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WASHINGTON -- A proposed change that would lead to smaller Pell Grants for some students enrolled in online classes was intended to prevent financial aid fraud. But advocates for distance education fear it’s the first in a possible series of unintended consequences, as the Education Department prepares to take steps to crack down on fraud in negotiated rule-making hearings later this year.

Deep in the Senate appropriations bill for the Education Department for the 2013 fiscal year was a provision that would change how Pell Grants are allocated to students in online programs. For those students, Pell Grants would cover only tuition, fees, books and supplies -- not room and board, as they currently do.

For students at many colleges, including some online institutions, the change would be a moot point, because the maximum $5,550 annual Pell Grant isn’t enough to cover tuition and fees, let alone room and board. But for students enrolled in inexpensive online college classes, who usually receive refunds of leftover Pell Grant money to spend on books, supplies and living expenses, the change could mean a loss of thousands of dollars per year formerly spent on room and board.

“It will particularly hurt community college students,” said Christine Mullins, executive director of the Instructional Technology Council, a group affiliated with the American Association of Community Colleges that works on distance learning issues. “It’s patently discriminatory toward distance learning students.”

The change is the result of growing concern about fraud in federal financial aid programs. As online programs have grown, so too have the number of “straw students,” who enroll in college, usually at open-access institutions like for-profit colleges and community colleges; take their refunds from federal grants after tuition and fees are covered; then drop out and pocket the proceeds. A report from the Education Department’s Office of the Inspector General in September found that while some cases have been prosecuted successfully, the department was overwhelmed by complaints about fraud rings.

The report recommended limiting federal financial aid for distance education students to exclude room and board, saying it was a cost that such students -- unlike those in a more traditional college setting -- do not incur.

The Senate Committee on Appropriations cited the inspector general’s report in its explanation of the proposed change in Pell Grant eligibility criteria. “With recent statutory changes that removed the restrictions on the eligibility of distance education programs for student financial aid, there has been a significant increase in the number of education programs offered solely online and in the number of students receiving Pell Grants to enroll in such programs,” the committee wrote in its conference report. The Education Department has convicted 215 participants in fraud rings, forcing them to pay $7.5 million in restitution, the committee went on to add.

Distance education advocates say the change reflects a misunderstanding of distance education and punishes too many students without solving the central problem. They also question the timing: the Education Department has already announced its plans to hold negotiations later this year to propose rules intended to address fraud rings and financial aid programs, and the department held preliminary hearings last month.

When the inspector general’s report was first published, some warned that it would lead to a crackdown on distance education as a whole, snaring legitimate programs and students in an effort to stop fraud from occurring.

“They increasingly seem to have regulations that go after programs specifically by mode of instruction, when that’s really not the problem,” said Russell Poulin, deputy director of research and analysis at the WICHE Cooperative for Educational Technologies. There are other ways to address financial aid fraud, he said, including requiring students to wait for part of their aid rather than disbursing it all at once at the beginning of the semester.

And while Poulin speculated that the change could be aimed at for-profit colleges, it is nonprofits -- particularly community colleges -- with low prices whose students will see the effects, he said.

“I think there’s a misunderstanding that somehow if you’re taking online courses you don’t need any kind of room and board or living expenses,” said Marie Cini, acting provost of the University of Maryland University College, where many online students would be affected by the change. “That’s just not the case.”

Whether the change will be signed into law is unclear; the budget for fiscal year 2013 is unsettled, given the looming prospect of Congressional sequestration. The House of Representatives has not yet put forward its own budget for the Education Department, and many think the budget will not be set until after November’s elections. Still, Mullins and others worry that because the change is obscure and has attracted little notice, it could easily end up in whatever compromise is eventually reached.

“I think a lot of students are going to get caught up in this if we're not careful,” Cini said. “We’re concerned about unintended consequences of some of these moves.” 

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