Do online university programs make it easier to scam the federal government? Perhaps. From the Chronicle of Higher Education comes news that:

An Arizona woman pleaded guilty on Tuesday to running an elaborate scam that highlights what federal authorities describe as the vulnerability of online education to financial-aid fraud.

Social Security numbers. Tax returns. High-school diplomas. [The defendant, Trenda] Halton used those records in a scheme that defrauded the federal government of about $539,000 in student-aid dollars—a scheme that involved dozens of people recruited to pose as phony “straw” students, according to court records.

Basically, Halton got people to enroll at Rio Salado College, a Tempe, Arizona-based online school, and then collected federal student-loan and Pell Grant money.

This worked because the college collected financial-aid money for tuition and then mailed out the difference, money for education related expenses, back to students. Rio Salado mails refund checks back to students after they “attend class.” Or, in this case, the checked were mailed after Halton logged in as a student for a number of online classes. Because the classes never met, no one could verify if people were real students attending real classes.

The fake students kept a portion of their education related expenses and then gave between $500 and $1,500 each to Halton, a former Rio Salado student. Halton eventually accumulated over half a million dollars using this scheme. The Chronicle has a graphic of how the Halton swindle worked here.

This is not the first such scam. In the last decade, the inspector general of the U.S. Department of Education has investigated several instances of federal student aid fraud committed through online schools.

The comes about because of the indirect way federal aid is administered. Huge loans are distributed through schools and then students, who can spend the money however they see fit. Officials are reluctant to simplify the system, however. Fred Lokken of the American Association of Community Colleges explains that:

You can erect so many barriers that you wipe away what has been the great breath of fresh air, allowing people who used to not be able to complete their studies to complete their studies. We need to be balancing vigilance with the fact that we’re in the worst recession we’ve ever been in.

That’s the official line, anyway. It’s unclear why the Department can’t take steps to both prevent fraud and preserve access.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer