Personal Finance

The $874 Million Student Loan Fraud Industry

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Time to start studying up on student loan fraud. This fairly new form of identity theft is on the rise, and it costs a pretty penny, according to a federal report: about $874 million, with the government losing about $187 million.

With deadlines for federal student aid right around the corner, IDentity Theft 911 rounded up two stories from real victims of student loan fraud.

  • A Michigan man’s identity was used to secure $3,000 in student loans and a $6,700 Pell Grant. The victim filed a police report, a complaint with the Federal Trade Commission, and disputes with all three major credit bureaus — to no avail. The government said that since his information was used, he was still responsible for loan payments.
  • A California woman discovered she was a victim of student loan fraud when she tried to refinance her home. Her credit score had plummeted because someone used her information to secure two student loans, one of which had gone into collection. Her tax refund was docked to pay off the loan.

Untangling Can Take Time, Expertise

“People who claim the threat of identity theft is overblown simply have no concept of the nature of the crime or the persistence and expertise required to resolve these types of issues,” said Adam Levin, chairman and founder of IDentity Theft 911 and Credit.com. “Without the help of a professional fraud investigator, victims are likely to get bogged down in red tape for months, if not years.”

Student loan fraud happens when identity thieves apply for loan using stolen personal information, often through low-cost online colleges. They receive federal funding through the school, and after tuition and fees are deducted, the balances is remanded to the “student.” Criminals usually take that balance and leave victims on the hook for debt repayment.

Identity theft rings are often behind this crime. However, a report by the Office of the Inspector General shows an 82% increase in the number of college students who are suspected of engaging in loan fraud in the last four years. Suspected participants jumped from 18,719 students to 34,007 in that period. The office identified more than 85,000 recipients who might have participated in student aid fraud rings.

If you suspect you’re a victim of identity theft, you may be able to get help through your employer benefit program. You can spot possible identity theft by monitoring your credit scores using free tools on Credit.com. Any sudden, unexpected changes to your scores could signal identity theft and you should pull your credit reports (which you can do once a year for free) to confirm.

More on Identity Theft:

Image: iStock

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  • charlesgeen36

    These are just bad products. Bad for students, consumers, and the economy.

    Another issue with student loans that has been in the news a lot lately is that if the co-signor dies, the loan immediately defaults even if the student has been making payments diligently. This destroys the credit for the student even if they are responsible and always paid on time.

    If you have a co-signor or if you are one, do yourselves a favor and get a student loan life insurance policy. If they co-signor passes away, it will cover the entire balance of the loan. I have one that only costs $12 a month so it is not much of a burden. It’s better than my nephew (who I co-signed for) rebuilding his credit for 10 years if something happens to me.

    I decided that I don’t even mind covering it for him, but he did offer and I suppose he could have afforded it. It’s just that in this economy kids are going to have their hands full as it is.

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