 had a combined meeting of all of the 

9 community college directors talking about 

10 this. And guess what state everybody had 

11 students coming from? Mississippi and 

12 Arizona, people out there. We all know the 

13 town in Mississippi, too.

14 Ultimately, these students ended 

15 up down at Pima. They ended up getting 

16 caught. But we all dealt with them. So here 

17 I am at my small community college. I know 

18 people from the OIG in Atlanta, in Texas, in 

19 Long Beach, and in Phoenix. They are all 

20 great people. They are very helpful in 

21 getting through these cases, and they are 

22 also overworked. There are more cases than 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 they can handle.

2 Currently, what is happening with 

3 schools is we are hardening our own 

4 individual targets. Someone must have gotten 

5 pretty good at that. I would like to share a 

6 few examples of what we have done at my 

7 school, which will be inconsistent with what 

8 other schools are doing. And this is part of 

9 the root of the problem that we are dealing 

10 with right now is some schools have really 

11 hardened up their targets, so we are just 

12 shifting the burden to other schools.

13 At our institution, we require 

14 official transcripts as part of our staff 

15 policy from all previously attended 

16 institutions. If the GPA from those 

17 institutions is below a 2.0 for two or more, 

18 they are denied financial aid. That has 

19 stopped our fraud rings. They can't get 

20 their transcripts from their previous 

21 schools.

22 We have implemented a vigilant 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 attendance policy with our faculty, whereby 

2 they are required as part of their contract 

3 to report attendance and non-attendance by 

4 the end of the first week of classes. We 

5 have implemented a bookstore voucher program. 

6 That is the only money a student would see up 

7 front is a bookstore voucher or the 

8 opportunity to opt out of the bookstore 

9 voucher for funds equivalent to the bookstore 

10 voucher at another store.

11 At three weeks into the term, we 

12 release all aid to students. So attendance 

13 has been verified after week one. 

14 Instructors are also required, if the 

15 students don't show, to let us know, let the 

16 financial aid office know directly that they 

17 haven't shown. 

18 Now, once again, we are a small 

19 institution, a little harder at a large 

20 institution.

21 If we have off and on attendance, 

22 we indefinitely delay disbursement, as was 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 allowed by GEN-11-17 issued October 20, 2011.

2 I think the term "Pell runners" is 

3 inaccurate. They are running with loans 

4 also. I think Pell runners, it is minimizing 

5 the problem, but these students are also 

6 getting a significant amount of loans, more 

7 loans actually than Pell.

8 Our institution, we have -- our 

9 terminology for these students we use is 

10 "school hoppers." That seems to be the most 

11 consistent way that we can identify them.

12 Recommendations -- I would like to 

13 see the ability for schools to reduce cost of 

14 attendance for distance education students. 

15 I would like schools to have -- that is 

16 number one.

17 Number two, I would like schools 

18 to have the opportunity to deny loans to 

19 students on a case-by-case basis based on 

20 venue of taking classes.

21 Number three, I believe the 

22 Department of Ed needs a flagging system to 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 inform schools that they have potential 

2 fraudulent students entering. 

3 And, number four, we need to have 

4 a system to remove potential fraudulent 

5 students under investigation from our cohort 

6 default rate. As many in this room know, 

7 Arizona holds a prestigious ranking of number 

8 one for cohort default rate. And many of us 

9 are very concerned about that, and we know 

10 that fraudulent students are affecting that 

11 rate.

12 Last but not least, I do think it 

13 is important to state that not all straw 

14 students are actually perpetrators. Many of 

15 them are victims. I have seen it. I think 

16 it was mentioned earlier this morning, that 

17 some of these students it is really easy to 

18 give your name, your date of birth, and your 

19 Social Security Number out to somebody else 

20 who is helping you out.

21 Some of these ring leaders are 

22 helping out these straw students with housing 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 and basic life needs, and these students, 

2 these -- I can't call them students. These 

3 straw students actually don't know what is 

4 happening to them in the process, so I think 

5 it is important to be aware of that.

6 Thank you.

7 MS. MAHAFFIE: Thank you very 

8 much. Would anybody else like to come 

9 testify at this point? Thank you. You 

10 hadn't signed up before. Could we ask you to 

11 sign up, so we can get your name and 

12 information? Thank you.

