Department of Justice Department of Education Federal Trade Commission

College Scholarship Fraud Prevention Act of 2000

Annual Report to Congress

May 2009
COLLEGE SCHOLARSHIP FRAUD PREVENTION ACT OF 2000

ANNUAL REPORT TO CONGRESS

May 2009

Submitted by:

Department of Justice

Department of Education

Federal Trade Commission
Table of Contents

Executive Summary. ............................................................ i

I. Introduction. ............................................................ 1

II. Implementation of the College Scholarship Fraud Prevention Act. . . . . . . . . . . . . . . . . . . 1

A. Amendments to Sentencing Guidelines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

B. National Awareness Activities......................................... 1

1. ED’s National Awareness Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. FTC’s Consumer Education and Outreach Efforts. . . . . . . . . . . . . . . . . . . 2

III. Nature and Quantity of Incidents of Financial Aid Fraud. . . . . . . . . . . . . . . . . . . . . . . . . . 3

A. Overview of Financial Aid Fraud. ..................................... 3

B. Assessment of Current Status of Fraud. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1. FTC Complaint Database....................................... 4

2. ED’s Complaint Monitoring. ................................... 6

a. Complaints to ED’s FSAIC. .............................. 6

b. Complaints to ED’s Office of the Inspector General.. . . . . . . . . . . 7

C. FTC’s Financial Aid Fraud Prevention Program. . . . . . . . . . . . . . . . . . . . . . . . . . . 7

D. DOJ’s Financial Aid Fraud Prevention Program. . . . . . . . . . . . . . . . . . . . . . . . . . . 8

IV. Conclusion. ............................................................ 10

Endnotes..................................................................... 11
i

Executive Summary

Every year, millions of high school graduates seek ways to finance the costs of a college

education. In the process, they sometimes fall prey to scholarship and financial aid scams. To

help students and their families, on November 1, 2000, Congress passed the College Scholarship

Fraud Prevention Act of 2000 (Act), Pub. L. No. 106-420, 114 Stat. 1867. This Act established

stricter sentencing guidelines for criminal financial aid fraud and charged the U.S. Department of

Education (ED), working in conjunction with the Federal Trade Commission (FTC), with

implementing national awareness activities, including a financial aid fraud awareness page on

the ED website. The Act also required that the Attorney General, the Secretary of Education,

and the FTC jointly submit to Congress each year a report on that year’s incidence of fraud by

businesses or individuals marketing financial aid assistance services to consumers. As noted in

previous years’ Reports, the Department of Justice (DOJ), ED, and the FTC have implemented

all the provisions of the Act.

ED and the FTC have continued their consumer education efforts. Using a variety of

media, including websites, booklets, brochures, flyers, posters, and bookmarks, ED and the FTC

are disseminating information to help consumers avoid falling prey to financial aid scams. The

ED materials also provide information about the major federal student aid programs. They

remind students that there is no fee to submit the Free Application for Federal Student Aid and

that free assistance is available from ED, high school counselors, and college financial aid

administrators when applying for aid.

Complaints regarding financial aid fraud have remained fairly constant for over a decade

with one anomalous spike in 2004 and a return to the general trend in 2005. In addition, except

for 2004, financial aid-related complaints have diminished as a percentage of all complaints

received by the FTC. A review of these complaints indicates that the nature of financial aid

fraud has changed over time, shifting from scholarship search services to financial aid consulting

services.

Another recent concern relates to student loan lenders providing inducements to

postsecondary schools to include the lenders on “preferred lender” lists. Because students

frequently choose lenders from those lists, ED provides tips to students on choosing a lender, in

part through “Student Loans: Avoiding Deceptive Offers,” developed and published jointly with

the FTC in 2008.

This year, the DOJ brought numerous actions against individuals engaged in financial aid

fraud. The FTC, DOJ, and ED’s Office of Inspector General continue to monitor complaints to

determine if law enforcement action is necessary. Finally, the FTC and the DOJ will continue to

coordinate parallel civil/criminal actions in appropriate cases.
1

I. Introduction

Every year, families lose money to fraudulent financial aid schemes. With four-year

college education costs rising faster than the rate of inflation, many parents are understandably

concerned about how to pay those costs without saddling themselves or their children with heavy

debt. Scam artists prey on those concerns. To help federal agencies combat financial aid 1

scams, Congress passed the College Scholarship Fraud Prevention Act of 2000 (Act), Pub. L.

No. 106-420, 114 Stat. 1867 (2000) on November 1, 2000. The Act required that the U.S.

