COLLEGE SCHOLARSHIP FRAUD PREVENTION ACT OF 2000

ANNUAL REPORT TO CONGRESS

May 2008

Department of Justice Department of Education Federal Trade Commission
COLLEGE SCHOLARSHIP FRAUD PREVENTION ACT OF 2000

ANNUAL REPORT TO CONGRESS

May 2008

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. .................................3

1. FTC Complaint Database.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2. ED’s Complaint Monitoring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

a. Complaints to ED’s FSAIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

b. Complaints to ED’s Office of the Inspector General.. . . . . . . . . . . 6

C. FTC’s Financial Aid Fraud Prevention Program. . . . . . . . . . . . . . . . . . . . . . . . . . . 6

D. DOJ’s Financial Aid Fraud Prevention Program. ..........................6

IV. Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Endnotes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
i

Executive Summary

Every year, millions of high school graduates seek creative 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 5, 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, videoconferences, 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 with applying for aid is available from ED, high

school counselors, and college financial aid administrators.

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.

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

fraud, five of which resulted in the imposition of the Act’s sentencing enhancement for fraud in

connection with obtaining, providing, or furnishing financial assistance for an institution of

higher education. The FTC and the DOJ 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 5, 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 2

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

nature and quantity of financial aid fraud during the past year.

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

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

assistance for an institution of higher education. There were five cases reported in 2007 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 sources of free 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 with scam warnings totaled nearly 7 million copies in 2007. Visits to ED’s

www.studentaid.ed.gov website, which hosts the online versions of the publications, numbered

more than 10.3 million in 2007. ED’s Office of Inspector General also hosts a fraud awareness
2

website with scholarship scam information. The site, found at www.ed.gov/misused, registered

more than 51,000 visits in 2007.

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 more than 5,000 listserv members.

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 2007, the FTC and its partners distributed

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

aid scams website. In 2007, the FTC distributed over 37,800 print publications and had more

than 115,900 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 2008-09 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

financial aid scams website 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 published new regulations on November 1, 2007, 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, which generally take effect on July 1, 2008, are designed to 6

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

education loans. The regulations disqualify lenders that offer various financial benefits or

services to colleges or college officials in order to obtain referrals from the schools. 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.

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 its Office of Inspector General.

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 2007. Between 1996 and 2007, the 8

number of financial aid-related complaints remained relatively flat, with a spike in 2004. 9
4

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.

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 2007 were against many different companies, and the FTC will continue

to monitor these and other companies for possible law enforcement actions.
5

2. ED’s Complaint Monitoring

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

because ED is not a major clearinghouse for complaints, the number of complaints it receives is

small in comparison to the number received by the FTC.

Complaints are submitted via two avenues: the Federal Student Aid Information Center

(“FSAIC”) and the Office of Inspector General (“OIG”). In 2007, the FSAIC and OIG received

a total of 54 fraud complaints relevant to this report. This number represents a decrease from the

2006 total of 86. 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.

a. Complaints to ED’s FSAIC

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

4-FED-AID).

In 2007, the correspondence unit received no written complaints relevant to this report. 

The FSAIC’s hotline received eight calls in 2007 (up from five in 2006) from consumers who

believed they had been targets of financial aid scammers. In three cases, students received calls

or emails from individuals offering either a grant or scholarship for college. In two cases, a

caller offered a reduction in student loan debt or interest rates. One caller offered a “federal aid

refund,” one offered to help discharge student loans due to the borrower’s disability, and one

offered to consolidate alleged defaulted loans. In all cases, the marketers requested personal

information. Only one person of the eight – a mother whose daughter was offered a $20,000

“federal grant” in return for a $299 processing fee – divulged bank account information. 

Another mother, whose son was offered a $5,000 reduction in his loan balance, gave out her
6

son’s Social Security Number. Those two complainants were given contact information for the

FTC and ED’s Office of Inspector General as appropriate. The other six refused to divulge any

personal information and called the FSAIC simply to inform ED about the attempted scams.

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

Free Application for Federal Student Aid (“FAFSA”). ED has investigated the legality of 11

companies charging students to help complete the FAFSA. Although the law prohibits

companies from charging a fee for the “collection, processing, or delivery of financial aid”

through the use of the FAFSA, those organizations that ED investigated claim that their fee is for

providing advice and counsel to students and families, not for helping complete the FAFSA.

