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Investigators Say Student Aid Fraud Still Widespread

July 13, 1995

WASHINGTON (AP) _ Faced with damaging new evidence that they failed to stop fraud, top Education Department officials insisted they have improved oversight of the nation’s big-money student aid programs.

But even supporters remained skeptical after a blistering congressional hearing Wednesday concerning what Sen. Sam Nunn, D-Ga., called ``yet another major failure.″

``Your reassurances today I’ve heard before,″ Nunn told Assistant Education Secretary David Longanecker, after Longanecker testified the agency was working to improve management of the Pell Grant program.

At the hearing, attorneys for the Senate Governmental Affairs permanent subcommittee on investigations cited the case of a now-bankrupt Los Angeles trade school that collected $58 million in federal aid, allegedly in part for ``ghost students″ who never enrolled.

``This may be an aberration,″ Nunn said. ``But I’ve seen so many aberrations, it might be a pattern.″

The Education Department and the inspector general’s office failed to uncover the problems at Iade American Schools and stop the flow of taxpayer money, despite numerous reviews over several years, Nunn said.

Iade is under investigation by the Justice Department, he said. The company’s attorney confirmed the investigation, but said the owners deny wrongdoing. They have not been charged.

``I’m as appalled by what we’re hearing today as you are,″ Longanecker told lawmakers.

But he argued that the Education Department has improved its handling of student aid programs in the last few years _ keeping suspect schools out from the start, and doing more frequent audits to catch schools that misbehave.

Nevertheless, problems keep popping up among for-profit trade schools. For that reason, the department will soon propose changes in the way it deals with those schools, Longanecker said.

But the Iade case could have more immediate political fallout for the department.

Asked if he were worried it would give ammunition to House Republicans who want to abolish the department, Longanecker said: ``That’s certainly a concern.″

In a highly publicized crackdown two years ago, Congress required the Education Department to kick out of the student loan program any schools with high numbers of students who defaulted.

But many of those schools switched to the Pell Grant program, which has fewer safeguards, Nunn said. He promised a crackdown on fraudulent schools.

And in the House, Rep. Marge Roukema, R-N.J., introduced a bill Wednesday that would require the department to expel schools from the Pell Grant program if they are kicked out of the student loan program.

The Iade schools _ six in California and one in Florida _ declared bankruptcy and closed in March, three days after the FBI raided school offices. About 4,000 mostly poor, Hispanic students were left in the lurch.

Senate investigators contend Iade officials collected federal Pell Grant money for students who either never enrolled in classes or failed to appear after registering.

California state officials have said they are investigating whether Iade failed to reimburse the federal government when students dropped out. Federal prosecutors in Los Angeles would not comment.

The Pell Grant money has since disappeared, and three of the Iade schools’ owners have returned to their homes in Argentina, said Alan Edelman, an attorney for the Senate subcommittee. A fourth is living in Los Angeles.

Iade operated schools in downtown Los Angeles, Santa Ana, El Monte, North Hollywood, South Gate and Oxnard, Calif.; and Hialeah, Fla.

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