Sentencing Commission establish stronger sentencing guidelines for higher education financial

assistance fraud. It also directed the Secretary of Education, working in conjunction with the

Federal Trade Commission (FTC), to implement national awareness activities, including a

financial aid fraud awareness site on the Department of Education’s (ED) website. The Act

further required that the Attorney General, the Secretary of Education, and the FTC jointly

submit to Congress each year a report on fraud by businesses or individuals that market advice

or assistance to students and parents seeking financial aid for higher education.

The Department of Justice (DOJ), ED, and the FTC prepared this Report according to the

Act’s directive. Building on previous reports, this Report provides an update of the activities of 2

the DOJ, ED, and the FTC to combat financial aid fraud and an assessment of the nature and

quantity of financial aid fraud during Calendar Year 2008.

II. Implementation of the College Scholarship Fraud Prevention Act

A. Amendments to Sentencing Guidelines

As discussed in previous Reports, the U.S. Sentencing Commission amended the

Sentencing Guidelines, effective November 1, 2001, to include enhanced penalties for financial

aid fraud. Specifically, it amended Section 2B1.1(b)(7)(D) of the Sentencing Guidelines to add 3

a provision raising the relevant “offense level” by two levels if the crime involved

misrepresentation to a consumer in connection with obtaining, providing, or furnishing financial

assistance for an institution of higher education. There were no cases reported in Fiscal Year

2008 (FY 2008) in which the sentencing enhancement was imposed.

B. National Awareness Activities

1. ED’s National Awareness Activities

ED continues to provide consumer education products and engage in outreach efforts to

increase awareness of financial aid fraud. The primary education products are a brochure called

“Save Your Money, Save Your Identity” and a web page called “Looking for Student Aid.” 

Both products list free resources that provide information about financial aid and warn students

about financial aid scams. As discussed in more detail in prior Reports, ED also publishes

booklets, fact sheets, and a video that provide fraud prevention information to consumers. 

Distribution of print publications and videos with scam warnings totaled approximately 6.7

million copies in 2008. Visits to ED’s www.studentaid.ed.gov website, which hosts the online

versions of the publications, numbered more than 10.3 million in 2008. ED’s Office of Inspector
2

General also hosts a fraud awareness website with scholarship scam information. The site,

found at www.ed.gov/misused, registered more than 111,000 visits in 2008.

ED’s outreach activities include numerous presentations to students, parents, counselors,

and college financial aid administrators. Staff members make an effort to include, at a

minimum, a brief warning about financial aid fraud in each workshop.

In order to stay aware of issues concerning various audiences, ED staff members monitor

listservs directed to professionals (such as high school or TRIO counselors) involved in helping 4

students obtain financial aid. List members sometimes post messages asking or warning about

companies charging fees for aid or information about aid. In response to such messages, ED

staff members occasionally post reminders that students can receive free advice from college

financial aid administrators and from ED (as well as from high school and TRIO counselors). 

ED’s reminders are sent to a total of more than 5,000 listserv members on five listservs.

2. FTC’s Consumer Education and Outreach Efforts

The FTC has an ongoing project to prosecute and prevent scholarship fraud called Project

Scholarscam. Formally initiated in 1996, it includes both law enforcement action and a

consumer education campaign to help students, parents, educators, and financial aid

administrators identify and avoid financial aid scams. The FTC’s consumer education campaign

includes a package of consumer education materials, a website (www.ftc.gov/scholarshipscams),

as well as a series of flyers, posters, and bookmarks. The website contains comprehensive

information about financial aid scams and ways consumers can avoid falling prey to fraudulent

marketing schemes. The flyers, posters, and bookmarks include abbreviated information from

the website and tips to help consumers avoid financial aid scams.

To reach the largest number of at-risk consumers, the FTC developed partnerships with

public and private organizations, including the National Association of College Admissions

Counselors. From October 1996 through December 2008, the FTC and its partners distributed

over 3.5 million print publications, and the FTC had more than 1.1 million visits to its financial

aid scams website. In 2008, the FTC distributed over 50,700 print publications and had more

than 114,250 visits to the website.

The FTC also continued to provide print publications to students and their parents

through local school districts’ college and career fairs. The FTC also conducts outreach directly

to high school students and their parents. For example, the FTC included materials on financial

aid fraud in presentations to students as part of its High School Financial Literacy project.

Moreover, the media often are interested in financial aid scams. Accordingly, the FTC staff

frequently provides, through the media, tips for consumers to avoid these scams.