Further, this statutory prohibition does not provide ED with a practical means of compelling

commercial entities to change their practices because these entities have no direct relationship

with either ED or the educational institutions, lenders, and guarantors with whom ED has a

funding and regulatory relationship under the student aid programs. ED therefore has no way to

impose any administrative sanction upon these companies, and numbers of complaints regarding

these companies are not included in this Report.

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 45 complaints in 2007 (a decrease from 80 in 2006) regarding

telemarketers offering “government grants.” As appropriate, 21 complaints were investigated by

OIG and 24 were forwarded to the FTC or ED’s office of Federal Student Aid for handling. 

OIG’s investigations of these complaints were ongoing as of the end of 2007.

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

D. DOJ’s Financial Aid Fraud Prevention Program

Since last year’s Report, several individuals who engaged in fraud in the offering of

higher education financial aid were indicted, convicted, or sentenced. Six defendants in five

cases were subjected to the Act’s two-level sentencing enhancement.
7

• United States v. Terri Lynn Shepherd, Case No. 4:06-cr-00332-GH (E.D. Ark.)

From April 16, 2003, through February 20, 2004, the defendant knowingly and willfully

embezzled, stole, and obtained by fraud and false statement, federal Pell grants totaling more

than $2,000. The defendant perpetuated the fraud by claiming on her FAFSA that she would

have a high school diploma or GED before enrolling in an institution of higher learning when

she knew that she would not have either diploma at the time of enrollment. Pursuant to a plea

agreement, the defendant pleaded guilty to Count One of a four-count Indictment, which charged

a violation of 18 U.S.C. § 1001 (false statement). On April 17, 2007, the defendant was

sentenced to five years probation, a $100 special assessment, and $12,472 in restitution to ED. 

The Court applied the two point sentencing enhancement under U.S.S.G. §2B1.1(b)(7)(D). This

case was investigated by ED’s Office of Inspector General.

• United States v. Robert C. Hazlett, Case No. 2:04-cr-00276-SMM (D. Ariz.)

From April 1999 through June 2000, the defendant, the president and owner of a debt

collection agency, Valley Acceptance Corporation (“VAC”), conspired with four debt collectors

employed by VAC to commit bank fraud against SunTrust Bank and student loan fraud against

ED. Defendant was convicted of a conspiracy to engage in bank fraud and student loan fraud on

February 9, 2006. A total of 537 fraudulent applications were submitted to the bank for

consolidated loans totaling $3.6 million. Borrowers subsequently defaulted on 240 of the loans

causing a loss to the bank in excess of $1.4 million. Most of the loss was ultimately reimbursed

through insurance from ED. On January 26, 2007, the defendant was sentenced to eight months

imprisonment, with credit for time served, and three years probation. The Court imposed a $100

special assessment, and $744,376 in restitution to three victims: Sun Trust Education Loans,

Educational Credit Management Corporation, and the United States. This case was investigated

by ED’s Office of Inspector General and the Federal Bureau of Investigation (“FBI”).

• United States v. Edward Reed, Kelvin Jackson and Faquir Muhammad, Case No.

2:07-cr-00182-DSF (C.D. Cal.)

Defendants were charged on April 3, 2007, in a seven-count Indictment. Count One of

the Indictment alleged that the defendants conspired to obtain funds insured by ED through fraud

and false statements. The Indictment alleged that defendant Reed, the director of Financial Aid

at the University of West Los Angeles, applied for a student loan for himself, using an alias,

knowing that he was not an enrolled student. The Indictment also alleged that defendant Reed

conspired with co-defendants Jackson and Muhammad to help them apply for student loans. In

exchange for his assistance, defendant Reed collected one-half of the student loan proceeds they

received. The Indictment further alleged that co-defendants Jackson and Muhammad recruited

other students to apply for loans through defendant Reed and that they shared the proceeds

received by defendant Reed for helping these other students apply for student loans. Counts

Two through Seven alleged violations of 18 U.S.C. §1097(a) that occurred when each defendant

made false statements and fraudulent representations on promissory notes and received student

loans based on those false statements and representations. This case was investigated by ED’s

Office of Inspector General and the Postal Service’s Office of Inspector General.
8

• United States v. Marjorie Kellerman and Hugo Barraza, Case No. 2:07-cr-00927-

DSF (C.D. Cal.)

