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WASHINGTON -- Education Department officials issued what they called an "urgent call to action" late Thursday warning colleges about "fraud rings" that use “straw students” to pilfer federal student aid and outlining a series of steps that institutions and the government can or will take to combat the problem.

In a "Dear Colleague" letter sent to colleges late Thursday, officials from the department's Federal Student Aid and postsecondary education offices followed up a report last month by the department's inspector general that described a dramatic increase in the number and scope of fraud cases involving distance education, as well as a department ill-equipped to keep up with a potential epidemic.

The letter, from Assistant Secretary for Postsecondary Education Eduardo M. Ochoa and James W. Runcie, chief operating officer of the Federal Student Aid office, laid out the warning signs colleges should look for in identifying potential fraud rings.

It also urged them to take a set of steps to guard against such operations (closely monitoring and looking for repetition in the IP and e-mail addresses students use to apply and conduct their online coursework, for instance) and policies they should adopt to prevent the fraud, such as delaying disbursement of financial aid funds until students have participated in online academic programs for a longer period of time. (Financial aid officials warn that some such steps may create financial difficulties for legitimate, and needy, students.)

The letter also described efforts the department has taken to strengthen its own procedures, and said it had created an agency-wide panel to deal with the issues raised in the inspector general's report.

"We take fraud extremely seriously and safeguarding taxpayer funds is our top priority," Education Secretary Arne Duncan said in a prepared statement. "That is why today we've issued this urgent call to action. We'll be working with Congress and the higher education community to ensure we have all the tools we need to prevent criminals elements from defrauding federal student aid dollars."

Rep. George Miller, the senior Democrat on the House of Representatives Education and the Workforce Committee, praised the department's actions, some of which he and Rep. Rubén Hinojosa had urged in a letter to Duncan last month.

“The Department of Education made the right move today by asking the higher education community to pay particularly close attention to the disbursement of aid only to eligible students," Miller said. "We can’t accept anything less than vigilant and unyielding oversight  of the taxpayer’s investment in higher education. Federal student loans help make the dream of a college degree a reality -- we can’t let bad actors ruin the reputation of this incredibly important program. It’s pertinent that colleges, as well as the Department of Education, keep a laser like focus on how these loans are dispersed and who is on the receiving end.”

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