State and federal agencies disburse billions of dollars in to students, in the form of grants and loans, every academic year. Although the aid is an important lifeline for students, particularly those in less than fortunate economic circumstances, it can be a huge temptation for those who are not the most financially responsible. In the decade between the academic years that began in 2000 and 2010, the total amount of federal aid — excluding state and private aid — doled out to students increased more than twofold, from $64 billion to more than $160 billion. The most popular form of student federal aid is the Pell Grant, which is need based and can be disbursed in amounts of up to $5,500.

U.S. Department of Education data reports that the number of students applying for federal financial assistance rose from around 18.8 million in the 2006-07 award year to nearly 29.8 million in the 2010-11 award year, a 59 percent increase over five years.

Abuse of financial aid comes in a number of guises, from making purchases of items that are not among the federally-mandated categories that can be called “educational expenses” — 60″ high def TVs do not fit into any category — to organized rings of fraudsters who set out to fleece the feds and the colleges it funds. While such abuse occurs at al levels of higher education, a large percentage can be found at community colleges nationwide.

According to the American Association of Community Colleges (AACC), a combination of lower academic bars to entry and inexpensive tuition make community and junior colleges attractive targets for financial aid fraud rings, as well as individuals out to turn a quick buck at the expense of the college and/or government. According to the AACC,

A majority of the abuse that happens at community colleges involves students who show up on a community college campus, receive student financial aid, and then ‘do not seriously engage in academic activity.’

Pell Grants are favorite targets because they don’t have to be repaid, and by the time anyone realizes that fraud has occurred, the “students” are long gone. If a student is suspected of doctoring his or her FAFSA (Free Application for Federal Student Aid) in order to qualify for more grants or loans, the school may ask for tax records to verify the amount of reported income.

If administrators believe something bigger is afoot, they may call in the Department of Education’s Office of the Inspector General (OIG).  Investigators from OIG recently shut down major fraud rings in Arizona and California, which, when combined, drained hundreds of thousands of dollars from federal coffers. The OIG calls such crimes “unacceptable” and has pledged to be aggressive in its batte against financial aid fraud, which costs taxpayers millions of dollars every year.

If not on plasma screens and video games, then how should students be spending their financial aid dollars? The “Cost of Attendance” model, as well as the Dept. of Education’s College Affordability and Transparency Center, can help you understand what your education will cost and how to allocate your financial aid.

Accordingly, tuition, fees and books should be the first items covered — and for the most part, such cost are typically deducted by the school before they issue you a check or transfer the remainder of your aid award to your bank account. What is left may be used to cover standard housing (e.g., rent and electricity) and other living (food) expenses.

Lower on the hierarchy, but still acceptable, comes transportation, whether in the form of bus passes or gas for your car, it is understood that you have to get to school in order to attend class. Then students can look at things such as clothes that they may reasonably need or supplies and equipment that will help them succeed at school, such as computers.

Students who are caught abusing their financial aid awards may lose their eligibility to receive future aid. They may even be forced to repay what they’ve been given. In cases where it appears that the student had no intent to attend school at all, he or she may even be charged criminally.

And one last caveat, if you are suspected of using financial aid to buy illegal substances — or you are caught using or possessing illegal drugs while receiving financial aid; even a petit misdemeanor for marijuana possession — you could permanently lose your eligibility for federal aid. Just sayin’.