13 MR. CLARKE: I only have one copy. 

14 Do you want to just take that?

15 MS. MAHAFFIE: That's fine. I can 

16 copy it from there. Thank you.

17 MR. CLARKE: Good morning, 

18 Committee members and colleagues. My name is 

19 Kenneth Clarke. Presently I am the Director 

20 of Financial Aid at Paradise Valley Community 

21 College and Maricopa County Community 

22 College.
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 I have been in the esteemed aid 

2 profession for 28 years, for three of those 

3 years as a federal work-study student. 

4 Disbursing and delivering aid has always been 

5 a cumbersome process plagued with anxiety for 

6 both students and administrators. The 

7 student of today is very different from the 

8 student of 20 years ago.

9 Presently, we live in a time in 

10 society where it is just in time. Students 

11 expect that when they put pertinent 

12 information into a system they have answers 

13 in an instant. When they go to online 

14 purchases, sometimes they have the option of 

15 having it delivered to their door the next 

16 day, or they are able to download their 

17 purchase right away.

18 It is my contention that the paper 

19 check as a means of disbursing Title IV 

20 federal aid to students is not only obsolete, 

21 it is costly to institutions, it causes 

22 unnecessary delays, it creates unnecessary 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 exposure to fraud, and it negates student 

2 learning in regards to maintaining the funds 

3 in today's financial environment.

4 There are numerous financial 

5 institutions that are willing to provide 

6 debit cards to students, for an enrollment 

7 fee, an opportunity to have their financial 

8 institution's name on their card. 

9 Additionally, colleges and universities have 

10 historically used the student identification 

11 card as an all access card.

12 Currently, we are dealing with 

13 huge fraud issues, especially on the 

14 community college level, as you all know and 

15 as has been stated. Colleges must require 

16 all students to have student identification 

17 cards, if not for the total student body for 

18 those students who apply for federal 

19 financial aid. 

20 All colleges and universities with 

21 participation agreements should have a 

22 department on their campus that can issue a 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 student a financial aid identification card. 

2 This card can contain all of the student's 

3 biodemographic data and biometric fingerprint 

4 scan.

5 Biometric is used in many 

6 applications and is affordable. These files 

7 could be sent through a secured gateway and 

8 reside on a student's NSLDS records. 

9 Students who are attempting to take online 

10 classes at a higher education institution in 

11 another state would have their information on 

12 file with NSLDS. Each time a student 

13 completes the renewal FASFA, there will be an 

14 opportunity to update and gather, revise, 

15 address, email, phone numbers, et cetera.

16 In closing, I would like to say 

17 that the possibilities are endless. A little 

18 more than a decade ago, I was part of the 

19 group that was given the responsibility to 

20 vet the possibility of the e-signature for 

21 the direct student loan promissory note. I 

22 believe that together we can develop 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 processes that will safeguard the taxpayers' 

2 investment in higher education and continue 

3 to provide student access to colleges and 

4 universities.

5 Thank you. 

6 MS. MAHAFFIE: Thank you. At this 

7 point, we are going to take a 10-minute 

8 break, and then we have another speaker 

9 scheduled for when we return.

10 Thank you.

11 (Whereupon, the proceedings in the 

12 foregoing matter went off the record at 10:00 

13 a.m. and went back on the record at 10:18 

14 a.m.)

15 MS. MAHAFFIE: Sheri Jones.

16 MS. JONES: Good afternoon --

17 morning. My name is Sheri Jones. I'm Vice 

18 President of Administrative Services, and I 

19 am providing testimony today on behalf of 

20 Ashford University.

21 For the past 22 years, I have held 

22 numerous positions in institutions of higher 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 education with responsibility for ensuring 

2 proper administration of Title IV programs. 

3 I would like to thank you for the 

4 opportunity to provide comments today on 

5 behalf of Ashford regarding possible 

6 regulatory changes to further help 

7 institutions combat fraud and protect 

8 students and taxpayers from fraudulent 

9 activity.

