DETROIT -- Thousands of Michigan residents have collected Pell Grants without attending classes in the past year, costing the state's colleges millions of dollars that have to be paid back to the federal government.
At Henry Ford Community College, $4.1 million -- about 10 percent of the money the college received in Pell Grants -- needs to be paid back to the U.S. Department of Education this year, a move that will likely contribute to a tuition increase at the Dearborn, Mich., school.
The problem isn't limited to Michigan and it isn't new, but experts say it's getting worse.
No one knows exactly how much these Pell scammers are costing taxpayers because central record-keeping is spotty at best and often out of date. But a leading expert estimates 3.6 percent of all Pell Grant recipients across the nation are collecting the money fraudulently. That means an estimated $1.2 billion of taxpayer money was lost last school year alone, when the federal government gave out $33.5 billion in Pell Grants.
Although colleges and universities can go after these so-called Pell jumpers or Pell runners, it's an uphill battle to recover the money. The U.S. Department of Education is expected to address the issue this year in new rulemaking sessions, experts said, which could mean more measures that help slow down fraud but potentially hurt those who depend on the grants by delaying payments.
Pell Grants, which max out at $5,500 per year, are available to low- and mid-income residents and can be used for tuition and other costs, including rent, groceries and transportation. If a student receives a Pell Grant and disappears with the money, the college or university is on the hook to repay both the tuition costs and the rest of the money given to the student.
The fraud is particularly pronounced at community colleges because of their lower tuition rates. A student can sign up for a full load of classes for as little as $700 per semester at some Michigan community colleges and then pocket the leftovers from the $2,750 maximum grant.
"You'll only hear about this at low-cost schools," said Karen McCarthy, a policy analyst for the National Association of Student Financial Aid Administrators. "If the costs are high, the students won't get any of their money back."
The grants, created in 1965, are the building blocks of financial aid packages for students attending schools from the University of Michigan to the Kalamazoo Beauty Academy.
Financial aid officers at community colleges across the state say that without the grants, hundreds of thousands of Michigan residents would be unable to attend college.
"It's a real tight balance between not interfering with access to higher education, but making sure it's used appropriately," said Roger Miller, the financial aid director at Kalamazoo Valley Community College.
Help for non-traditional students
Jennifer Harper, 26, has used Pell Grants during her time at Wayne State University and now at Wayne County Community College District.
The Wyandotte resident is currently getting $1,500 over two semesters as she studies nursing at WCCCD. She's also using student loans and has borrowed more than she owes on tuition to allow her to work a little less and still pay for transportation, books and supplies.
"I am happy the community colleges are getting stricter, too, because I'm hoping I will start to see more serious students at the community college level," she said.
Using financial aid to help cover costs outside of tuition is legal and a common practice, especially among non-traditional students, said Mark Kantrowitz, publisher of FinAid.org and a leading expert on financial aid issues.
"Independent students need money to support their families while they are studying," he wrote in a 2011 study on the issue. "If independent students couldn't borrow for living expenses, they would be forced to work full-time while enrolled in college, significantly lowering their graduation rates."
The scammers are doing something entirely different.
First, they register for classes and fill out a financial aid form. They get a Pell Grant award -- a maximum of $2,750 a semester for a full-time student taking 12 credits, said Wilma Porter, director of student financial resources and scholarships at Oakland Community College. Those 12 credits would cost $891.
If students don't spend any money at the campus bookstores on required texts or pay any other costs, they would have nearly $1,900 left in the account. OCC sends those students checks for the amount left over.
And if those students never show up, they still have that money and can be hard to track down. Schools bill them and can send bill collectors their way, but usually to no avail.
Students who take off with the grants can't register at the same college for more classes later, but that doesn't stop them from going to a different college and pulling the same trick.
Roughly 1,000 students -- out of the nearly 28,000 students at OCC's five campuses -- got checks last fall with excess money from their Pell Grants but didn't show up for classes. That means OCC is on the hook for $700,000 from last semester alone.
