Gaming the Financial-Aid System
Doctoring tax returns, hiding money with Grandma, posing as a dead relative—some families will do almost anything to eke out extra college aid, including jail time.
Some parents would do just about anything to get their child into the college of their dreams—including lie, cheat, and steal to pay for it.
With tuition alone topping $50,000 at certain private colleges, it’s no surprise that some families resort to desperate measures when it comes to procuring as much financial aid as possible. Add in the struggling economy and underwater investment portfolios, and both university financial-aid officers and outside experts suggest that, while outright falsification is rare, the number of parents willing to stoop to trickery to get more assistance will likely grow again this year.
Shavon Casson was sentenced to 65 months in prison for, in part, using her dead sister and cousin’s identities to get fraudulent student loans.
Experts universally agree that it pays to apply for scholarships and grants as early as possible, when colleges’ coffers are still full. Still, filling out all the necessary paperwork required—including the ubiquitous Free Application for Federal Student Aid—is no easy task. As former Education Secretary Margaret Spellings once said of the U.S.’s financial-aid regime, “It’s redundant, it’s Byzantine and it’s broken.” In fact, testifying before Congress two years ago, Spellings went one step further. “It’s often more difficult for students to get aid than it is for bad actors to game the system,” she said.
That statement may be truer today than ever. With many schools’ deadlines for financial-aid applications due this month, The Daily Beast explores the lengths some applicants are willing to go to finance their education—and the consequences for those who get caught.
Taking a Pay Cut
The most common way parents cheat their way into extra aid is by lying about their incomes. In its last audit of the federal Pell Grant program, meant for low-income families, the Department of Education asked the IRS to look at the family incomes of 2.3 million 1995-96 recipients as stated on the aid applications, and compare the numbers with the incomes those same people reported to the IRS. About 4.4 percent of families had understated their incomes, with more than 300 understating them by more than $100,000. The audit estimated that $176 million in undeserved Pell Grants had been awarded that year. In one particularly egregious case, a grant had been given to a student who had told the IRS he makes $1.3 million a year.
In the years since, the DoE has worked with the Department of Justice and local prosecutors to crack down on financial-aid fraud, even opening up its databases to the FBI to ferret out perpetrators. Yet there’s little doubt such bad behavior still goes on. Indeed, the colleges we approached for this story all refused to participate, citing concern that doing so might teach parents new tricks. “It’s just too easy to do,” says Jim Briggs, a former IRS agent who works with colleges on how to review the tax returns families file as part of their financial-aid applications. “I can’t, in good conscience, go into the details because it could end up giving people tips on how to do it better.”
Paying Off Grandma
Parents, likewise, were nervous to share secrets on how they navigated the financial-aid game. “I highly considered handing over a large check to my mother for safekeeping a few years before my daughter applied to college,” admits one Georgetown alumna’s father, asking that he not be identified to spare his family any repercussions. “I was worried all my retirement money was going to go to Georgetown otherwise.”
That same man's daughter, on the other hand, sees nothing wrong with taking a shortcut to more aid. “My freshman roommate liked to brag about how many grants she got because her Long Island parents were consummate consumers—they had new cars, a boat, designer clothes,” she says. Since applications for financial aid are primarily evaluated based on how much money you have in the bank, and not your consumer assets, spending as much as possible before apps are due is a common method for obtaining more aid. It’s a source of friction between families who spend responsibly and those who spend recklessly. “Why should my dad, a natural-born saver, be penalized when such gross materialism is rewarded?" asked the daughter.
Doctoring Tax Returns
Other families go to much more extreme lengths, like those who falsify applications or tax returns. Take the case of Lisa Ann Keane, a Philadelphia mother who agreed two years ago to pay the government $62,000 to settle allegations that she omitted her husband’s income from her two sons’ financial-aid forms, thus qualifying them for more federal assistance.
“The positive results achieved through this case, and cases like this one, will help to send a message,” Laurie Magid, the then-interim assistant U.S. attorney who handled Keane’s settlement, said in a statement. “The government is serious about protecting the sanctity of the federal student financial-assistance programs for those individuals who are in true need of financial assistance.” (Typically, parents caught defrauding the government are forced to pay back about twice what they’ve stolen.)
In 2001, federal prosecutors charged 18 parents in Illinois with illicitly obtaining more than $2.6 million in grants, work-study and loans. The feds were tipped off after one father accidentally sent a college his fake tax return first, followed by his real one. One of the couples charged, Peter and Emma Martin of Chicago, allegedly stated their annual income as between $15,000 and $23,000 when it was actually as much as $138,000.
Hiring a Con Man
Many involved in the Illinois case fell prey to a common swindle: financial planners promising unrealistic savings, only possible by underhanded means. An estimated 175,000 people have lost as much as $22 million as victims of scholarship scams—which promise increased financial assistance for a small fee—according to Project ScholarScam, a program ran by the Federal Trade Commission to combat such rackets.
Sometimes, however, the person suggesting the fraud is even an admission officer or a trusted adviser. In 2009, an official at Kansas City’s Vatterott College admitted to a conspiracy that netted ineligible students more than $344,000. And, in 2002, a Los Angeles minister was accused of giving seminars at local black churches and advising some 400 students to submit financial-aid applications that said they were orphans or wards of the state. Families were charged as much as $200 to attend the sessions, and they allegedly obtained more than $10 million in aid. The minister, Ozell Clifford Brazil, was sentenced to 41 months in federal prison and ordered to pay more than $700,000 in restitution.
Posing as a Dead Person
Of course, some students don’t need any help lying on their financial-aid forms. Shavon Casson, then 26, of Rockford, Illinois, was sentenced in 2007 to 65 months in prison for, in part, using her dead sister and cousin’s identities to get fraudulent student loans. Casson, who expects to be released this year, was also forced to pay the DoE nearly $20,000 in restitution. That same year, prosecutors convicted Robert L. Bethel of completing and submitting four sets of aid applications, using the name and Social Security number of his deceased half-brother. He was sentenced to 36 months in prison.
Going on a Shopping Spree
Working with an accomplice, 25-year-old Amanda Johnson was found guilty by an Ohio court last January of borrowing more than $100,000 in federal aid illegally and spending the funds on new cars and luxury items. Johnson was one among more than a dozen individuals caught by a multiagency task force in recent months and charged with receiving more than $1 million in aid through fraud. "Not one of these individuals thought they would get caught," said the DoE's acting inspector general, Mary Mitchelson. "Every one of them was wrong."
All of this is not to suggest that parents shouldn’t be savvy. For instance, one kosher way to better your chances for receiving aid is liquidating assets that are in your child’s name into your own accounts, because students are expected to contribute a larger percentage of their savings to their education. Or make sure there are schools on your teen’s list that give generous merit aid, such as Ohio’s College of Wooster or Wisconsin’s Beloit College. It's a method that requires no paperwork—and, as a bonus, holds no chance of jail time.
Kathleen Kingsbury covers education for The Daily Beast. She also contributes to Time magazine, where she has covered business, health, and education since 2005.