Home Financial Aid Tips What is Federal Student Aid Fraud?
What is Federal Student Aid Fraud?

What is Federal Student Aid Fraud?



If you type the phrase “Federal Student Aid fraud” into a search engine, you are sure to see stories of people who have stolen hundreds of thousands of dollars from the government by committing FSA fraud. Usually these scams are done through identity theft, and those that are caught are punished to the fullest extent of the law. While it is obvious that taking out federal funds using someone else’s identity is a serious offense, there are other forms of FSA fraud that are not quite as obvious; however, they are serious and can result in negative consequences.

FSA funds should be used for educational expenses ONLY. It is never acceptable to use any part of your refund on non-educational expenses. Buying personal hygiene items or a new computer (to do your schoolwork) or paying for dependent care is not necessarily fraudulent if those are legitimate educational expenses. However, spending your refund on previous medical bills, vacations, or to pay off other debts is not acceptable. If your school finds out that you are doing this, you could be dismissed from the university, reported to your loan servicing company, and possibly forced to pay restitution for your misuse of federal funds.

If there is no intention of earning some type of degree, certification, transfer credits, etc., then receiving an FSA refund should not be a consideration. The end game for any student receiving FSA is completion of a program or a set number of credits for transfer. If you receive FSA under any other intention, then you are committing FSA fraud and can face similar consequences as described above.

There is no secret to FSA fraud. Every FSA abuser knows that they are doing the wrong thing, but they choose to do so anyway. FSA is not supplemental income; rather, it is a means for college students to help pay for various educational expenses. The government and many higher education institutions have vastly improved their procedures for catching FSA abusers. When you receive your FSA refund, make a conscious effort to spend it on educational expenses only.

By Ryan Laspina
Senior Specialist, Red Flags and External Reviews