10 The mission of Ashford is to 

11 provide accessible, affordable, innovative, 

12 high-quality learning opportunities and 

13 degree programs that meet the diverse needs 

14 of individuals pursuing integrity in their 

15 lives, professions, and communities. And as 

16 such, we provide online programs for adult 

17 learners.

18 Our fall 2011 total online 

19 enrollment consists of over 73,000 students, 

20 the majority of whom are over the age of 30. 

21 We provide one of the most affordable options 

22 for earning an online degree, so along with 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 other low-cost institutions we are attractive 

2 to those who are intent on fraudulently 

3 accessing financial aid funds.

4 As online education provides the 

5 only viable option for many of our adult 

6 learners to complete a college degree, the 

7 existing fraud rings threaten access and 

8 affordability for the many authentic students 

9 who are unable to overcome personal barriers 

10 to complete a college degree in a traditional 

11 setting.

12 I would like to share with you 

13 Ashford's efforts that illustrate many of the 

14 best practices, but also point out the 

15 complexities and challenges associated with 

16 identifying and preventing enrollment by 

17 individuals in fraud rings who target 

18 affordable online programs in order to gain 

19 access to the financial aid funds associated 

20 with them.

21 Over the past several years, 

22 Ashford has invested in technology, policies 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 and procedures, employee training, and staff 

2 to deal with the problem of financial aid 

3 fraud in distance education programs. 

4 Improved protocols for identifying potential 

5 fraud rings includes technology to identify 

6 suspicious similarities among applicants and 

7 students, such as address, phone, geographic 

8 area, et cetera.

9 Lists of high school diploma mills 

10 and unverified high schools are used to 

11 screen every application and deny admission 

12 to those who clearly are not qualified. We 

13 are implementing identity software that 

14 requires applicants to answer personal 

15 questions from extensive public record and 

16 proprietary databases prior to gaining 

17 initial access to the online classroom, and 

18 thus preventing their ability to participate 

19 in academic activities prior to 

20 authentication.

21 Ashford is constantly assessing 

22 and investing in new technology to 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 effectively detect fraudulent activity. In 

2 addition to advancements in technology, the 

3 university has also employed university 

4 personnel in an effort to improve detection. 

5 All of them have direct contact with 

6 applicants, and students are required to 

7 complete training to help identify those 

8 individuals and groups with fraudulent intent 

9 and easily report them to the university's 

10 team of quality assurance specialists.

11 This team quickly implements 

12 identity authentication protocols when fraud 

13 is suspected and protects federal funds. For 

14 those students deemed suspicious, we impose 

15 additional protocol, whereby they must prove 

16 their identity through the submission of 

17 notarized documentation prior to disbursement 

18 of federal student aid.

19 The university also utilizes 

20 available external resources to inform 

21 further development of new technology and 

22 processes. For example, we participate in 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 available external trainings and roundtables 

2 offered by peers, the Department, and the 

3 OIG, and we have invested in certified fraud 

4 examiner training to institute best practices 

5 utilized in financial and other industries.

6 Additionally, we have taken the 

7 initiative on a regular basis to review 

8 investigate reports posted on the Office of 

9 the Inspector General website, which 

10 highlight recent indictments associated with 

11 student aid fraud.

12 Review of public record reports 

13 help us stay current on events occurring with 

14 student aid fraud in different parts of the 

15 country. Any names that are specifically 

16 listed as indicted in a financial aid scheme 

17 are researched for potential connections to 

18 students within our university. However, it 

19 is a manual and time-consuming process for an 

20 institution to seek out the relevant 

21 information and review and analyze available 

22 data about individual financial aid offenders 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 that are listed in the indictments.

2 For example, in a recent case, a 

3 former student was seeking enrollment while 

4 under indictment as a ring leader in a 

5 financial aid fraud scheme. Had we not 

6 reviewed a PDF report line by line, we might 

7 not have known to block for attendance at our 

8 university.

9 In the same report, it was 

10 mentioned that there were stolen identities 

11 used in that particular scheme, so without 

12 access to the individual identities related 

13 to the case our hands are tied in terms of 

14 protecting those individuals from further 

15 harm by the fraud ring.