Continuing the partnership between ED and the FTC, ED’s 2009-10 Counselors and

Mentors Handbook includes a fact sheet based on the FTC’s consumer information, “Don’t get

scammed on your way to college!,” as well as numerous other references to information on

avoiding financial aid scams. In addition, ED’s www.studentaid.ed.gov website and the FTC’s

financial aid scams microwebsite, www.ftc.gov/scholarshipscams, are cross-linked to each other.
3

III. Nature and Quantity of Incidents of Financial Aid Fraud

A. Overview of Financial Aid Fraud

As discussed in previous Reports, operators of financial aid scams generally promise 

their services will ensure that students receive either a scholarship or more financial aid than

students and parents could get on their own. Other typical claims include: (1) that millions (in

some cases billions) of dollars of scholarships go unclaimed every year, with promises to get the

student his or her fair share; (2) that the advertiser has extremely high success rates, including

“testimonials” from satisfied customers; and (3) that the advertiser is endorsed or approved by a

federal or state agency, a chamber of commerce, or a Better Business Bureau. In fact, for fees 5

ranging from $50 to more than $1,000, these operators provide few, if any, services to help

students and their families find financial aid.

ED notes that the College Scholarship Fraud Prevention Act was designed at a time when

scholarship scams were prevalent; this Report addresses the ongoing efforts to minimize such

scams. In recent years, however, other financial aid related consumer protection issues, such as

the potential impact of preferred lenders on student borrowers and the charging of fees for

assistance completing the Free Application for Federal Student Aid (FAFSA), have increasingly

become the focus of attention of students, parents, schools, and the general public. ED and

Congress have taken steps to attempt to avoid financial aid related abuses of individual students.

On November 1, 2007, ED published regulations, which became effective on July 1,

2008, to address the practice by colleges of steering students to preferred lenders that had

provided financial benefits to the colleges or college officials. The regulations are designed to 6

make more transparent the relationships between schools and lenders making federally reinsured

education loans. The regulations require colleges that provide lists of preferred lenders to their

students: (1) to make clear that students need not borrow from the listed lenders; (2) to disclose

the method used to select preferred lenders; (3) to include a minimum number of unaffiliated

lenders on any preferred lender list; (4) to provide information that permits students to compare

the terms offered by the listed lenders; and (5) to exclude lenders that offered financial benefits

to the college in return for inclusion on the list.

In 2008, ED and FTC collaborated on a publication, “Student Loans: Avoiding Deceptive

Offers,” to alert potential borrowers to deceptive lending practices. The publication is available

through the FTC’s consumer protection website and through ED’s www.studentaid.ed.gov

website.

Moreover, the Higher Education Opportunity Act (HEOA), P.L. 110-315, enacted on

August 14, 2008, also emphasizes consumer awareness and education. As well as additional

protections related to preferred lenders, the HEOA contains strong protections for students and

their families related to persons and entities providing student aid consultative or preparation

services. The new HEOA provisions require that preparers disclose their identity on the FAFSA

and that they provide notice that the FAFSA is a free form and that any websites used by the

preparer contain a link to ED’s FAFSA web page. The HEOA also contains restrictions on the
4

use of an individual’s FSA PIN (a personal identification number used to sign an applicant’s

FAFSA) by anyone other than the applicant. 

To the extent possible, ED, the FTC, and other agencies will continue to work together to

educate and protect students and their families.

B. Assessment of Current Status of Fraud

Both the FTC and ED receive financial aid-related complaints from consumers. The FTC

reviewed complaints in its Consumer Sentinel database to assess the current status of financial

7

aid fraud, while ED reviewed complaints received by the Federal Student Aid Information

Center and other call centers, its Office of Inspector General, and its Federal Student Aid

Ombudsman.

1. FTC Complaint Database

The FTC has been monitoring consumer complaints related to financial aid fraud for over

a decade. Figure 1 shows the number of complaints attributable to financial aid fraud in the

FTC’s Consumer Sentinel database between 1996 and 2008. Between 1996 and 2008, the 8

number of financial aid-related complaints remained relatively flat, with a spike in 2004, and a 9

decline in complaints since then. 

To further evaluate the extent of financial aid fraud, it is useful to place the raw numbers

of complaints in the context of all complaints received by the FTC on a yearly basis. Figure 2

shows the ratio of financial aid-related complaints to total fraud complaints.
5

With the exception of the previously discussed anomaly in 2004, financial aid-related

complaints have diminished as a percentage of all complaints received by the FTC since 1996. 

