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Shomber's lawyer, Steven Mason, said recently. Soon, that Government money began disappearing into someone's pocket at PRS. Exactly who was responsible is not clear. According to court documents, Mr. Shomber told Federal investigators he did not take it; he said his financial aid officer did. When investigators asked why he had not reported the man, Mr.

Shomber explained that he was afraid to, because, he said, the financial aid officer belonged to a motorcycle gang. Though the case was small, prosecutors needed two years to ready it for a grand jury. Forms in Order, Yet. Colleton, the prosecutor. Several months ago Mr. Shomber pleaded guilty to one felony count of a count indictment.

The Government is unlikely to recover its money; he has filed for bankruptcy. This is not unusual. When student-aid fraud is mentioned, many people think of selfish students walking away from their financial obligations. But students are the least of the problem. He has led several hearings on the abuses in recent years and plans more this year. The for-profit trade schools are the main problem, a target of three-fourths of the department's enforcement activity, said Dr.

David Longanecker, an Assistant Education Secretary. In the last three years, these schools, also called proprietary schools, received 25 percent of Federal student loan revenue, but they accounted for 76 percent of defaults. When the Government Student Loan Program was begun in , 90 percent of the money went to four-year colleges; 3 percent went to trade schools. In recent years, trade schools have collected as much as 36 percent of all loan revenue and last year received 19 percent.

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About 5 percent of the United States' 15 million students in higher education attend trade schools. Which brings up Case No. Students, employees and investigators testified at the Senate hearing that the main goal of A. They said the school employed only 23 instructors but 70 loan processors and commissioned salespeople, who frequented welfare and food stamp offices to recruit students.

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They also testified that the year before qualifying for Federal loans, A. And, they said, only 10 percent to 20 percent of A. When Federal guaranteed loans came due, regulators could not find a large percentage of the school's students because many loan forms listed phony addresses, like " Cant Read, Pritchard, Ala.


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At the time of the hearings, the Federal Bureau of Investigation began a criminal inquiry, renting three trucks to haul away files from A. Four years later, the inquiry continues, with no charges yet filed.

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A crucial reason, law-enforcement officials agree, is that the Education Department's inspector general could not free up the staff to investigate even such a high-profile case. This case has floundered. Even Rebekah Poston, a defense lawyer who until recently represented A. The school's current lawyer, Greg Baldwin, would not comment on issues raised at the hearing, except to say that witnesses had serious credibility problems.

At the hearings, Joseph Calareso cited his Fifth Amendment right to remain silent.

Senator Sam Nunn Opens an Inquiry

Stephen Blair, who as president of Career College Association is the main lobbyist for trade schools, says significant efforts have been made in recent years to correct problems like those at A. The Education Department in recent years has heavily relied on default rates as a sign of trouble, singling out these schools for more frequent reviews.

But Mr. Blair says this is unfair because the higher default rates may not actually reflect corruption, but rather a school's willingness to take a chance on a poor, high-risk, inner-city population.

go to site Government officials say there is no way to calculate what percentage of student loan defaults is due to fraud and what is a result of legitimate risk taking. January 19, — November 6, RL Topic Areas About Donate. It also was argued that implementing the rule might restore some market incentive to education as proprietary institutions would be unable to charge more than what students not receiving enough federal financial aid to pay all their institutional charges were willing to pay.

Congress declined to make changes to the formula for calculating revenue that had generated controversy since its inception following the reauthorization. The U. Department of Education, however, opted to modify the definition of revenue and calculation of eligibility through regulations following the reauthorization. The HEA may be considered for reauthorization by the th Congress. This report will be updated as warranted by legislative action.

HEA, Section recognizes nonprofit institutions that are, among other things, legally authorized by the state, accredited or preaccredited by an agency or association recognized by the U. Section recognizes proprietary for-profit institutions of higher education, postsecondary vocational institutions, and institutions outside of the United States as being eligible for Title IV programs. Failure to comply with this requirement results in an institution losing its eligibility to participate in Title IV programs.

Finally, the cost of books, supplies, and equipment may not be considered unless those costs are institutional charges. Under the cash basis of accounting, revenue is recognized only when it is received rather than when it is earned. CRS-3 services. Thus, institutional grants in the form of tuition waivers do not count as revenue because they do not represent an inflow of cash from outside the institution.

Examples of specific non-Title IV revenue that may be included in the denominator include non-Title IV funds used by students to pay tuition, fees, and other institutional charges; loan repayments received by the institution during the fiscal year for which the determination is made; and institutional scholarships if the funds were disbursed from an established restricted account and the funds in that account are funds from an outside source.

In contrast, tuition savings continued Department of Education conducted investigations of student aid programs and found evidence of extensive fraud and abuse; some of the worst examples of these practices were found at proprietary institutions. Many proprietary institutions were failing to provide For more information about the treatment of Section tuition savings plans during the negotiated rulemaking process, see U. Both archived reports are available from the author of this report. See also U. Hereafter cited as GAO, Testimony.

The Senate Permanent Subcommittee on Investigations conducted some of the investigations of fraud and abuse in Title IV programs in CRS-5 students with a quality education or training in occupations with job openings, focusing instead on obtaining federal student aid dollars. As a result, students left proprietary institutions with no new job skills or few prospects of employment in their field of study and burdened with substantial loan debt.

At the same time, there was evidence that proprietary institutions were recruiting low-income students who were not qualified to participate in postsecondary education and who had little chance of even completing a program. Arguments were made that if proprietary institutions were providing a high-quality education, they should be able to attract a specific percentage of their revenue from non-Title IV programs.

Thus, proprietary institutions that were overly dependent on Title IV revenue were considered institutions that were not providing a high-quality education, and institutions that might be misusing federal dollars. Therefore, it was concluded that these institutions should not be subsidized by federal dollars. First, there were concerns that accrediting bodies of proprietary institutions were hesitant to withdraw accreditation due to its financial implications e.

Second, studies had found that state regulation of proprietary institutions was limited in its effectiveness. For example, gaps in state laws allowed fraudulent practices to continue, and existing laws were not adequately enforced. Various suggestions were made prior to the HEA reauthorization about how to strengthen the federal role in eligibility and certification, including requiring annual financial reports from all institutions or requiring that institutions submit financial reports based on their dependence on federal aid or their default rates.

As a society, we promise that education is the key to a better life. Virginia Foxx, R-Va. A bill reauthorizing the Higher Education Act should be a real opportunity to help students; this one just makes their lives worse by raising repayment costs for struggling borrowers, letting institutions that scam students off the hook, and narrowing relief for defrauded students. Currently, students with enough federally-determined financial need can qualify for subsidized Stafford or Perkins loans, in which the federal government pays the interest charged by service providers while the students are in school, which prevents students who qualify from facing more debt after graduation than they borrowed while attending classes.

The forgiveness Rep. Virginia Foxx denies to borrowers in her higher education bill is in abundant supply for proprietary, for-profit colleges. The bill also fails to increase the maximum Pell Grant award for low-income students, and changes how they are paid out to students who receive them. But the forgiveness Foxx denies to borrowers is in abundant supply for proprietary, for-profit colleges.