California’s community colleges are reporting a rise in financial aid fraud. In January, suspected bots represented 1 in 4 college applicants. Schools have given away millions to these scams, and college officials say fraudsters are getting smarter with the help of AI.
They’re called “Pell runners.” “Pell Running” in this context refers to a type of financial aid fraud where individuals enroll in colleges, apply for federal Pell Grants (intended for low-income students to cover education costs), collect the funds – up to $7,395 per year as of recent award years – and then drop out without completing courses. These individuals, called “Pell Runners,” exploit the system for personal profit, as Pell Grants don’t require repayment under normal circumstances
Estimates suggest Pell Grant fraud costs taxpayers over $1 billion annually, with some experts citing 3.6% of disbursements as fraudulent. In 2003, the U.S. General Accounting Office (GAO) estimated that Pell grant fraud accounted for about $300 million in grants per year – about 3 percent of total money handed out. A decade later, the program has more than tripled in scope (roughly doubling between 2008 and 2010), and fraud seems to be as bad as ever.
One expert, Mark Kantrowitz of FinAid.org, believes that Pell grant fraud still runs at about 3.6 percent or more than $1 billion a year. The Obama administration reported that “improper payments” – money distributed erroneously due either to fraud or mistakes – to Pell recipients totaled 2.7 percent of disbursements in 2011. Kantrowitz’s higher number is based on the number of students who receive grants but never obtain degrees. Considering that the Education Department doesn’t have the manpower to track down all fraudsters, Kantrowitz’s estimate may be closer to reality.
Since fall 2021, California’s community colleges have given more than $5 million to Pell runners, according to monthly reports they sent to the California Community Colleges Chancellor’s Office. Colleges also report they’ve given nearly $1.5 million in state and local aid to these scammers. The chancellor’s office began requiring the state’s 116 community colleges to submit these reports three years ago, after fraud cases surged.
The California Student Aid Commission told the Los Angeles Times it had identified more than 65,000 applications for aid from purported community college students that appear to be fake, lending credence to the idea that scammers are seeking to get their hands on state grants.
A 2024 IntelliBoard article estimates 460,000 fraudulent applications in California alone, clogging enrollment and wasting funds. Nationally, fraud spiked post-COVID due to online learning and stimulus funds – $40 billion in emergency aid was a magnet for scammers. A 2011 Chronicle of Higher Education piece (older but relevant) notes the Education Department investigating 74 fraud rings back then, suggesting this isn’t new, just evolved. Community colleges remain prime targets due to low tuition, leaving more grant money for fraudsters to pocket.
There are two primary ways in federal student aid is abused. One is the Pell runner described above. Students obtain grants, receiving directly whatever money is left over after tuition and fees are paid. Then they drop out of school without finishing any courses.
Federal law makes this scam possible. Grantees are allowed to attend school for 12 semesters (six years) in total before they lose eligibility for more money. There are no academic requirements to obtain a Pell grant; the only requirements are based on income and the cost of attending school. And there is no graduation requirement.
The other form of student aid abuse is more complex. It tends to be aimed at online education and is designed to make off with Pell grants and federal student loans as well. Criminals form rings, in which the leader recruits multiple “straw students” who apply for the grants and loans, then shares the haul with them.
Such fraud has lately become easier to commit due to the rise of online education, since students don’t even have to appear in person. In 2011, the Education Department reported a “dramatic” increase in financial aid scams involving online education, opening 100 investigations in the first 8 months of 2011, compared to just 16 investigations in 2005. The report found that “straw students drop or withdraw from programs after they receive their credit balance payments and then kick back a portion of the funds to the ringleader and, if applicable, a recruiter.”
According to the FBI website, Pell Grant fraud is widespread. Technological advances and changes to the administration of higher education present new opportunities for criminals and greater challenges for law enforcement. Federal law is reactive, but colleges and universities must be proactive by extending orientation periods, mandating in-person orientations, assigning more coursework during the first weeks of class, reporting nonattending students, and delaying or compartmentalizing financial aid disbursements to help eliminate this white-collar crime.