As discussed in prior Reports, however, raw complaint and inquiry numbers are an imperfect

gauge of the extent of fraudulent activities. For example, certain types of fraud may be underrepresented, whereas in other instances the raw numbers may over-state the extent of the fraud.10

Nevertheless, the FTC’s successful law enforcement and consumer education campaign (begun

in 1996), as well as ED’s national awareness activities, may be contributing to the proportionally

low complaint figures.

The Consumer Sentinel complaint database is a useful tool, not only to estimate the

extent of scholarship fraud, but also to assess the nature of financial aid fraud and identify

possible targets for law enforcement action. A review of the complaints indicates that the nature

of financial aid fraud has changed over time. A decade ago, the majority of complaints received

by the FTC concerned telemarketing fraud by bogus scholarship search firms. Recent

complaints, however, mainly involve financial aid consulting firms that promise customized,

comprehensive financial planning to maximize the students’ financial aid eligibility. These

firms often use direct mail and oral presentations to market their services.

The FTC also monitors complaints in Consumer Sentinel to identify possible targets for

law enforcement action. The FTC typically investigates companies or individuals that generate a

sufficient number of complaints to indicate a pattern or practice of deceptive fraudulent conduct. 

The complaints filed in 2008 were against many different companies, and the FTC will continue

to monitor these and other companies for possible law enforcement actions.
6

2. ED’s Complaint Monitoring

ED also receives written and telephone complaints about financial aid fraud. However,

the number of complaints ED receives is small in comparison to the number received by the FTC

and is, in general, associated with a set of experiences at a school or dissatisfaction with a

process or obligation.

Scholarship fraud complaints are submitted via two primary avenues: the Federal

Student Aid Information Center (FSAIC) and the Office of Inspector General (OIG). In 2008,

the FSAIC and OIG received a total of 17 fraud complaints relevant to this report. This number

represents a decrease from the 2007 total of 54. It is unclear whether the decline is due to

increased awareness on the part of students, decreased activity by scammers, or a combination of

the two.

Although the Federal Student Aid Ombudsman and other call centers cannot provide

statistics on numbers of complaints about financial aid scams, they can affirm that they do

receive such complaints occasionally. These call centers refer callers to the FSAIC, OIG, or

FTC, as appropriate. 

a. Complaints to ED’s FSAIC

The FSAIC has two sections: the correspondence unit and the telephone hotline (1-800-

4-FED-AID).

In 2008, the correspondence unit received one written complaint regarding a scholarship

service. The complainant stated that she visited a site that appeared in the results of her

scholarship search on ED’s www.studentaid.ed.gov site. (ED offers a broad search tool as a

service on its website but does not vet the thousands of scholarships included in the results.) The

complainant indicated that the site she visited claims to give away scholarships monthly but

requires personal information in order to do so. She was concerned that the scholarship site

would spam her with advertisements or sell her information to spammers. She also stated that

the site requires the visitor to accept a certain number of sales offers before the visitor can

qualify for one of the monthly scholarships. The FSAIC responded that ED does not make

recommendations about specific scholarship services and provided the Web address for the

FTC’s online complaint form. 

The FSAIC’s hotline received three calls in 2008 (down from eight in 2007) from

consumers who believed they had been targets of financial aid scammers. In all three cases, the

alleged scammer identified himself or herself as being associated with ED or “from FAFSA” —

even (in one case) when referring to a non-ED website. One complainant was told she had won

a grant and was asked for her bank account information so the funds could be released to her. 

One was told she had made a student loan payment that was not necessary; she also was asked

for bank account information for the release of funds. The third was told that there had been a

credit card error on www.easyaid.com (a non-ED website) and that her correct card information

was needed. All three complainants refused to divulge personal information. As appropriate, the

FSAIC provided FTC contact information.
7

The FSAIC also receives complaints about websites charging students a fee to submit the

FAFSA. The HEOA added a new provision that allows an applicant to use a preparer for 11

consultative or preparation services to complete a paper or electronic FAFSA. If an applicant

uses a preparer for consultative or preparation services for the completion of a FAFSA for which

a fee is charged, the preparer must include, at the time the FAFSA is submitted to ED, the

preparer’s name, address or employer’s address, Social Security number or employer

identification number, and organizational affiliation on the applicant’s form and is subject to the

same penalties as an applicant for purposely giving false or misleading information in the

application. A preparer must clearly inform each individual upon initial contact, including

contact through the Internet or by telephone, that the FAFSA is a free form that may be

completed without professional assistance via paper or electronic versions provided by ED. The

preparer must also include this information in any advertising. If the preparer advertises or

provides any information or services through a website, the preparer must include on the website

a link to ED’s website that provides the electronic version of the FAFSA and not produce, use,

or disseminate any other form for the purpose of applying for federal student aid other than the

FAFSA developed by ED.

