The U.S. Department of Education’s fraud-prevention team sent a team of investigators to a Houston trade school in March 2019 for what was ostensibly a routine inspection. However, the team was unable to locate a number of the students they intended to interview. The investigators returned to their car after a long and frustrating day. Two of the absent students then showed up in the parking lot. They desired a setting where they could not be overheard by school officials.
A multi-year plan to defraud the American taxpayer was exposed as a result of that discussion. The Professional Career Training Institute, a trade school, had been using a local nonprofit to recruit homeless people. Many had dropped out of high school, some were functionally illiterate, and some had a history of drug abuse and small-time crime. They were informed that if they enrolled in college, the school would cover their rent while federal grants covered their books, tuition, and other expenses. After creating federal financial-aid accounts and passwords for the students and fabricating diplomas from an unaccredited, potentially nonexistent high school, the school covertly obtained sizable loans on their behalf.
Federal student aid to colleges totals over $140 billion annually. About 220 employees were hired by the Department of Education at the start of this year to ensure that funds were used to pay for students to attend accredited educational institutions. However, there are currently no such investigations underway. This is because, according to an official involved in numerous fraud cases who spoke on condition of anonymity out of fear of reprisal, Linda McMahon, the recently confirmed secretary of education, fired over 80 percent of the fraud-prevention and quality-assurance team in March.
In response to President Donald Trump’s order to close a federal agency established by a 1979 act of Congress, the action was one of a massive wave of layoffs that reduced employment at the department by almost 50% from the start of the year. Without providing an explanation, the Supreme Court decided this month that those layoffs could take place while a lawsuit contesting them is pending.
The Trump administration has used the goal of reducing “waste, fraud, and abuse” as justification for dismantling the federal government. The elimination of the Department of Education’s anti-fraud team is probably going to have the exact opposite impact. The government saves more money through recovered funds and reduced crime for every dollar it spends looking into frauds like the Houston student loan scam. Trump pledged to reduce the size of the federal government. Instead, he has cut off funding to the police in this instance.
The Department of Education had the fewest employees of any Cabinet-level organization even prior to the most recent layoffs. The department has historically played a limited but significant role in education because state and local governments are primarily responsible for funding and regulating it. It manages the $1.7 trillion federal student loan portfolio and awards $31 billion in Pell Grants annually to college students from low-income families, among other things.
Giving students access to credit that they cannot obtain on the private market is the goal of federal student loans. People do not need to have financial assets or a job in order to borrow money for college, unlike the requirements for, say, a mortgage. Pell Grants are accessible to anyone, even those from low-income families, in addition to loans. People who otherwise couldn’t afford degrees can now do so thanks to the system. Additionally, it leaves higher education open to fraud. If there were no rules, I could put a sign that read Kevin Carey University on my door, charge tuition as much as a Pell Grant, write a diploma on a napkin, and divide the money with my “students.”
Congress inserted particular clauses defining the conditions under which colleges can receive tuition funded by federal funds into the Higher Education Act in order to stop this kind of behavior. Students must complete high school or earn a GED before they can enroll in college. An independent accrediting organization that establishes quality standards must approve colleges. They must submit yearly financial statements to attest that they are not going to go bankrupt and leave students hanging in the middle of the semester, as well as sign a legal agreement with the Education Department outlining additional requirements.
These requirements aren’t very strict. The Education Department doesn’t have much influence over what colleges teach or how well they teach it. The objective is a minimal degree of consumer protection in an otherwise open market, much like local health departments enforce food safety regulations but permit eateries to serve flavorless burgers and soggy fries if the market demands it.
Enforcement is necessary even for that standard. During a routine inspection, investigators first went to the Houston trade school, Professional Career Training Institute. They returned with a larger team of attorneys and accountants after being alerted by the students in the parking lot and contacted by an internal whistleblower who had a video recording of diplomas being falsified.
Interviews with inspectors from the Education Department revealed that many students owed tens of thousands of dollars in student loans. Two sets of books were found by a federal accountant: a genuine set of financial records that included the students’ hidden loan balances, and a phony set that the school displayed to the students. One student discovered that PCTI had already applied for and received her aid money for the following year when she attempted to enroll at another college.
Within PCTI, the news of the inspection caused a panic. Leaders at the school started manipulating records and encouraging students to tell lies. The Education Department claims that PCTI’s founder and CEO, Carrie Poole, personally gave one student a check for $910 to stay at home on the day of the inspection and not “rat her out.” Poole was named one of the “top 30 most influential women in Houston” by a local marketing firm in 2014. PCTI asserted that a large portion of the testimony provided by students with criminal records was untrustworthy in response to these and other accusations. Naturally, the school had made a special effort to recruit these students. Documents from the Department of Education, including records from administrative proceedings, are used to provide this account. Requests for comment from Poole were not answered.
PCTI made false claims about almost every aspect of federal regulations. In order to reduce married students’ household income and increase their need-based aid, school officials feigned that they were unmarried. The amount of time students were taught was exaggerated by the school. Instructors vanished, attendance records were fabricated, and essential equipment was never delivered.
Due process is a legal requirement for colleges that are accused of misconduct. PCTI hired an attorney and put up a strong defense. The college’s eligibility for federal financial aid was formally revoked in December 2021 following an appeal and hearings before an administrative-law judge.
