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Financial Aid Scams and College Student Spending Cause Concerns

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Financial aid money is intended to help students pay for tuition, room and board, and other education-related expenses like textbooks and school supplies. In most cases that’s exactly what the funds are used for, but some college student spending habits are raising red flags. Some people are even scamming the system by enrolling in college classes just to receive financial aid, pocketing the excess cash, and dropping out of school.

More people are attending college than ever before and college costs have risen significantly in the last decade, but there is a big difference between “attending” and “graduating.” According to Time Business and Money, less than 40 percent of students earn a degree within four years while roughly 60 percent graduate within six years.

Financial Aid Awards Increasing

Rising student loan debt is continually in the news, and it really is rising. USA Today reports that U.S. Department of Education statistics show the amount of federal financial aid (loans and other types) awarded during the 2000-01 school year at $64 billion. Ten years later, that amount was nearly $170 billion. Some students aren’t using the money they receive for its intended purposes.

A large number of students—those who eventually earn degrees as well as those who do not—rely on federal financial aid programs to pay for college. The Federal Pell Grant, a need-based grant that does not have to be repaid, currently supplies students with a maximum of $5,500 per year. Many students also accept student loan money, often without considering the consequences of loan payments after graduation or leaving school for other reasons.

It’s not uncommon for students who are eligible for the full Pell Grant amount to attend community colleges, with tuition that runs roughly $3,000 per year. After their tuition is paid, the students receive the remaining funds to purchase their textbooks and other necessary school supplies. The money can also be used to pay for transportation to and from school as well as general living expenses such as groceries and necessities.

Finanial Aid Money Used for Shopping

Sounds good in theory, but it’s tempting for college student spending to get out of hand. Many students accept all types of financial aid they are eligible for with open arms and joke about living off of their student loans. Even colleges that award book vouchers (which can only be spent at campus bookstores) before refunding the rest of a student’s financial aid money are reporting problems, despite the attempt to help students spend responsibly. Gift cards that can be used elsewhere are often available for purchase at school bookstores, as are electronics.

“The only thing I can say is, if students spend their money on electronics, they won’t have enough left to buy books, which they need to pass classes,” Felicia Bryant, director of financial aid at Camden County College, told the media.

Financial Aid Fraud on the Rise

But a growing number of students honestly do not care whether or not they pass their classes because they disappear early in the semester, reports USA Today. These students, known as Pell jumpers and Pell runners, are committing financial aid scams by applying for financial aid and enrolling in classes at low-priced schools in an effort to receive a financial aid refund. They show up just long enough to receive refund checks before dropping out completely.

Wilma Porter, director of student financial resources and scholarships at Oakland Community College, explained the financial aid scam in layman’s terms to the Detroit Free Press. A maximum $5,500 per year Pell grant is disbursed to the school in two installments of $2,750 per semester.

An eligible student registers for 12 credit hours, which is considered full-time status. Twelve credits cost less than $1,000 at Oakland. If the student does not purchase textbooks or other items with textbook vouchers, they will receive a refund check for over $1,750.

Oakland Community College estimates that roughly 1,000 students who jumped ship received refund checks from Pell grant money during the Fall 2012 semester, to the tune of $700,000 that is now owed to the federal government. Other schools report Pell jumpers costing them millions of dollars that must be repaid.

Community Colleges Fighting Back

The schools can send bills to the fraudsters, even send their accounts to collection agencies, but it’s usually to no avail. Some “students” even pull the financial aid scam again by signing up for classes at another unsuspecting college.

Now that the issue is becoming better known, community colleges are attempting to crack down on the problem by paying special attention to students who want to transfer to the school during the middle of the year, requiring faculty to take attendance during class, delaying financial aid refunds by several weeks, and even requiring students to place a bank account or credit card on file. Funds may be held if students aren’t showing up for class or making a sincere effort, so they can be sent back to the government in case of delinquency.

These measures may be helping schools prevent financial aid fraud, but they are also making things harder on students who legitimately need and use the money for school and living purposes. “There hasn’t been an ideal remedy yet,” said Karen McCarthy, a policy analyst for the National Association of Student Financial Aid Administrators.


Melissa Rhone+

Melissa Rhone earned her Bachelor of Music in Education from the University of Tampa. She resides in the Tampa Bay area and enjoys writing about college, pop culture, and epilepsy awareness.

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