16 Currently, each institution is 

17 left to its own devices to identify and 

18 manage the problem. Regular alerts from the 

19 OIG regarding locations, characteristics, and 

20 the individual identities of those under 

21 investigation or indictment for financial aid 

22 fraud are needed. 
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1 A site or a process for 

2 institutions to share information with the 

3 Department, the OIG, and, if possible, peer 

4 institutions regarding the identity of 

5 potentially fraudulent activity by 

6 individuals is needed. Without such tools, 

7 the cost to institutions of dealing with this 

8 problem are substantial, and the costs may be 

9 prohibitive for some institutions unless 

10 collaborative strategies and resources are 

11 made available from the Department and the 

12 OIG in order to realize our potential for 

13 dealing with fraud issues in higher education 

14 institutions.

15 Institutions and the Federal 

16 Government, in their efforts to address this 

17 issue, would benefit from access to 

18 centralized, trustworthy, and up-to-date 

19 information that helps us identify and manage 

20 the problem. We need a place to collaborate 

21 and share information regarding high school 

22 diploma mills as well, so that we can use 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 that information to stop those who attempt to 

2 enter via that means.

3 We need deployment by the 

4 Department of data mining techniques within 

5 the Department databases to generate ISIR 

6 flags to require verification of identity 

7 when suspicions arise regarding the validity 

8 of particular students. We need regulations 

9 that allow institutions to take measures to 

10 restrict access without fear of retribution 

11 by applicants or students or the Office of 

12 the Inspector General, the Department, or the 

13 OCR.

14 The call for advanced action to 

15 deter fraudulent activity regarding federal 

16 financial aid funds is welcomed by Ashford 

17 University. The solution to the problems 

18 must include joint responsibility and 

19 cooperation among the Office of the Inspector 

20 General, the Department, and institutions 

21 administering federal student aid.

22 Not one of these entities alone 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 can adequately fight against those 

2 individuals and groups who are intent on 

3 posing as legitimate students for the purpose 

4 of fraudulently accessing financial aid 

5 funds, and we look forward to working with 

6 you to deter fraudulent activity in distance 

7 education.

8 Thank you.

9 MS. MAHAFFIE: Thank you very 

10 much. Darren Christman?

11 MR. CHRISTMAN: Hi there. Hi. My 

12 name is Darren Christman. I am actually from 

13 Kansas City, Kansas, from Lenexa, speaking as 

14 a citizen, but I should tell you that I do 

15 work at a company by the name of TouchNet 

16 that is actively involved with higher 

17 education institutions. And a lot of my 

18 thoughts come from working at that company.

19 I want to thank you for giving me 

20 an opportunity to share my insights and 

21 thoughts.

22 For the last several years I have 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 worked at TouchNet. TouchNet is a company 

2 that has been in higher education for over 20 

3 years. They provide technology and payment 

4 solutions to over -- to hundreds of 

5 universities that serve millions of students. 

6 TouchNet, over the last several 

7 years, has really followed refunds, and 

8 specifically Title IV disbursements, very 

9 closely. It has given me an opportunity to 

10 understand the market well and its existing 

11 challenges. For many years, TouchNet has 

12 been involved with e-refunds, providing a 

13 direct deposit program directly to a 

14 student's existing account. In that, they 

15 serve hundreds of institutions, and avail 

16 that to millions of students.

17 TouchNet, as well as I, are very 

18 concerned with the current state of affairs, 

19 as it is related to disbursements. If you do 

20 any reviews of the markets' news, there is a 

21 lot of stories of companies in our space on a 

22 regular basis. 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 So this exposure to the industry, 

2 knowledge, and feedback shows there is a lot 

3 of confusion in the space for students today 

4 the way things are created. And there 

5 appears to be -- to me to be deception, 

6 unfair, and predatory practices by third 

7 parties towards students in order to make a 

8 profit.

9 I think it is important that we 

10 deliver reliable, secure options that reduce 

11 fraud, and that a 100 percent electronic 

12 solution is required. Electronic options are 

13 more reliable, flexible, efficient. They are 

14 easy to track and provide funds more quickly 

15 compared to paper checks provided to 

16 students.