Defendants Kellerman and Barraza were admissions officers at Westwood College, a

private college located in Los Angeles. The Indictment alleged that in late 2004 and early 2005

the defendants generated fraudulent documents purporting to show that applicants to Westwood

College had graduated from high school or received GED certificates. By doing so, the

applicants became eligible for admission to the school and qualified for Pell grants, Stafford

loans, and other student financial assistance. Defendants were indicted on September 11, 2007

in a seven-count Indictment that alleged that a false document was created for each of seven

students. This case was investigated by ED’s Office of Inspector General.

• United States v. Gilbert Aguilar, Case No. 5:06-cr-00804-RMW (N.D. Cal.)

Between June 1, 2000, and June 24, 2000, the defendant submitted applications to banks

and financial institutions for student loans from ED and the Federal Family Education Loan

Program. The loan application included false and fraudulent information. Pursuant to a plea

agreement, the defendant pleaded guilty to Count Two of the Indictment. On May 31, 2007, the

defendant was sentenced to two years probation, a $100 special assessment, a $2,000 fine, and

$52,277 in restitution to ED. This case was investigated by ED’s Office of Inspector General.

• United States v. Serge Ivanov and Michael Solovey, Case No. 3:04-CR-00310

(N.D. Cal.)

On September 23, 2004, the defendants were indicted on charges of conspiracy, financial

aid fraud, mail fraud, and money laundering. The defendants pleaded guilty on November 2,

2005. The Indictment alleges that from approximately December 1999 to October 2001, the

defendants devised and participated in a scheme to defraud ED in connection with its

administration of Title IV financial aid programs and its control over the disbursement and use

of federal Pell grants and student loans. The alleged goal of the scheme was to circumvent Title

IV and its regulations and obtain federal funds through fraudulent means. The proceeds of the

scheme were used, among other things, for personal gain and/or for the promotion of the

underlying scheme to defraud. Both defendants were sentenced on December 12, 2006. Ivanov

was sentenced to a term of incarceration of 12 months, 3 years supervised release, payment of a

$100 special assessment, and $343,833 in restitution. Solovey was sentenced to a term of

incarceration of 30 months, 3 years supervised release, payment of a $100 special assessment,

and $343,833 in restitution. This case was investigated by ED’s Office of Inspector General, the

Internal Revenue Service, and the FBI.

• United States v. Khue T. DeLeon, Case No. 3:05-cr-00244-RNC (D. Conn.)

On September 30, 2004, the defendant signed and submitted a fraudulent loan application

seeking a $30,000 non-federal student loan from Bank One. The loan application falsely stated

that defendant’s father-in-law was a cosigner for the loan. However, the signature of the

defendant’s father-in-law was forged on the application. The defendant also submitted a

counterfeit pay stub as verification of income allegedly from her father-in-law’s employment. 
9

The defendant received over $135,000 in student loan disbursements in connection with the

fraudulent application. Pursuant to a plea agreement, the defendant pleaded guilty to violating

18 U.S.C. § 1014 (making false statements on a student loan application). The defendant was

sentenced on September 20, 2007, to imprisonment equal to time served, followed by five years

probation, the first six months of which to be served in a half-way house, and the subsequent six

months confined to her home. The defendant was also ordered to pay a $100 special assessment

and $135,831.65 in restitution. This case was investigated by ED’s Office of Inspector General.

• United States v. Andrew Pines, Case No. 3:07-cr-00151-MRK (D. Conn.)

From about August 1, 2003, until on or about July 10, 2004, the defendant knowingly

and willfully, and with intent to defraud, devised a scheme to defraud lenders and to obtain

student financial aid in the form of student loans. During this time period, the defendant

submitted 11 applications for student loans to Wells Fargo using names and Social Security

Numbers of persons other than his own. As of April 12, 2007, the loss to Wells Fargo totaled

$106,808.47. On July 2, 2007, pursuant to a plea agreement, the defendant pleaded guilty to a

one-count information that charged him with violating 18 U.S.C. § 1341 (mail fraud). On

September 20, 2007, the defendant was sentenced to 12 months plus one day imprisonment, a

$100 special assessment, and restitution equal to the amount of the loss suffered by Wells Fargo

Bank.

• United States v. Parvesh Singh and Dolores Evelyn Cross, 1-04-cr-00613-JEC

(N.D. Ga.)