Colleges and universities are required to repay the federal government by a complex formula.
At Henry Ford Community College, Pell jumper costs of $4.1 million are being blamed, in part, for a 7 percent increase in tuition rates that officials are proposing for next school year. The college disbursed a total of $43.2 million in Pell Grants last year, federal records show.
"In recent years, colleges and universities have been faced with the issue of rising rates of non-collectable tuition and fees due to financial aid issues," spokesman Gary Erwin said in a statement. "Community colleges have been hit particularly hard with the problem.
"Part of the cause has been the poor economy in which students, unable to find a job, look to federal financial aid to pay for their education and to provide funds for living expenses. The college must, then, return some or all of the federal financial aid to the federal government and attempt to collect the funds from the students."
Schools cracking down
At Kellogg Community College in Battle Creek, Pell jumpers aren't a big problem because the school has put numerous measures in place, spokesman Eric Greene said.
"About seven years ago, we started tackling financial aid losses in a combination of ways, including close monitoring of aid recipients' attendance, delaying financial aid payments until about two weeks into each semester so we could be confident about students' commitment to their classes, and requiring financial aid recipients to put a bank account or credit card on file up front so we'd have a foot in the door if it reaches the point that we need to collect.," Greene said in an email. "These steps have cut our financial aid losses by about half in recent years."
KCC isn't the only school cracking down. Most Michigan community colleges told the Detroit Free Press they require faculty to take attendance in the first couple weeks of classes and hold financial aid checks during that time.
Jackson Community College monitors students transferring in at the mid-year semester break. That weeds out those who have scammed another community college out of Pell Grant money and are looking to get money through JCC, financial aid director Bryan Howard said.
At WCCCD, funds are held until attendance is verified. Students who aren't attending have a hold placed on their financial aid accounts. They get messages reminding them they haven't been to class and alerting them the money will be sent back to the federal education department.
The goal behind the measures is to make it harder to scam -- but doing so means taking more time to get money to eligible students.
For Mary Long, 27, of Jackson, that involves smart budgeting.
"I use some of that money to make sure I don't have to work full-time," said the single mother of two, who is studying business at JCC. "But when I don't get the check at the beginning of the year, it can get a little tight. I understand why they are holding on to it, but I wish people were more honest so they didn't have to do that."
McCarthy, of the National Association of Student Financial Aid Administrators, said the government hasn't had much success curbing the problem of Pell jumpers.
"It's basically been a self-policing issue for now at each school," she said.
Over the past several years, Pell Grants have been a target of politicians facing tough budget times. Some rules already have changed, and more restrictions may be on the way.
Now, students are eligible to receive Pell Grants for 12 months instead of the previous 18. That's designed to both save money and reduce fraud.
And although the grants can now be used at any accredited higher education intuition, that also could change.
In this month's State of the Union address, President Barack Obama announced his desire to create a new accreditation system that would look at value, affordability and student outcomes. Experts believe those changes could curtail the number of accredited colleges, which also would cut down on the students eligible for Pell Grants.
Still, finding solutions to the Pell-jumping problem isn't easy.
"We haven't been able to prevent it from happening," McCarthy said. "Colleges are trying to do so with attendance policies and delaying the distribution of aid, but that penalizes those students who are trying to get their degrees and reliant on this money. That's really not an ideal remedy to the problem. There hasn't been an ideal remedy yet."
What is a Pell Grant?
- A Pell Grant is a federal grant given to students at any accredited higher education institution.
- The grants are based on need; an applicant's eligibility is measured using a complex formula, which includes whether the student is going full-time or part-time.
- The maximum amount a student can receive is $5,500 per year.
- Students can get the grants for 12 semesters.
- The grants don't need to be paid back.
- The money is paid directly to the school; any money left in student's account is given to the student.
Source: U.S. Department of Education