Local 4 Defenders investigate college loan fraud

Criminals using the college loan system for personal gain

By Kevin Dietz - Reporter

DETROIT - The average cost of a 4 year college education is $90,000. 

It could be twice that if you go out of state or to a private school.  More students are racking up more debt than ever and the high volume of student loan applications is creating a window of opportunity for thieves.    

"It's going to cost me roughly $22,000 per year because I live on campus." said Michael Halberg. 

Halberg is a freshman at Wayne State University who is majoring in theatre. He uses federally funded student loans called FASFA or Free Application for Federal Student Aid.  It is quick and easy: Go online fill out a form and the government sends you a check to help cover classes, books, and transportation and living costs.

Halberg said, "I haven't filled out my FAFSA yet for this year and I am hoping beyond all hope that I'll get enough money from the government to pay for college.  Because going to college is the only way I could see myself being able to do what I want to do with the rest of my life."

It is not just college bound kids who are collecting checks - thieves are signing up too. A look at fraud cases in metro Detroit shows just how easy it is. In one federal court case a 48-year-old Detroit plead guilty to fraud. 

She pretended she wanted to go to the University of Phoenix. She filled out the form and in no time a check for $1,930 arrived in her mailbox.  She never took a single class and spent the money on herself. Then she got 50 friends to do the same. By the time they were done taxpayers were out $260,000.

Keith Corbett is a federal prosecutor.  "Ultimately it's the honest citizen who's trying to get a student loan and it's the tax payer who's going to be obligated be pay."

Corbett says when the Department of Education gets ripped off we all pay.

"Hundreds of thousands of dollars of money that the government and the banks have intended to go to legit student expense so that someone from an economically disadvantaged area could in fact get an education and instead it's going to line the pockets of the people charged in this scheme."

It is not just federal funds thieves are going after, there are also private student loans and criminals are going after that money as well.

Cady Lewis is a freshman at Adrian College majoring in vocal performance.

"If I didn't have half of my tuition covered, I would not be going to Adrian just because it's so expensive." 

Lewis works part time to pay for college and the rest comes from a bank loan. Her debt is piling up but she says the interest rate isn't bad and that's why she took out the loan.

"It's not awful.  It's less than 4 percent, I know, but it's still not going to be great when that's all done."

In one federal indictment four metro Detroiters were charged with going to multiple banks and getting student loans.  According to the court documents, the same suspect was given money from 5 different banks totaling $127 thousand and allegedly recruited more people to cash in on the easy money. The total loss was $375000.

Thieves are able to get cash because so many people are applying for private and public student loans investigators can't keep track of who is and is not actually going to school. "You would think that the government would have a better system than that.  That, you know, one social security number 9-2-1, whatever the last digits are, applied for one student loan, they would know if that number were applying for another student loan," said Corbett.

The former prosecutor said fraud can lead to some students getting turned down for private loans and others paying higher interest rates.

While audits and investigations lead to many criminal complaints the Department of Education also relies on people like you to alert them to suspected student loan fraud there is also a hotline and tips for spotting someone abusing the system. 

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