From August 1999 to February 2002, defendants Singh and Cross devised a scheme to

obtain money by defrauding ED, Morris Brown College (“College”), students and potential

students of the College. Defendant Cross was the President of the College and defendant Singh

was the Financial Aid Director during the time relevant to the fraudulent activity. Specifically,

the defendants sought federal financial aid funds from ED and private lenders to which the

College was not entitled. The defendants compiled rosters of students who had registered for

courses but failed to enroll in the College in order to retain student loan funds received by the

College with respect to these students, funds which should have been returned. The defendants

were charged in a thirty four-count Indictment on December 8, 2004. Defendant Singh pleaded

guilty to one count of the Indictment on May 24, 2006, and Defendant Cross pleaded guilty on

May 1, 2006. Both defendants were sentenced on January 3, 2007. Cross was sentenced to five

years probation, with a special condition of 12 months home confinement with six months of

electronic monitoring, 500 hours of community service, $13,942 in restitution, a $3,000 fine, and

a $100 special assessment. Defendant Singh also was sentenced to five years probation, with a

special condition of 18 months home confinement with six months electronic monitoring, $5,939

in restitution, a $3,000 fine, and a $100 special assignment. This case was investigated by ED’s

Office of Inspector General and the FBI.

• United States v. Alan King, Case No. IP-07-cr-0016-01 (S.D. Ind.)

From March 2004 through July 2006, the defendant obtained 12 payments from FEMA

after filing false claims for Hurricane Katrina relief, and, using false names and identifiers,
10

received eight student loans even though he was never a student. On May 8, 2007, the defendant

was convicted of theft of government property, student loan fraud, false representation of a

Social Security Number, and federal student financial aid fraud. The same day, the defendant

was sentenced to 105 months imprisonment, a $100 special assessment, and $183,845.54 in

restitution to the FEMA, ED, and three private financial institutions. This case was investigated

by ED’s Office of Inspector General, the Department of Homeland Security’s Office of Inspector

General, and the FBI.

• United States v. Paul Carlos McStallworth, Case No. 6:07-cr-10057-KMH (D.

Kan.)

During the 2003-2004 school year, the defendant applied for student aid at three

institutions of higher learning. The applications were in his own name and in the name of two

aliases. The defendant used three different Social Security Numbers, none of which were

actually his. Pursuant to a plea agreement, the defendant pleaded guilty on March 28, 2007 to a

violation of 20 U.S.C. § 1097(a). On July 25, 2007, the defendant was sentenced to two years

probation, a $25 special assessment, and $15,476.92 in restitution. The Court granted the

government’s request for a two point enhancement pursuant to U.S.S.G. § 2B1.1(b)(8)(D). This

case was investigated by ED’s Office of Inspector General and the Social Security

Administration’s Office of Inspector General.

• United States v. Clarissa T. Ayo, Marondo L. Basquine and Dionne C. Wilkens,

Case No. 3:07-cr-00121-RET-CN (M.D. La.)

In June 2004, defendant Basquine stole a check in the amount of $6,163.52 from

Southern University that was addressed to a former resident at the defendant’s address. 

Defendant Basquine enlisted the assistance of defendant Wilkens in cashing the check. 

Defendants Basquine and Wilkens, along with Defendant Ayo, were alleged to have shared in

the proceeds of the check. The defendants were indicted on June 7, 2007. On August 28, 2007,

defendant Basquine pleaded guilty to Count One of the Indictment that alleged a violation of 18

U.S.C. § 371 by conspiring to illegally convert government property and to obtain federally

provided and insured financial aid funds in excess of $200. On September 12, 2007, defendants

Wilkins and Ayo pleaded guilty to the same charge. As of the end of 2007, the defendants were

awaiting sentencing. This case was investigated by ED’s Office of Inspector General and the

Social Security Administration’s Office of Inspector General.

• United States v. Anita D. Morris, Dorris Morris, Ruth S. Frazier and Kevin

Morris, 1:06-cr-10030-DDD-JDK (W.D. La.)