PCTI is not a unique instance. A large mid-Atlantic trade school was discovered by fraud inspectors in 2005. The department claims that the school sold laptops to students at a 125 percent markup and gave credentials in “surgical technology” to a student whose real-world training involved working in a hospital storage room for two weeks. “The practice arms were so full of holes that the fake blood would spurt out when students attempted to practice their sticks,” according to a phlebotomy student’s testimony.
In another instance, fraud investigators claim that a Florida woman founded an independent “sports academy” that deceived young men into enrolling in Division I universities. Parents and students were coerced into taking out federal loans to enroll in a program that combined barbering and cosmetics after they arrived. The government claims that the school misrepresented that the football players were spending 10 to 12 hours a day, including weekends, studying cosmetology. (At that school, a student was allegedly instructed to “curl your hair, take a video, and turn it in.”) Before being shut down by the Education Department, the owner received over $800,000 in federal loan disbursements. The department suspended 35 schools from receiving federal financial aid, fined $61.7 million for misconduct, and sanctioned 85 colleges between 2021 and August 2024.
The Education Department’s quality-assurance staff was divided into five groups when Trump took office in January. One recertified existing colleges on a six-year schedule and processed requests from new colleges to qualify for federal student aid. A third group carried out annual audits and ensured that schools were in compliance with regulations intended to combat predatory for-profit colleges and were financially sound. Site visits and program reviews, such as the one that revealed the PCTI scheme, were carried out by a team of ten regional offices. The worst actors were the focus of a dedicated fraud investigation unit. Congress authorized and provided funding for all of these initiatives.
The majority of the team was let go as soon as Linda McMahon was confirmed as the secretary of education. The headcount decreased from roughly 220 to less than 40 when DOE-induced retirements were taken into account. The unit responsible for investigating fraud has been eliminated. Of the ten regional offices, eight have been shut down. There is no longer a financial-analysis group. The majority of the attorneys who handled cases were also fired or given different assignments. The skeleton crew’s only option is to rubber-stamp documents in order to maintain the flow of federal funds.
For the public servants who have dedicated their lives to protecting the higher education system, this is extremely frustrating. “The team doing this work put a lot of bad schools out of business,” the official who assisted in enforcing fraud cases told me. It makes me feel good. They pointed out that the department had retrieved tens of millions of dollars from dishonest universities. They claim that since the system is no longer protected from criminal activity, potential scammers should “back up your truck to the ATM machine.”
In an email, Department of Education deputy press secretary Ellen Keast informed me that staff “continue to carry out all of their roles and responsibilities under law, including clearing the backlog of nearly two thousand program reviews, program certifications, and other oversight activities neglected by the Biden administration because it was too distracted by their loan bailouts and politically motivated witch hunts targeting career- and faith-based institutions.” She did not, however, go into detail about how the department is handling its responsibilities without hiring the people who would actually carry them out.
In fact, a federal judge who issued an injunction stopping the layoffs concluded that McMahon had “made it effectively impossible for the Department to carry out its statutorily mandated functions” by closing “entire offices and programs.” Later, as the case progressed, the Supreme Court stayed that injunction, enabling the layoffs to take place. It’s difficult to envision the McMahon regime vigorously enforcing the law, even if the lawsuit ultimately prevails and the administration is compelled to rehire the fraud investigators.
Persecuting prestigious research universities is the primary goal of Trump’s higher education agenda. The dismantling of the fraud-enforcement unit is a microcosm of Trump’s governance style: disorganized, ostensibly unlawful, and the exact opposite of what someone who genuinely cared about safeguarding public funds would do. The president, whose Trump University real estate seminar company settled a $25 million lawsuit with former students, is well-versed in the problem of students who fall for false promises about college.
The layoffs coincide with the Trump administration’s implementation of the One Big Beautiful Bill Act. Notably, the U.S. Department of Education is not eliminated by the law. Actually, it contains new rules that the department must follow. For the first time, it enables students to use their Pell Grants to cover the entire cost of job-training programs that last as little as eight weeks. These classes, which are typically promoted on late-night basic cable and at bus stops, have already been widely abused. It is almost a given that extending their Pell Grant eligibility at this time, after firing the individuals responsible for stopping that abuse, will have unfavorable outcomes.
Additionally, colleges that offer programs whose graduates earn little in the job market are penalized by the law. This is a sensible concept that might compel respectable colleges and universities to assume greater accountability for the caliber and cost of their programs. However, undergraduate certificate programs are exempt from the provision, even though their graduates have a tenfold higher chance of falling below the earnings threshold. Additionally, it will need to be implemented by teams of lawyers and data analysts, which is exactly what McMahon just fired.
Meanwhile, those who profit from gullible college students are waiting in the wings. PCTI is closed, but not the other companies that exploit Pell Grants. This is the initial round of cutbacks at the department. More are coming. As the number of people in the Department of Education decreases, fraud is expected to rise. An Education Department whistleblower predicts the situation will worsen and that “the first major college fraud scandal since the closure of these offices is inevitable.”
The American taxpayer has more than enough to worry about without having their money stolen by fraudulent trade schools, certificate mills, and diploma mills. It is past time to rehire the enforcement team and fully staff the Department of Education.
