Forty-four College of DuPage students and two organizers of a financial aid fraud ring used student aid for their personal use after dropping out of online classes they enrolled in last spring, college officials said.
The students participated in just enough online interaction to allow the federal aid to be distributed, but soon after, they withdrew from the classes and received refund checks.
Most of that money ended up in the hands of two ringleaders -- one in Illinois and one out of state -- who promised to give a percentage to the so-called "straw" students who willingly provided them with personal information, officials said.
The suspected ringleaders and students are now the subject of a federal investigation that could result in criminal charges. The COD case falls into an ongoing investigation into fraud rings nationwide that authorities say primarily target community colleges and open enrollment institutions that offer online classes with lower tuition.
Tom Glaser, COD's senior vice president, said officials from the college's bank in May deemed six student refund checks that had been endorsed to third parties to be "suspicious." Two checks were endorsed to one person, and four checks were endorsed to another.
The college's information technology department ran a report identifying all students who signed up for online-only classes in the spring semester, were eligible for financial aid, and were dropped from their classes. Officials pinpointed 44 students who shared similar addresses, phone numbers, payment-plan credit card numbers and third-party check endorsees.
Soon after, the U.S. Department of Education's inspector general confirmed that the students might be part of a fraud ring that had already been identified, Glaser said.
The discovery prevented another 69 students from doing the same in the summer semester, Glaser said.
He said an analysis of the students involved found several similarities: They reported their income to be less than $7,000; all had GED degrees; and many previously attended the University of Phoenix, Arapahoe Community College in Colorado and Des Moines Area Community College in Iowa.
In total, Glaser said $354,000 has been lost to fraud the past four semesters -- which represents 39.3 percent of total delinquent accounts receivable at COD.
He said the college had planned to pursue prosecution of the case in DuPage County court, but on advice of school attorneys, officials decided to hand it over to the federal education department.
A September 2011 report from the education department's inspector general states that there have been an increasing number of cases involving "large, loosely affiliated groups of individuals who conspire to defraud" the federal student financial aid system through online programs.
It may be easy to do, authorities say, because colleges aren't required to verify the identities of their online students.
Ringleaders can easily use others' identities -- with or without their consent -- to get the money, according to the federal report.
Since 2005, the inspector general has helped prosecute 215 individuals in 42 different fraud rings, leading to $7.5 million in fines and restitution.
But in many cases, only ringleaders are prosecuted, authorities said.
"From past experience, we know only a small fraction of participants will be prosecuted and only a fraction of (federal aid) losses will be recovered," the report states.
In the meantime, COD officials say they've made several changes to deter the potential for fraud:
• The student aid department reviews a newly created report that identifies financial aid students enrolled in online classes only. The report shows how many times these students log in to the online system, and financial aid is dropped if the student does not log in on the first day of class.
• The information technology department is attempting to expand verification requirements to require students with income less than $7,000 to demonstrate how they may be able to live on that amount of money.
• COD now requires a high school or GED transcript for all out-of-district and out-of-state students.
• College officials said they look at receivable balances daily, and drop students for nonpayment on a regular basis, though "every attempt is made to work with the student," Glaser said.