On September 28, 2006, the defendants were indicted for: (1) conspiring to obtain money

from Northwestern State University in Natchitoches, Louisiana; (2) submitting false applications

and documents to obtain federal student aid and student loans; and (3) submitting additional

false applications in order to keep the funds. Defendant Anita Morris pleaded guilty on March

21, 2007, to Counts One (conspiracy) and Three (bank fraud) of the Indictment. On March 12,

2007, defendants Dorris Morris, Ruth Frazier and Kevin Morris pleaded guilty to Count One

(conspiracy) of the Indictment.
11

Defendant Anita Morris was sentenced on June 25, 2007, to 33 months imprisonment on

each of two counts, to run concurrently. The imprisonment is to be followed by three years

probation on Count One and five years probation on Count Three, to run concurrently. There

was also a $200 special assessment, and $30,541.53 in restitution to ED. On June 25, 2007,

defendant Kevin Morris was sentenced to serve 15 months imprisonment, followed by three

years probation, a $100 special assessment, and $6,649.63 in restitution to ED. On June 27,

2007, defendant Frazier was sentenced to serve five years probation, a $100 special assessment,

and $6,649.63 in restitution to ED. On July 13, 2007, defendant Dorris Morris was sentenced to

serve five years probation, a $100 special assessment, and $5,588.66 in restitution to ED.

The United States probation office recommended that both Defendants Anita Morris and

Kevin Morris receive a two-point enhancement under U.S.S.G. § 2B1.1(b)(8)(D). The

enhancement was imposed by the Court. This case was investigated by ED’s Office of Inspector

General.

• United States v. Siza Ahmed, Case No. 2:06-cr-00073-DBH (D. Me.)

On or about December 9, 2004, the defendant applied for an $18,500 Federal Stafford

Loan. The defendant also submitted a Federal Stafford Loan Certification, dated November 23,

2004, attesting that she would be attending London South Bank University (“LSBU”). She also

forged the signature of a LSBU official. The defendant never enrolled in or attended LSBU. On

January 4, 2007, pursuant to a plea agreement, the defendant pleaded guilty to violating 20

U.S.C. § 1097(a). On April 10, 2007, the defendant was sentenced to seven and one-half months

imprisonment, a $100 special assessment, and $50,865.20 in restitution to ED. This case was

investigated by ED’s Office of Inspector General.

• United States v. Carlos de Jesus Gil Pena a/k/a Noel Cestary , Case No. 1:07-cr10032-DPW (D. Mass.)

From about June 22, 2004, through at least September 29, 2004, the defendant knowingly

and willfully embezzled, misapplied, stole, obtained by fraud and forgery, and failed to refund

funds and property provided and insured under 20 U.S.C. § 1097(a) by submitting a FAFSA and

signing a Master Promissory note. Both documents included materially false statements since

the defendant misrepresented his actual name and his actual Social Security Number. As a

consequence of these misrepresentations, the defendant received student loan funds disbursed by

the New England Tractor School in the amount of $6,217. On January 25, 2007, the defendant

was indicted in the name of “John Doe a/k/a Noel Cestary” on charges unrelated to student

scholarship fraud. On August 10, 2007, pursuant to a plea agreement, the defendant pleaded

guilty to all three counts of a superseding Indictment, which, in part, charged a violation of 20

U.S.C. § 1097(a) for student loan fraud in the amount of $6,710. This case was investigated by

ED’s Office of Inspector General, the Department of State’s Office of Inspector General, the

Department of Housing and Urban Development’s Office of Inspector General, and the

Immigration and Customs Enforcement.
12

• United States v. Goddey A. Otagba, Emannual O. Njoku, Patricia Cole, Sylvia

Copeland and Charles Nnaji, Case No. 2:06-cr-20242 (E.D. Mich.); 

United States v. George R. Zimmerman, Case No. 2:05-cr-80529-MOB-PJK (E.D.

Mich.)

Metro Technical Institute, Inc. (“MTI”), was a post-secondary vocational educational

institution offering non-degree programs from 1992 through October 16, 2002. From 1998

through October 16, 2002, MTI fraudulently obtained approximately $540,000 in higher

education assistance funds. False documentation was prepared on site for program reviews and

audits. Executive Director Zimmerman pleaded guilty to financial aid fraud on July 6, 2005, and

cooperated in the investigation and prosecution. The five defendants (two owners and three

employees) were indicted on July 27, 2006 and charged with conspiracy to defraud the

government, financial aid fraud, and mail fraud.

On March 8, 2007, defendant Njoku, a co-owner of MTI, pleaded guilty to Count One of

the Indictment (conspiracy to defraud the United States). On October 20, 2006, defendants Cole

and Copeland pleaded guilty to Count Two of the Indictment (violation of 20 U.S.C. § 1097(a)). 

On January 8, 2007, defendant Nnaji pleaded guilty to Count One of a Superseding Information

(20 U.S.C. § 1097).

