The Biggest College Scams Of All Time

By Ben DeMeter | April 26, 2012 AAA
The Biggest College Scams Of All Time

Our institutions of higher education are supposed to educate our youths on the ever-expanding boundaries of practical knowledge, but sometimes the innovations they help foster are used not for good but for staggering criminal gains. From phishing schemes to loan scandals, America's colleges and universities have played a significant role in some of the most devastating cases of fraud and identity theft in modern history. Here's a look at some of the biggest to ever hit the courts.

Rio Salado College Fleeced for $500,000
If there's a problem with the distance learning programs many colleges offer, it's that the lack of a physical classroom makes it easy for criminals to impersonate legitimate students. As such, it's not uncommon for a college to be tricked into falsely distributing financial aid to an individual using an assumed identity. In 2006, Trenda Lynne Halton of Peoria, Arizona, discovered that she could earn a handsome amount of money by showing would-be criminals how to exploit this weakness. She convinced more than 130 people to pay her between $500 to $1,500 each in exchange for her help in creating fake documents like high school diplomas and tax forms that could then be used to apply for Pell Grants and other loans from Rio Salado College in Tempe, Arizona.

By the time a Rio Salado employee finally caught on to the fact that many of the college's distance learning applications shared the same handwriting and enrolled in the same classes, Halton and her band of "straw students" had defrauded the school for $538,932 in student aid. She and 64 other defendants were indicted in 2009 and charged with a range of offenses that include conspiracy, mail fraud, financial aid fraud and making false statements in connection with financial aid.

University of Missouri Students Run Phishing Scam
In 2001, two brothers attending the University of Missouri, Amir and Osmaan Shah, devised a program to harvest or "phish" e-mail addresses from college students across the country. Using UM's networks as a distribution point, they collected more than 8 million e-mail addresses from students at more than 2,000 colleges and universities. They then used the harvested addresses to launch a massive spam campaign, encouraging students to buy various products and services from their affiliates. Though the e-mails had less than a 1% response rate, the brothers sold enough merchandise between 2001 and 2004 to net them more than $4.1 million in profits.



The University of Missouri eventually caught the pair, along with two accomplices, after the school's entire network became clogged due to the massive output of spam. A federal investigation revealed that over the years, the Shah brothers had illegally harvested more than 100 million e-mail addresses in the U.S. and the U.K. They were convicted of multiple violations of the CAN-SPAM Act in 2010 and are currently serving three years of probation.

Massive Student Loan Scandal
A 2007 investigation by New York DA Andrew Cuomo into the back-room deals cut between colleges and student loan companies uncovered a scandal that encompassed over 100 of the most prestigious universities in the country. Through relentless probes, Cuomo discovered that financial aid officers at institutions such as Johns Hopkins, Columbia University, University of Southern California and Penn accepted bribes, gifts and paid vacations from student loan companies in exchange for placing the companies on their list of "preferred" lenders. Further investigation discovered that some financial aid officials even owned stock in the companies that they recommended to their respective student bodies.

In the wave of firings and resignations that followed, the House passed the Student Loan Sunshine Act. The Act requires all schools that work with student loan companies to adopt a code of conduct banning them from accepting any gifts or giving preferential treatment to loan companies with which their officers are affiliated. Additionally, eight of the Wall Street banks embroiled in the scandal agreed to give $13.7 million to the National Education Fund and a dozen of the guilty schools agreed to reimburse students a total of $3 million.

Government Defrauded for $11 billion
The most recent college fraud scandal to make headlines is also the largest of its kind to date. Last fall, the Department of Justice - along with the states of California, Florida, Illinois and Indiana - filed a lawsuit against the Education Management Corporation, accusing the Pittsburgh-based company of violating the Higher Education Act in order to fraudulently obtain more than $11 billion in student aid.

Specifically, Education Management, which operates the Art Institutes, Argosy University and other schools, is being accused of rewarding admissions officials with commissions and bonuses for bringing in unfit students that could be used to win more federal aid. According to the New York Times, recruiters for the company's stable of schools were even encouraged to enroll students who were illiterate or clearly under the influence of drugs. In one case, a recruiter signed up a new student for an online course even though they made it clear they didn't own a computer. The case is currently making its way through the courts.

The Bottom Line
While these are, without a doubt, some of the most scandalous cases of fraud to ever rankle America's colleges and universities, they certainly won't be the last. This year, national student debt is expected to surpass $1 trillion. With student loans being cited by experts across the country as the next big bubble to burst, it's only a matter of time before another case of mass fraud is discovered in the cradle of higher education.

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