ED is currently considering how to implement these new provisions and will undertake

discussions with the FTC and DOJ about consumer awareness and education, as well as about

enforcement of the new provisions. However, the HEOA does not specify sanctions for

violations of these provisions, and does not include express enforcement authority.

b. Complaints to ED’s Office of the Inspector General 

The OIG maintains a hotline (1-800-MIS-USED) and email address

(oig.hotline@ed.gov) for complaints relating to fraud, waste, and abuse involving ED’s funds. 

Complaints also may be submitted by mail, by fax (202-245-7047), via the

http://www.ed.gov/misused website or directly to OIG field offices across the country. OIG

staff reported that there were 13 complaints in 2008 (a decrease from 45 in 2007 — some of

which resulted in guilty pleas to tax evasion charges) regarding telemarketers offering

“government grants.” These complaints were evaluated for investigative follow-up or referral to

the FTC as appropriate. OIG’s investigations were ongoing as of the end of 2008.

C. FTC’s Financial Aid Fraud Prevention Program

As mentioned above, the FTC’s Project Scholarscam combines law enforcement with 12

consumer education to stop fraudulent purveyors of so-called scholarship or financial aid

services. In total, 13 companies and 34 individuals are subject to federal court orders prohibiting

future misrepresentations. Most of the orders permanently ban the defendants from marketing 

scholarship or financial aid-related services. Many of the orders also require the defendants to

post performance bonds before engaging in telemarketing. The FTC has refunded to 13

consumers or disgorged to the U.S. Treasury more than $2.1 million.14
8

D. DOJ’s Financial Aid Fraud Prevention Program

Since last year’s Report, several individuals charged with fraud in the offering or

obtaining of higher education financial aid, were prosecuted, convicted, or sentenced. A

sampling of case summaries from FY 2008 follows, representing a broad spectrum of higher

education financial aid fraud cases pursued by DOJ. These cases include instances where

fraudulent representations were made in the offering of higher education financial aid, where the

identities of unknowing victims or co-conspirators were submitted on financial assistance

applications to fraudulently obtain financial aid, and where defendants fraudulently obtained

substantial amounts of higher education financial assistance. In preparing this report, the DOJ

Executive Office for United States Attorneys (EOUSA) surveyed the 94 United States

Attorneys’ Offices, but did not identify any instances where the two-level sentencing

enhancement, Section 2B1.1(b)(8)(D) of the Sentencing Guidelines, was requested or imposed,

in FY 2008. Case developments which occurred within FY 2008 are included in the case

summary. If there were any case developments which occurred after FY 2008, they are

described in endnotes.

! United States v. Wanda Gaither, Case No. 5:07-cr-00416-RDP-HGD-1 (N.D.

Ala.)

Defendant Gaither, the owner of a beauty school, was charged with executing a tuition

payment scheme in which the school obtained federal financial assistance in the form of Pell

Grants for students who were not qualified for the Pell Grant program and used the grants to pay

school tuition. A thirty-three count superseding indictment was filed in April 2008. The

defendant pleaded guilty to one count of wire fraud, in violation of 18 U.S.C. § 1343, and one

count of financial aid fraud, in violation of 20 U.S.C. § 1097(a), and in August 2008, was

sentenced to 30 months’ imprisonment, followed by a period of supervised release of 30 months,

a special assessment of $200, and restitution in the amount of $107,527. This case was

investigated by ED’s Office of Inspector General.

! United States v. Ronald W. Shepard, Case No. 4:07-cr-00414-NKL-1 (W.D. Mo.)

Defendant Shepard, the owner of a business that assisted individuals in obtaining student

financial assistance, was charged with executing a scheme in which he prepared fraudulent

federal tax returns and federal assistance applications that were submitted to educational

institutions to obtain federal student assistance. In December 2007, defendant Shepard was

indicted on 12 counts of tax preparer fraud, and five counts of student financial aid fraud, in

violation of 20 U.S.C. § 1097(a). This case was investigated by ED’s Office of Inspector 15

General and the Internal Revenue Service.