On July 11, 2007, defendant Njoku was sentenced to 12 months and one day

imprisonment, followed by 24 months of supervised release, a $100 special assessment, and 

$533,344 in restitution to ED. On April 19, 2007, defendant Cole was sentenced to serve 24

months probation, a $100 special assessment, and $470,818 in restitution to ED. On April 27,

2007, defendant Copeland was sentenced to serve 24 months probation, a $100 special

assessment, and $520,000 in restitution to ED. On July 17, 2007, defendant Nnaji was sentenced

to 24 months probation, a $25 special assessment, and $5,101 in restitution to ED. Currently,

defendant Otagba is a fugitive. This case was investigated by ED’s Office of Inspector General.

• United States v. Georgia Martin, Case No. 0:06-cr-00236-ADM (D. Minn.)

From about January 13, 2003, through January 1, 2004, the defendant made material and

false statements by completing student loan applications, using the name and Social Security

Number of her deceased grandmother as co-signer, and forging the deceased grandmother’s

signature. The false statements were made for the purpose of procuring and obtaining two

student loans provided and insured by ED under Title 20, United States Code, Chapter 28. 

Pursuant to a plea agreement, the defendant pleaded guilty on August 29, 2006, to violating 18

U.S.C. § 1014 (false statement in loan application) and 20 U.S.C. § 1097. On March 8, 2007,

the defendant was sentenced to 12 months and one day imprisonment, with supervised release

for a five-year term, a $200 special assessment, and $66,845 in restitution to ED and the Student

Loan Finance Corporation. This case was investigated by ED’s Office of Inspector General.
13

• United States v. Tomas Daniel Ramirez, Case No. 9:07-cr-00008-DWM (D.

Mont.) (related case, United States v. Dennis G. Gonzales, Case No. 9:06-cr00041-DVM (D. Mont.))

The defendant was indicted on September 18, 2006, for educational program fraud and

aggravated identity theft under the alias name Dennis G. Gonzalez. On February 7, 2007,

defendant Ramirez was indicted in his true name on charges of illegal entry of a deported alien,

federal education assistance fraud, aggravated identity theft, and perjury. Pursuant to a plea

agreement, the defendant pleaded guilty to all four counts on February 20, 2007. Sentencing is

scheduled in 2008. This case was jointly investigated by ED’s Office of Inspector General and

the Department of Agriculture’s Office of Inspector General.

• United States v. Roscoe C. Smith and James S. Williams, Case No. 2:06-cr-00012-

DWM (D. Mont.)

On or about September 23, 2001, the defendants caused false documents containing

materially false statements to be sent to Montana State University, Bozeman, Montana. In these

documents, the defendants used aliases and stated that they never attended college. In fact, the

names used were not defendants’ real names and both defendants had previously attended

college. As a result of these actions, the defendants obtained federal student loans from about

January 8, 2002, through January 17, 2002. On July 24, 2006, the defendants were indicted on

charges of violating 18 U.S.C. § 1001(a)(3) and 2(b) (false statements) and 20 U.S.C. §1097(a)

(student loan fraud). On January 25, 2007, defendant Williams pleaded guilty and was

sentenced to five years probation, a $100 special assessment, and $6,177 restitution to ED. On

October 2, 2006, defendant Smith pleaded guilty. On January 25, 2007, he was sentenced to five

years probation, a $100 special assessment, and $7,577 in restitution to ED. This case was

investigated by ED’s Office of Inspector General.

• United States v. Prudence Carmen Jeffers, Case No. 1:06-cr-00848-ARR

(E.D.N.Y.)

From August 2002 through October 2005, the defendant applied for, received, and failed

to return federal and state benefits to which she was not entitled, including federal student loans

and grants, New York State unemployment benefits, and Medicaid benefits. She used one or

more Social Security Numbers and represented that the numbers were assigned to her. The

defendant was indicted on December 21, 2006, on charges including violation of 20 U.S.C. 

§ 1097(a). The defendant’s trial is scheduled in 2008. This case was investigated by ED’s

Office of Inspector General and the Department of State’s Office of Inspector General.

• United States v. Daniel Aramis Millan, Case No. 1:06-cr-00054-NGG (E.D.N.Y.)

