Falsifying Applications for Student Loans Could Bring Big Trouble

Sep 18 14:36 2010 Jeff McTabor Print This Article

The need for student financial aid is ever-present, and today’s tough economy has left students scrambling for money to attend college. 

Federal student loan limits,Guest Posting combined with spiraling tuition costs and the current recession, mean that federally guaranteed student loans — those backed by the federal government — will often only cover part of the entire cost of a college education, leaving students to fill in the gaps with private student loans, parent student loans, personal savings, and family contributions.

The federal student aid program requires students who are seeking federal financial aid to fill out the Free Application for Federal Student Aid (FAFSA). The FAFSA is a comprehensive form that requires students to submit personal financial information, as well as information about their parents’ income, savings, assets, and other resources available to help pay for college. Based on the results of the FAFSA analysis, some students will qualify for federal grants, federal student loans, or a combination of both.

Grants are the “gold standard” of federal student aid because they don’t require repayment. Federal grants are usually made through the federal Pell Grant program, though other smaller grant programs do exist. Pell Grant awards currently range between about $500 and a maximum award of $5,550, depending upon income and financial need. According to the U.S. Department of Education, only about 50 percent of students who apply for Pell Grants are actually qualified by income to receive program funding.

Some students may be tempted to falsify information they provide on the FAFSA to help tilt the balance of their aid package from student loans to grants. Besides being a bad idea, that approach is also against the law. The consequences for filing a false federal financial aid application can be serious.

Facing the Fallout From Student Loan Fraud

Falsifying information on the FAFSA is considered federal fraud because the ultimate result of filling out the form is a determination of eligibility for federal financial aid. In the most serious fraud cases, applicants file multiple FAFSAs, using different identities to get multiple federal financial aid awards.

A recent case involving an Alaska woman who used two different identities to bilk lenders out of hundreds of thousands of dollars in student loans that she used to play the stock market, purchase a condo, and launch a startup resulted in a prison term of nearly five years and fines of more than $700,000 (“Alaska Woman With 2 Identities Gets Almost 5 Years,” Associated Press, Sept. 10, 2010).

Other recent high-profile student loan fraud cases include the sentencing of more than five dozen people in Arizona in what authorities described as a “massive” financial aid fraud scheme that would have defrauded the United States out of more than a half-million dollars in student loans, and the arrest of a New Jersey woman who used multiple stolen Social Security numbers to collect nearly $200,000 in fraudulent student loans over four years.

In most cases, students and their families who report lower incomes on the FAFSA than on their annual tax returns will simply be declared ineligible for some or all federal financial aid, depending upon the nature of the misstatement.

For the most part, however, cheating on the application for financial aid is hard, if only because the federal student aid program is heavily audited at every step of the process. The Education Department has audit procedures for individuals, schools and school servicers, lenders and lender servicers, and guaranty agencies and servicer agencies.

The long and short of it is that falsifying documentation on the FAFSA is highly unlikely to be successful, and there are numerous avenues through which discrepancies can be discovered. Financial aid that is awarded based on false applications will be retracted, and the student will be required to repay the award and may also face fines, jail time, or other penalties.

Lenders Catch Student Loan Scammers Through Standard Checkpoints

One audit report provided by the U.S. Department of Education found that almost 5 percent of the successful Pell Grant applications for the 1995–96 school year contained deliberate misstatements that could be characterized as fraudulent. Since that time, the income documentation requirements for financial aid applications have increased substantially, and underreporting income on the FAFSA is highly unlikely to succeed.

The application process for non-federal private student loans is just as rigorous and can actually require even more documentation than the federal financial aid application. Since lenders of private student loans are issuing credit-based loans, which depend on the creditworthiness of an applicant and the applicant’s likelihood of repaying the loan, these lenders may require students and their co-signers to provide pay stubs as proof of income and employment, copies of tax returns, and photo IDs — all that in addition to the required credit report. Lenders are also required, under FTC guidelines, to take several steps toward protecting against identity theft and fraudulent applications for private student loans.

Regardless of whether the federal government or a private lender issues the student loan, if a student loan is found to have been obtained fraudulently, the borrower must repay the loan balance, except in a few rare (and extremely narrow) circumstances. Student loans typically cannot be discharged through bankruptcy, so even if student borrowers don’t achieve the American Dream after graduation, they’ll still need to pay off their student loan debt.

800x600 Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4 /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman","serif";}

Pell Grants, student loans, private student loans

Source: Free Guest Posting Articles from ArticlesFactory.com

About Article Author

Jeff McTabor
Jeff McTabor

Jeff Mictabor is an enthusiast on the topic of student loan issues in the news. He has been writing for the past 10 years for a variety of education publications. He now offers his writing services on a freelance basis.

View More Articles