Representative Grothman Addresses Pell Grant Fraud

David Randall

At a recent hearing by the Congressional Subcommittee on Higher Education and Workforce Development, Representative Glenn Grothman (R-WI) raised hackles with his suggestion that Pell Grant recipients are putting off marriage so as to keep their declared income low, and therefore retain eligibility for Pell money. He also said that Pell Grant recipients use their money “for goodies and electronics.” The witnesses before him had nothing to say. Barmak Nassirian, director of federal relations and policy analysis for the American Association of State Colleges and Universities, dismissed Grothman’s claim as “anecdotal evidence.”

As Duke Cheston’s 2013 article “Pell-Running” ably summarizes, the evidence that Pell Grant recipients game the system, and commit outright fraud, is more than anecdotal. Here are some of the highlights from Cheston’s research.

In 2003, the U.S. General Accounting Office “estimated that Pell grant fraud accounted for about $300 million in grants per year—about 3 percent of total money handed out.” The Obama administration acknowledged that “improper payments” were 2.7% of Pell disbursements in 2011, but Mark Kantrowitz of estimated that Pell Grant fraud alone was actually running that year at about 3.6% of disbursements—more than $1 billion. Why the difference? Kantrowitz included students who received Pell Grants but never graduated.

That difference is important, because Pell Grants don’t require students to graduate—and they give money beyond tuition and fees directly to the student. “Pell runners” can take the money, drop out of classes, and run. At cheaper institutions, especially community colleges and technical colleges, Pell runners can rake in as much as 12% of grant money for themselves. It’s even easier to commit fraud at online schools—the Education Department was investigating more than 100 scams involving online education in 2011, as compared to 16 in 2005. The Apollo Group, which runs the University of Phoenix, detected more than 21,500 fraudulent students between 2008 and 2013, and referred about 750 fraud rings to the Department of Education’s Office of the Inspector General (OIG). There are so many fraud cases that it’s overwhelming the OIG. They only prosecute fraud ringleaders, because they don’t have time to go after individual Pell runners.

Pell Grant fraud doesn’t just harm taxpayers. Henry Ford Community College in Dearborn, Michigan is alsoraising tuition, partly to repair the damage from Pell grant fraud.”

That’s just the outright fraud. Pell Grants are also scandalously ineffective. As Matthew Denhart notes, while the federal government doesn’t even collect information on graduation rates by Pell Grant recipients, a 2002 study revealed that “46% of Pell recipients had received a Bachelor's degree within 6 years, compared to 51% of comparable non-recipients at 4-year public institutions. At 4-year private institutions, 56% of Pell recipients had received a BA within 6 years while 68% of non-recipients did the same.”  Richard Vedder also notes strong statistical evidence that some millions of Pell Grant recipients must actually be coming from middle-class or affluent families—not the poor college students the Pell program is meant to target.

Representative Grothman is certainly right to suggest that a significant portion of Pell Grant money is being diverted, fraudulently, from its intended uses, and to demand reforms of the Pell Grant system. The NAS’s suggested amendments for the upcoming re-authorization of the Higher Education Act, the “Freedom to Learn Amendments,” include reforms intended precisely to prevent such fraud:

Grants and federal student loans should be given only to those with family incomes below 150% of the poverty level. Aid should come with modest academic expectations, such as maintaining a 2.5 grade point average. Institute a maximum number of years (five) for which students can receive federal assistance.

We also suggest that colleges and universities, which often admit ill-qualified students in order to retrieve their Pell money and federal student loans, should have some skin in the game. Colleges should not encourage the enrollment of students they know will not be able to graduate. We propose that

Colleges and universities that receive Title IV student loans, Pell Grants, and other student funding originating in or guaranteed by the federal government shall be liable for thirty percent of repayment of the principal and interest in the event that a student fails to receive a college degree within eight years of first enrolling in any four-year program for which those funds have been employed, or five years of any two-year program for which those funds have been employed.

We suggest these not least because the federal government is not equipped to investigate the massive amounts of fraud committed by Pell Grant recipients. If colleges and universities are liable to lose money themselves, they’ll have an incentive to do due diligence and keep the Pell runners out of their student bodies.

But this is just one possible reform. The NAS is open to other solutions proposed by Representative Grothman in his campaign to prevent waste and fraud in the Pell Grant system. We applaud him for raising these important issues. All Americans interested in higher education ought to prefer federal grant programs that are effective in preventing fraud and tightly focused on educational results.

Image: By United States Congress -, Public Domain.

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