Between April 2001 and November 2005, the defendant obtained approximately $71,000

in federal-guaranteed student loans by submitting forged documents certifying he was a student

at an approved foreign graduate school when, in fact, he was not enrolled at the school. The

defendant also submitted forged school certifications in an attempt to obtain an additional

$74,000 in loans. The defendant was charged on January 25, 2006, in an eight-count Indictment. 
14

On July 8, 2006, pursuant to a plea agreement, the defendant pleaded guilty to Count Seven of

the Indictment that charged a violation of 20 U.S.C. § 1097(a) (fraudulently obtaining student

loan funds). On January 26, 2007, the defendant was sentenced to five years probation, 300

hours of community service, a $100 special assessment, and $77,734.90 in restitution to the

Sallie Mae Corporation. The government requested a two point enhancement under U.S.

Sentencing Guidelines Manual § 2B1.1(b)(8)(D) that was not granted by the court. This case

was investigated by ED’s Office of Inspector General.

• United States v. Harold Ofori, Case No. 6:05-cr-06042-DGL-JWF (W.D.N.Y.)

The defendant submitted two Federal Stafford student loan applications to Citibank

Student Loan Corporation, one on about July 5, 2001, and the other on August 8, 2002. Each

application was accompanied by a certification page that contained fraudulent representations

that it had been completed and certified by officials at Karol Marcinkowski University of

Medical Sciences in Pozan, Poland. The applications also falsely stated that the defendant was

attending the university. The defendant was charged on March 3, 2005, in a two-count

Indictment for violating 18 U.S.C. § 1344 (bank fraud) and 20 U.S.C. § 1097(a) (student

education loan fraud). On June 21, 2007, the defendant pleaded guilty, pursuant to a plea

agreement, to a superseding information charging two misdemeanor counts of education loan

fraud. On July 19, 2007, the defendant was sentenced to time served, followed by two years

probation, and a $50 special assessment. The Court granted the request of the government for a

two-point enhancement under U.S. Sentencing Guidelines Manual § 2B1.1(b)(8)(D). This case

was investigated by ED’s Office of Inspector General.

• United States v. Robert L. Bethel, Case No. 1:06-cr-00031-SHR (M.D. Pa.)

Beginning in November 1996 and continuing through January 2006, the defendant

devised and executed a scheme to defraud ED by completing and submitting four sets of

FAFSAs and the Student Aid Report, using the name and Social Security Number of his

deceased half-brother. As a result of these actions, the defendant illegally received federal loans

and grants. On January 24, 2006, the defendant was charged in a four-count Indictment alleging

that the defendant violated 18 U.S.C. § 1341 (mail fraud), 18 U.S.C. § 1001 (false document or

writing), 20 U.S.C. § 1097(a) (student loan fraud), and 42 U.S.C. § 408 (a)(7)(B) (false use of a

Social Security Number). On March 27, 2007, pursuant to a plea agreement, the defendant

pleaded guilty to student loan fraud and false use of a Social Security Number. On April 18,

2007, he was sentenced to 37 months imprisonment, with a downward departure of 36 months

and credit for time served, a $100 special assessment, and $4,659 in restitution to ED. This case

was investigated by ED’s Office of Inspector General.

• United States v. Bradley T. Griffith, Case No. 2:06-cr-00190-DWA (W.D. Pa.)

On January 18, 2005, the defendant submitted to ED, through NCO Financial Systems, a

collection company, a completed Loan Discharge Application which contained the forged

signature of a physician. The defendant submitted the application for the purpose of inducing

ED to pay off the defendant’s student loan balance in the amount of $24,300. The defendant was

charged on May 23, 2006, with violating 20 U.S.C. § 1097(a) (student loan fraud) and 18 U.S.C.
15

§ 1341 (mail fraud). On June 29, 2006, he pleaded guilty. On October 2, 2006, he was

sentenced to 12 months and one day imprisonment, followed by three years supervised release,

and a $200 special assessment. This case was investigated by ED’s Office of Inspector General

and the Veterans Administration’s Office of Inspector General.

• United States v. Reynaldo Garcia, Case No. 1:06-CR-00575 (S.D. Tex.)

The defendant was the owner and President of R.G. Educational Services Incorporated,

doing business as South Texas Vocational Technical Institute (“Institute”) in Brownsville,

Texas. ED regulations required the Institute to refund any credit balance to the student within 14

days, or to return any federal assistance funds to ED within 30 days after a student’s withdrawal

from the Institute. The defendant was charged on July 11, 2006, in a 17-count Indictment of

failing to refund federal assistance funds in violation of 20 U.S.C. § 1097(a), misapplication and

failure to refund federal assistance funds in violation of 20 U.S.C. § 1097(a), and making and

using false writings or documents in violation of 18 U.S.C. § 1001. Pursuant to a plea

agreement, the defendant pleaded guilty to six counts of the Indictment on January 8, 2007. On

May 2, 2007, he was sentenced to 41 months imprisonment, followed by three years supervised

release, a $600 special assessment, a fine of $10,000, and $81,404.86 in restitution. This case

was investigated by ED’s Office of Inspector General.

