Deaths faked in loans scam

August 13, 1999


Some Americans will do anything to get out of repaying their student loans, including faking their own deaths.

A government investigation has found that $70 million of student loans went uncollected over two years because of fraudulent claims that the borrowers were either dead or had suffered disabilities, including amnesia. The money ended up having to be repaid by taxpayers.

Apparently undaunted by the news of this widespread deception, the United States department of education has proposed asking future college aid candidates to indicate on their applications whether they have ever been convicted of a drug-related crime. Under a new law, anyone who admits that they were once found guilty of selling or possessing drugs can be denied assistance.

University financial aid directors privately derided the proposal, saying few convicted drug offenders could be expected to answer the question honestly.

Such scepticism seems born out by the fact that 14 per cent of death or disability claims by student loan recipients were faked, according to the government investigation. One man substituted his own name on his twin brother's death certificate to avoid having to repay his loan.

One woman reneged on $40,000 worth of loans by claiming that she had become disabled, then applied for and received $10,500 worth of new loans.

Investigators also found that many of the people who avoided paying off their loans by faking death were now high earners. Thousands who had been excused from loans by claiming disabilities also had big salaries.

Larry Oxendine, director of guarantor and lender oversight for the department, said the problem itself was not surprising given the size of the $42 billion-a-year student loan system. But he said he was "surprised by the magnitude of the abuse".

Prosecutors will now begin trying to collect the debts in court. The government is also considering new requirements for certifying death claims, including personally interviewing the attending physician.

As for the self-reported history of drug offences, government officials said, it is meant to protect universities from having to conduct expensive criminal background checks on student applicants for aid.

"The secretary (of education) believes that the proposal to implement this change through the use of the student aid application processes is the best approach and would prevent an unnecessary administrative burden on institutions," the education department said in a statement.

The restrictions on loans to drug offenders take effect next year. Student activists on 150 campuses are lobbying Congress to rescind the new law.

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