! United States v. Yevsey Lekhtman, Simon Benimetsky, Roman Dudkin and Yelena

Raykhman, Case No. 1:08-cv-00508-CPS (E.D.N.Y.) 

Defendant Lekhtman operated a training facility in Brooklyn, New York, that entered

into state and federal agreements to offer federal Pell Grants and New York State tuition

assistance program grants to qualified students. A superseding indictment returned in August
9

2008 charged the defendant and others with conspiracy, visa fraud and with executing a scheme

in which federal and state student assistance funds were obtained by the school on behalf of

individuals who were not attending or enrolled in the school, in violation of 18 U.S.C. §§ 371

and 1546, and 20 U.S.C. § 1097(a). This case was investigated by ED’s and the Department of

Labor’s Offices of Inspector General and the Federal Bureau of Investigation.

! United States v. Jennifer Sherman, Case No. 1:07-cr-00611-KMO-1 (N.D. Ohio)

Defendant Sherman was indicted in 2007 on charges stemming from a scheme in which

she submitted multiple applications for admission and student aid to Lakeland Community

College on behalf of numerous friends and relatives who never intended to attend the college. 

When those individuals failed to attend, the college refunded the balance of their student loan

proceeds to the custody of the defendant, who cashed the refund checks and retained the

proceeds. In March 2008, the defendant pleaded guilty to one count of mail fraud, in violation

of 18 U.S.C. § 1341, and one count of student assistance fraud, in violation of 20 U.S.C. §

1097(a). The defendant admitted to causing losses of $188,995. This case was investigated by 16

the ED’s Office of Inspector General and the Lakeland Community College Police Department.

! United States v. Pearl Dunlap, Case No. 1:08-cr-00216-WWC-1 (M.D. Pa.)

In September 2008, defendant Dunlap pleaded guilty to a felony violation of 18 U.S.C.

§ 3 (accessory after the fact) stemming from a scheme and conspiracy to use false identities to

obtain federally insured student loans in violation of 20 U.S.C. § 1097(a). This case was

investigated by the ED’s Office of Inspector General and the Pennsylvania State Police.17

! United States v. Barbara Romagnino, Case No. 4:07-cr-00363-JEJ-1 (M.D. Pa.)

In September 2007, defendant Romagnino was charged in a two-count indictment arising

out of an identity theft scheme in which he applied for federally insured student loan benefits

using the identities of innocent third parties. In January 2008, the defendant pleaded guilty to a

felony violation of 20 U.S.C. § 1097(a) and, in September 2008, was sentenced to a term of

imprisonment of five months, followed by a period of three years’ supervised released, a special

assessment of $100, and restitution in the amount of $46,937.55. This case was investigated by

ED’s and the Social Security Administration’s Offices of Inspector General and the

Pennsylvania State Police.

! United States v. Donna Stockton, Case No. 1:08-cr-00157-JAS (M.D. Pa.)

In May 2008, defendant Stockton pleaded guilty to misdemeanor violations of 18 U.S.C.

§ 371 and 20 U.S.C. § 1097(a), stemming from her permitting another individual to 18

fraudulently use the defendant’s identity to apply for student aid. This case was investigated by

ED’s Office of Inspector General and the Pennsylvania State Police.
10

! United States v. Esther Elizabeth Reed, Case No. 6:07-cr-01110-HMH-1 (D.S.C.)

Defendant Reed pleaded guilty in August 2008 to four counts of a superseding

indictment filed in April 2008, including one count charging the use of fraudulently obtained

Social Security numbers. Defendant Reed used the identities of other individuals to fraudulently

apply for and receive federal student financial assistance totaling $40,858, in violation of 20

U.S.C. § 1097(a). This case was investigated by ED’s, the Department of Homeland 19

Security’s, and the Social Security Administration’s Offices of Inspector General.

! United States v. Karen M. Hardy-Woods, Case No. 3:07-cr-00106-M-1 (N.D.

Tex.)

Defendant Hardy-Woods was charged with using multiple variations on the spelling of

her name and her Social Security number to apply for student aid, after having defaulted on an

earlier student loan, in violation of 20 U.S.C. § 1097(a). The defendant pleaded guilty to the

single-count indictment and in February 2008 was sentenced to 60 months’ probation, a $100

special assessment, and restitution in the amount of $109,571. This case was investigated by

ED’s Office of Inspector General.