17 The Department of Education should 

18 consider modifying or eliminating a provision 

19 in 34 CFR Chapter 4 requiring check and cash 

20 options. If you look at -- if you step back 

21 and look at the industry as a whole, you 

22 know, one of the largest disbursement 
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1 programs in the world is going 100 percent 

2 electronic, the U.S. Treasury. By March 1, 

3 2013, they are moving to a 100 percent 

4 electronic benefits program. We think this 

5 is an excellent model that the Department of 

6 Education should study.

7 One hundred percent electronic is

8 not enough, though, without boundaries, 

9 regulations, and guidelines that protect the 

10 students from current predatory practices. 

11 Refund options need to be easy to understand, 

12 providing students at least two electronic 

13 choices, providing them control and 

14 convenience.

15 The practices of marketing by 

16 third companies to students directly, in my 

17 opinion, needs to be eliminated. Once a 

18 student has determined the best option and 

19 how they want to receive the refund, they 

20 should provide their personal information 

21 directly to that provider or that third party 

22 or provide direct consent to the university 
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1 that can share the info with that third 

2 party.

3 I would also recommend that 

4 enrollment options must be unbiased and 

5 presented equally. The GoDirect website 

6 administered by the U.S. Treasury provides a 

7 good example of how to empower a beneficiary 

8 to make an informed, unbiased decision.

9 Lastly, full disclosure of all 

10 fees must be presented up front to the 

11 students. No fees should be stuck in 

12 footnotes or in small text with an asterisk, 

13 making them difficult to find. Students 

14 should be able to compare anticipated costs 

15 between all options easily.

16 Now, we don't believe -- or I 

17 don't believe that we should regulate the 

18 costs of cards or direct deposit. That is --

19 I think if you disclose those fees people 

20 will make the right choice for them.

21 TouchNet will be submitting 

22 comments that provide greater detail on this. 
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1 They developed what is called a four-for-four 

2 framework, which is basically the four tenets 

3 for a student-friendly program. If these 

4 ideas are implemented, we think it will 

5 streamline the existing disbursement process, 

6 provide students a greater role in deciding 

7 how to receive money, and eliminate confusion 

8 and common problems with some of the programs 

9 today.

10 Thank you.

11 MS. MAHAFFIE: Thank you. We 

12 don't have anybody else signed up at this 

13 point. But if there's anybody else who would 

14 like to provide comments, please let us know.

15 (Whereupon, the proceedings in the 

16 foregoing matter went off the record at 10:33 

17 a.m. and went back on the record at 10:57 

18 a.m.)

19 MS. MAHAFFIE: We're going to 

20 get started again. 

21 MR. MONTANO: Okay. All right. 

22 Good morning. My name is Ricardo Montano. 
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1 I'm a Financial Aid Technician with Mesa 

2 Community College here in Mesa, Arizona. And 

3 more or less some of what I will be saying is 

4 more or less improvisation, just based on 

5 what I have seen and heard.

6 But on the topic of fraud, after 

7 dealing with some of the students, meeting 

8 with them in person, talking with them over 

9 the phone, and actually forwarding their 

10 information to the Inspector General, some of 

11 the issues that I think we run into isn't so 

12 much at the federal level.

13 As a college -- I don't know if 

14 other colleges run into this also, but for 

15 the fraud rings, those ones do get forwarded 

16 to the Inspector General. However, when you 

17 have a group of students who usually don't 

18 fall into that I guess you could say quota of 

19 I think there is, what, $250,000 or more that 

20 a school or the government has lost before 

21 OIG will really pay more attention.

22 Forgery, I guess at the school 
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1 level, is really where it starts, at least 

2 from what we have seen. And from there, just 

3 I guess the criminal behavior just kind of 

4 increases. You know, I can get away with 

5 this, so I can probably do this. And we have 

6 seen that in more than numerous cases. The 

7 only problem with that is that seems to be 

8 more of an institutional response versus a 

9 federal response. 

10 I guess there isn't really 

11 anything that we have seen or that I can 

12 easily find that would really back us up on 

13 that level. It is not so much a -- well, it 

14 could technically still be considered fraud, 

15 but the most we can really refer to is a 

16 little box on the verification form that said 

17 you can go to prison, jail, or both. But 

18 there really isn't anything that backs that 

19 up saying, well, this is the sanction for you 

20 forging your own parents' signature.

