Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jan 10, 2012

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An increasing number of scam artists targeting community colleges aren’t being fought by the authorities, the FBI, or even bounty hunters. Instead, those identifying these financial attackers are the office workers sitting behind the financial aid desks in colleges stretched across the country. These student loan administrators are looking for “Pell Runners,” con artists who are a part of a growing, but not new, sort of scam that involves exploiting student aid opportunities and gaining thousands of dollars from Pell Grants.

 

Pell Runners, also referred to as “Stipend Chasers,” don’t bother with student loans or planning their finances in any way for college. Instead, they enroll in the cheapest community colleges they can find, often in simple online classes, and apply for Pell Grants to fund their academic endeavor. Then, once they receive their government-issued money, they stop attending class, flunk out, and vanish. They live on that free money until funds begin to run low, at which point they repeat the process.

 

“In the current budget situation, where every dollar is hard to come by, we’re particularly concerned,” said David A. Bergeron, deputy assistant secretary for policy in the Office of Postsecondary Education, to the Chronicle of Higher Education. “The word is out there that this is something you can do to exploit the aid programs.”

 

Now that the word has spread, universities and higher education institutions are trying to their hardest to stop this activity from occurring. Through their efforts, though, student loan costs may be affected.

 

What Are Pell Grants?

 

The Federal Pell Grant program is a federal student aid program that was signed into law under President Lyndon B. Johnson. Pell Grants are meant to help student loan holders and are available to those who fill out a FAFSA form. For the 2011-2012 year, these grants can award a maximum of $5,550. The amount awarded is determined by an applicant’s expected family contribution, the cost of their particular school, their enrollment status, and whether the student intends to attend a school for the entire academic year.

 

This tax payer funded money is awarded to low-income families and distributed to undergraduate students based on need. Unlike traditional student loans, Pell Grants don’t need to be repaid, so they essentially award free money to help our nation become educated.

 

However, as this program continues to be targeted by scammers, it’s the innocent who are suffering from collateral damage, as they’re being punished with higher tuition costs and tighter screening. If this trend continues, students who deserve this financial aid may be forced to take out larger student loans, while Pell Runners live off their free, undeserved money.

 

The Culprits

 

Students are able to receive Pell Grants up to nine times before their individual funds run out. Since an applicant may only receive one Pell Grant a year, these scammers can abuse our nation’s higher education institutions for nearly a decade.

 

Scammers target low-cost community colleges, where taking out large student loans aren’t necessary. They then fill out FAFSA forms and wait for approval. While waiting for their money, they may play the part of a diligent student by attending classes and acting engaged. But as soon as their money comes through, those students disappear.

 

When the average community college charged a mere $2,713 in 2011, as reported by the College Board, a Pell Runner would make out with $2,837 in profit, assuming they received the maximum in Pell Grant money.

 

These con artists are even beginning to evolve into larger rings, working together in collusion to maximize profits.

 

Lee M. Carrillo, director of financial aid at Central New Mexico Community College, had a personal encounter with a Pell Runner ring. Carrillo was approached by colleagues and asked to investigate a group of students who were calling in on a daily basis demanding their Pell Grant money.

 

He found that the group of students calling in was actually enrolled at multiple nearby colleges. Their history at these colleges showed that all of them were enrolling in online classes, and then failing out.  After further investigation, he found the group was working out of Mississippi—over a thousand miles away.

 

“They had a ringleader calling for all those students, saying she was that person and needed to get her funds,” Carrillo told the Community College Times.

 

Carrillo reported this activity to the Education Department’s inspector general, and alerted all nearby colleges about the scam these students were pulling.

 

“I put a stop to her and her little shenanigans,” Carrillo told the Chronicle, as he referenced the ring leader.

 

Stopping This Growing Problem

 

Joe D. May, president of the Louisiana Community and Technical College System, told the Chronicle that the proportion of money being collected by Pell runners reached as high as 12 percent. The solution he and his board came up with was simple, but much disliked—they raised tuition. Higher tuition results in larger student loans and more monthly bills.

 

“We weren’t trying to put an additional financial burden on students,” explained May. “We were trying to eliminate a loophole.”

 

But in eliminating that loophole, innocent students were caught up in the collateral damage.

 

Other solutions—as seen in the country’s lowest-priced community college state, California—includes spacing out the payment of Pell Grant money. Applicants would receive the first half of their financial aid at the beginning of the term, and the second half only after the college sees the student has maintained attendance in their courses.

 

The problem with this approach is that innocent students who are in true need of financial aid may find themselves hurting for money during the stint without their Pell money. It may even force them to take out additional student loans to pay for books and living necessities. As one commenter on the Chronicle’s board explained, “So you only need to wait half a semester to eat… ”

 

Give a Man a Fish

 

The decision to exploit colleges and the government’s financial aid is one made only by the short sighted. The legal consequences can be dire, and the educational consequences can result in a lifetime lockout.

 

As May explains, “It’s a huge cost to [scammers] and to society, all so they can pocket a few thousand dollars.”

 

Instead of taking out traditional student loans and using the Pell Grant money to their benefit, Runners risk being exposed for fraud—which can carry several years-worth of jail time.

 

They also exclude themselves from obtaining a real degree. Exchanging several thousand dollars in place of a Bachelor’s degree is hardly a prudent move—particularly when the difference between holding a Bachelor’s degree and a high school diploma can equate to nearly a million dollars.

 

If these con artists simply took out student loans, and used the money from that financing to obtain an education, they would likely find themselves with much more money than that obtained from cheating Pell Grants. Instead, avoiding student loans and taking advantage of the nation’s financial aid opportunities is a quick solution to a lasting problem. Rather than taking a fish, scammers would be wise to learn to fish, and ensure their financial health well in to the future.