IV. Conclusion

As described above, the FTC, ED, and the DOJ have implemented the directives of the

College Scholarship Fraud Prevention Act of 2000. Together, the agencies are continuing to

work cooperatively to prosecute and prevent financial aid fraud.
11

1. According to the 2008 edition of The College Board’s Trends in College Pricing (available at

http://professionals.collegeboard.com/profdownload/trends-in-college-pricing-2008.pdf), the

average total costs, including tuition, room, and board, for in-state students at public four-year

colleges and universities in 2008-09 rose 5.7% from 2007-08. The average total costs for out-ofstate students at public institutions rose 5.2%. The average total costs for private institutions

rose 5.6%. Analyzing long-term trends, The College Board reports that over the past decade,

published tuition and fees at public four-year institutions have risen at an average rate of 4.2%

per year after inflation, while published tuition and fees at private institutions have risen at an

average rate of 2.4% per year after inflation.

2. The inaugural Report can be found at http://www.ftc.gov/opa/2002/05/scholarshipfraud.htm.

The second Report can be found at http://www.ftc.gov/opa/2003/05/scholarshipfraud.htm. The

third Report can be found at http://www.ftc.gov/opa/2004/05/scholarshipfraudrpt.htm. The

fourth Report can be found at http://www.ftc.gov/opa/2005/05/scholarship.htm. The fifth Report

can be found at http://www.ftc.gov/opa/2006/05/scholarshipfraud.htm. The sixth Report can be

found at http://www.ftc.gov/opa/2007/05/collegescholarshipfraudrpt.shtm. The Seventh Report

can be found at http://www.ftc.gov/os/2008/05/collegescholarshipfraudpreventionrpt.pdf.

3. On November 1, 2004, this provision was re-designated as U.S.S.G. § 2B1.1(b)(8)(D).

4. The title “TRIO” refers to a group of programs operated by post-secondary schools and

nonprofit organizations to increase awareness among secondary school students of opportunities

for post-secondary education and to support students enrolled in post-secondary education. The

programs are called “TRIO” because there were three of these types of programs when they were

first created in the 1960s: Upward Bound, Talent Search, and Student Support Services. 

Currently, there are eight TRIO programs: Educational Opportunity Centers, Ronald E. McNair

Postbaccalaureate Achievement Programs, Student Support Services, Talent Search, Training

Program for Federal TRIO Programs, TRIO Dissemination Partnership, Upward Bound, and

Upward Bound Math/Science.

5. Solving the Problem of Scholarship Scams: Hearings on S. 1455, The College Scholarship

Fraud Prevention Act of 1999 Before the S. Comm. on the Judiciary, 106th Cong. (1999)

(statement of Mark Kantrowitz, publisher of the www.finaid.org website).

6. Federal Family Education Loan Program: Final Rule, 72 Fed. Reg. 61,960, 61,999-62002,

62,2003-62,2004 (Nov. 1, 2007) (to be codified at 34 C.F.R. §§ 682.200(b), 682.212(h), and

682.401(e)).

7. Consumer Sentinel is a secure, password-protected complaint database designed to allow law

enforcers to share data about fraud. Consumer Sentinel now contains over 7.2 million fraud and

identity theft complaints and is accessible to more than 1,700 law enforcement agencies –

including every state attorney general in the U.S. and consumer protection agencies in 23

nations. In addition to consumer complaints, Consumer Sentinel offers its law enforcement

members a variety of tools to facilitate investigations and prosecutions, including: law

enforcement alerts about companies currently under investigation; information to help agencies

Endnotes
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coordinate effective joint action; an index of telemarketing sales pitches; and data analysis to

determine trends in fraud. Consumer Sentinel collects complaints from the FTC and over 125

other organizations. More information on Consumer Sentinel can be found in Consumer

Sentinel Network Data Book for January-December 2008, issued by the FTC in February 2009

and available online at

http://www.ftc.gov/sentinel/reports/sentinel-annual-reports/sentinel-cy2008.pdf.

8. As discussed in the 2006 Report, the Consumer Sentinel category “scholarship/educational

grants” previously included both financial aid-related complaints and non-educational grants

complaints, and the ratio between the two groups remained relatively constant through 2003. 

Due to a significant increase in the number of non-educational grants complaints in 2004 and

2005, the ratio changed dramatically, making it difficult to compare increases or decreases in the

“scholarship/educational grant” category accurately. Accordingly, the FTC performed an

analysis to estimate the number of financial aid-related complaints in 2005 and prior years. To

avoid that problem in the future, the FTC introduced a new Sentinel complaint category in 2006,

“non-educational grants,” so that the two groups of complaints could be collected and

maintained separately. The number of financial aid-related complaints and total fraud

complaints per year are set forth in the following table.

