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Supreme Court tightens student loan laws in unanimous decision

Nov. 13, 1997

College Press Exchange

Misuse of student loan money -- without evidence of fraudulent intent -- is grounds for criminal prosecution, the Supreme Court ruled unanimously last week.

The court loosened criteria for criminal prosecution of misuse by students and the schools that administer loans, in a decision supporters called 'a win for the rule book.'

While 'intent to fraud' was an initial requirement of loan fraud legislation, the court's decision said misapplication of funds is inherently criminal.

'The law shouldn't discriminate against cheaters,' Mark Cannon, executive director of the Coalition for Student Loan Reform, said. 'The rule will aid prosecutions of those misusing the federal aid system.'

For Garrit Bates, the ruling means he will now face criminal charges in Indiana for decisions he made as vice president of Education America Inc. and later as treasurer of the now-defunct Acme Institute of Technology in South Bend, Ind.

In 1994, Bates was indicted on 12 charges of fraud after he ordered his employees to withhold $85,000 in unused loan money to aid an ailing administration. It was then that the debate over the law began, as Bates won an appeal on the grounds that the prosecution had not proven 'intent to injure or defraud the United States.'

Assistant U.S. Attorney Ruth Hennage said prosecutors who handled the case were 'very pleased' about the outcome.

The Supreme Court ruling will help prevent fraud in the future and discourage individuals from misappropriating money.

'This was a unanimous decision,' Hennage said.

The Supreme Court ruling will ultimately help protect students who depend on loans and ensure that they will receive the necessary financial aid to attend school. According to the College Board, more than seven million students depend on loans to pay tuition. In the last 15 years, tuition loans have become the dominant form of financial aid for college students.

'The real disservice (of student loan fraud) is to the students,' Cannon said, adding that students are seldom the subject of fraud investigations.

The Supreme Court ruling will allow loan money for Baylor students to be protected and used as it was intended. While few students are ever the subject of fraud investigations, the ruling will hinder students from abusing their loans.

According to Cliff Neel, assistant vice president and director of academic scholarships and financial aid, 50 percent of Baylor students have some type of loan. The loans take into account the cost of attendance as well as living expenses. Neel said the financial aid department has not experienced problems with employees or students committing loan fraud.

'I've received loans to help pay for school,' Cara Tareilo, an Arlington senior, said. 'I can't afford to have someone misuse student loan money that I could possibly receive. I'm glad that I haven''t had to worry about anyone misusing loans here.'

Bridget O'Farrell, reporter for The Baylor Lariat contributed to this story.

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