A California trade school which offered courses to poor students in auto mechanics, computer training and English as a second language fraudulently milked the Pell grant programme of $58 million, according to a report from the United States senate.
The scandal involving federal government student aid has shocked senators. "It looks like they pulled out all the tricks on this one," said Senator Sam Nunn, a Democrat from Georgia.
It has also put the department of education on the defensive. In the past two years officials have made huge efforts to improve their procedures for supervising student loan programmes. But they may have overlooked the $6 billon Pell grant programme, which gives money that does not have to be paid back.
David Longanecker, assistant secretary for postsecondary education, has told the senate that his department wants permission to impose strict new regulations on for-profit trade schools which are seeking any kind of student aid.
According to the report, there was evidence that some trade schools were turning from using student loan programmes because of tough new rules imposed by the US government and opting instead to use the Pell grant programme. Students on Pell grants do not receive the money personally. The schools simply draw the money directly from the government.
The Iade American Schools, according to the Senate report, had six campuses in and around Los Angeles taking mainly Hispanic immigrants. It closed abruptly this spring when its owners filed for bankruptcy. At that time, it was being entirely funded by Pell grants which it claimed for "ghost" students, using phony records.
The money (the company could claim up to $2,300 a year for each student's tuition) went on such essentials as a home in Beverly Hills, vacations at Club Med, luxury car leases, and women's lingerie. Money not spent was removed in suitcases to Argentina.
The Iade American schools were owned and run by an Argentinian, Abraham Stofenmacher and his three sons, said the senate report. They built the schools into one of the top recipients of Pell grants.