• United States v. Barbara Bland, Case No. 1:06-cr-00064-IMK (N.D. W. Va.)

Beginning in September 2004, the defendant submitted a false and fraudulent “Initial

Application for Approval to be Designated as an Eligible Institution and to Participate in the

Federal Financial Assistance Programs,” including fraudulent financial statements, to qualify her

business, the Art and Science Institute of Cosmetology and Massage Therapy, for receipt of

federal financial assistance for its students. The defendant was charged on July 12, 2006, in a

five-count Indictment with violations of 20 U.S.C. § 1097(a) and 18 U.S.C. § 1001 (false

statements). Pursuant to a plea agreement, the defendant pleaded guilty to Count One of the

Indictment (student financial aid fraud) on June 26, 2007. On January 3, 2007, she was

sentenced to two years probation, including six months home detention, and a $200 special

assessment. This case was investigated by ED’s Office of Inspector General.

• United States v William B. Spatafore, Case No. 1:06-cr-00065-IMK 

(N.D. W. Va.)

On October 11, 2005, the defendant filed a fraudulent FAFSA that falsely represented he

was married. He was charged on July 12, 2006, in a one-count Indictment of violating 20 U.S.C.

§ 1097(a). Pursuant to a plea agreement, he pleaded guilty to this charge on September 29,

2006. On February 15, 2007, he was sentenced to five years probation, a $100 special

assessment, and $14,550 in restitution to ED. This case was investigated by ED’s Office of

Inspector General.
16

• United States v. Shavon Casson, Case No. 06-cr-0167-c, 07-cr-0009-c (W.D.

Wis.)

In November and December 2004, the defendant used the identities of her deceased sister

and cousin to obtain fraudulent student loans. In 2006, she fraudulently used the Social Security

Number of an individual whose identity she had assumed to open bank accounts and gain

employment. While employed at a nursing home, she stole a patient’s debit card that she used to

make purchases in the amount of $12,000. She was indicted on January 4, 2006, with student

loan fraud, identity theft, and fraudulent use of a Social Security Number. Pursuant to a plea

agreement, she pleaded guilty to these charges on January 29, 2007. On April 4, 2007, she was

sentenced to 65 months imprisonment, followed by three years supervised release, a $100 special

assessment, and $40,785.16 in restitution, including $18,432 to ED. ED’s Office of Inspector

General investigated this case.

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.
17

1. David Ellis, College Costs: Up, up and away, CNN/Money.com, Aug. 17, 2006,

http://money.cnn.com/2006/08/17/pf/college/college_costs/index.htm (“The cost of higher

education looks like it’s climbing . . . again. While the final trend figures for the fastapproaching 2006-2007 academic year are still being compiled, students can expect about a 5

percent increase in both tuition and fees. . . .”); The College Board, Trends in College Pricing

2007 (2007), available at

http://www.collegeboard.com/prod_downloads/about/news_info/trends/trends_pricing_07.pdf

(stating that over the past year, tuition and fees at public and private four-year colleges and

universities increased between 5.5 and 6.6 percent); The College Board, Trends in College

Pricing 2006 (2006), available at

http://collegeboard.com/prod_downloads/press/cost06/trends_college_pricing_06.pdf (stating

that over the past five years, tuition and fees at public four-year colleges and universities

increased by 35 percent in inflation-adjusted dollars); Fact Sheet: The Skyrocketing Cost of

Higher Education, House Comm. on Educ. and the Workforce, 108th Cong. (2003),

http://www.house.gov/ed_workforce/issues/108th/education/highereducation/factsheetcost10100

3.htm (noting that since 1981, “the cost of a public four-year college education has increased by

202 percent, while the Consumer Price Index has gone up only 80 percent.”)

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.

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).

Endnotes
18

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 4.3 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

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 Fraud

and Identity Theft Complaint Data – January - December 2007, issued by the FTC in February

2008 and available online at http://www.ftc.gov/opa/2008/02/fraud.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.
19

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%

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.
20

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.