21 I guess really what I am trying to 

22 say is that in order for us to pay more 
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1 attention to the fraud level I think we 

2 should kind of drag it back down to the 

3 community level also, since this is one of 

4 the primary areas where the problem is 

5 starting to come from.

6 You know, we can think on a broad 

7 scale, but if we take it down to more of a 

8 micro level, maybe we will start to knock off 

9 some of the problems there. You know, kind 

10 of stop it before it starts.

11 And I know just speaking because 

12 on a semester basis we run into these, we see 

13 these students, we are -- we could be 98 

14 percent sure that they are fraudulent, but we 

15 can't make that accusation, which really 

16 sucks for the school because our hands are 

17 kind of tied because the only thing we can do 

18 is just forward it on to the Inspector 

19 General. 

20 And even at that point, from what 

21 they have told us, or at least our 

22 understanding of that, they won't act upon it 
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1 unless an actual crime has been committed, 

2 meaning that they won't do anything unless a 

3 student has received that actual funding.

4 So I guess it just kind of -- it 

5 is like a double-edged sword. You can either 

6 prevent it from happening, or you can let it 

7 happen and hope that OIG responds as soon as 

8 they can.

9 So that would just be my one 

10 recommendation is to I guess include maybe a 

11 provision that not only addresses fraud as a 

12 whole but kind of the subtopics of it, and 

13 what kind of recourse is out there for 

14 colleges to kind of rely upon if they are 

15 going to either temporarily suspend students 

16 based on forgery or providing false 

17 documents, at least at that level, because 

18 one of the bigger things that we run into is 

19 fake high school diplomas, fake GEDs, 

20 everything to fake driver's licenses.

21 And one difficulty at the college 

22 level that we run into is getting 
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1 confirmation from high schools that these 

2 high school diplomas are even valid, because 

3 more of us -- as fascinating as crime is, it 

4 is not all that great when you are trying to 

5 do all of these preventative actions, but 

6 there really isn't anything to back you up, 

7 and you are not getting the type of response 

8 which really -- or I guess the audience you 

9 really should be getting to prevent something 

10 as important as this, especially when it 

11 involves Pell Grant, which has already been 

12 overspent anyway.

13 So it just seems kind of 

14 counteractive that we want to be preventative 

15 towards these fraudulent actions, and the 

16 government is saying they have overspent, but 

17 they are willing to write off anything less 

18 than $250,000. You know, it is just one of 

19 those rolling balls where you won't notice it 

20 until it is coming straight at you.

21 So that would just be my 

22 recommendation is more of a preventative 
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1 approach versus repercussions.

2 Thank you.

3 MS. MAHAFFIE: Thank you very 

4 much. We appreciate your comments.

5 Is there anyone else who is 

6 interested in providing comments at this 

7 time?

8 (No response.)

9 Okay. Please let us know if you 

10 would like to.

11 (Whereupon, the proceedings in the 

12 foregoing matter went off the record at 11:03 

13 a.m. and went back on the record at 11:49 

14 a.m.)

15 MS. MAHAFFIE: We're going to take 

16 a lunch break. We'll be back at 1:30.

17 (Whereupon, the proceedings in the 

18 foregoing matter went off the record at 11:49 

19 a.m. and went back on the record at 1:44 

20 p.m.)

21 MS. MAHAFFIE: Good afternoon. 

22 We're back. If anybody would like to provide 
Proposed Regulations Designed to Prevent Fraud and Abuse in the Title IV Programs

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1 comments, please let us know.

2 (No response.)

3 (Whereupon, the proceedings in the 

4 foregoing matter went off the record at 1:45 

5 p.m. and went back on the record at 3:49 

6 p.m.)

7 MS. MAHAFFIE: Thank you very 

8 much, ladies and gentlemen. We appreciate 

9 your coming to this hearing.

10 (Whereupon, at 3:49 p.m., the 

11 proceedings in the foregoing matter were 

12 concluded.)

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