Year Financial Aid-Related

Complaints

Total Fraud

Complaints

Percentage of Financial

Aid Complaints to Total

Fraud Complaints

1996 133 16,588 0.802%

1997 146 29,069 0.502%

1998 246 62,840 0.391%

1999 290 85,248 0.340%

2000 228 107,910 0.211%

2001 184 134,136 0.137%

2002 259 241,498 0.107%

2003 328 327,479 0.100%

2004 757 410,709 0.184%

2005 256 437,906 0.058%

2006 201 428,319 0.047%

2007 198 555,472 0.035%

2008 157 643,195 0.024%
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9. Using the data available, the FTC cannot conclusively explain the 2004 spike. As discussed in

prior years’ Reports, the influx of complaints that year may have been due, in part, to the FTC’s

then-recent actions against two companies, The College Advantage and National Student

Financial Aid. It is not unusual for complaints to temporarily rise after the FTC announces law

enforcement actions.

10. As discussed in previous years’ Reports, the number of complaints contained in the

Consumer Sentinel database does not provide a complete picture of the extent of consumer

injury from any particular type of fraud – although it is used extensively by the FTC and other

law enforcement agencies nationwide to spot trends in fraudulent practices and identify potential

targets for law enforcement. These numbers could be skewed for several reasons, including: (1)

some consumers may complain directly to the company or to law enforcement authorities that do

not input their complaints into the Sentinel database; (2) some financial aid scams that operate

on the Internet are relatively inexpensive, and consumers often do not complain when the

financial injury is low; (3) increases in the number of complaints may reflect an increase in the

number of law enforcement and consumer protection agencies referring complaints to the

Consumer Sentinel database; and (4) increases in the number of complaints may reflect greater

consumer awareness of the fraud and how to report it.

11. To apply for federal student financial aid, and to apply for many state student aid programs,

students must first complete the FAFSA. ED uses information provided on a student’s FAFSA

to determine the student’s eligibility for aid from the Federal Student Aid programs. Many

states and schools also use the FAFSA to award aid from their programs. Some states and

schools may require the student to fill out additional forms.

12. Among other things, the FTC enforces Section 5 of the FTC Act, 15 U.S.C. § 45, which

prohibits unfair or deceptive acts or practices in or affecting commerce. Section 13(b) of the

FTC Act, 15 U.S.C. § 53(b), allows the FTC to bring, by its own attorneys, actions in federal

district court to halt violations of Section 5. Remedies available to the FTC include permanent

injunctions and equitable monetary relief such as restitution to consumers or disgorgement of

unjust enrichment. Section 13(b) also allows the FTC to seek preliminary relief, including

temporary restraining orders and preliminary injunctions. In appropriate cases, the FTC may

seek preliminary relief on an ex parte basis.

13. Performance Bonds are designed to deter defendants from engaging in misrepresentations

and provide a fund to redress consumer injury should defendants violate the order.

14. Although the FTC obtained approximately $22.8 million in judgments, the full amount of

these judgments was not collected. In the case of judgments obtained through settlement, the

FTC suspended some or all of the judgment amount based upon the defendants’ demonstrated

inability to pay the full amount. In other cases, the FTC referred unsatisfied judgment balances

to the U.S. Treasury for further collection efforts.

15. Defendant Shepard pleaded guilty in November 2008 to one count each of tax preparer fraud

and student scholarship fraud. In March 2009, also after the FY2008 reporting period ended, the

defendant was sentenced to five years’ probation, a $200 special assessment, and ordered to pay

$6,500 in restitution.
14

16. Defendant Sherman was sentenced in March 2009 to 18 months’ imprisonment, three years’

supervised release, a $200 special assessment, and ordered to pay $108,995 in restitution.

17. Defendant Dunlap was sentenced in December 2008 to two years’ probation, a $100 special

assessment, and ordered to pay restitution in the amount of $134,888.

18. Defendant Stockton was sentenced in October 2008 to one year of probation, a $50 special

assessment, and ordered to pay restitution to the PHEAC in the amount of $27,500.

19. Defendant Reed was sentenced in February 2009 to 27 months’ imprisonment (for counts 1,

2 and 5) followed by 24 months’ imprisonment (for count 4) to be served consecutively to the

term imposed for counts 1, 2, and 5, three years’ supervised release, a $400 special assessment,

and ordered to pay restitution in the amount of $125,916.87.