As you say, the FBI busted the scam which went on for years (decades?) and the colleges all say they had no idea about it, right? So his claim that the colleges weren't able to suss this out is absolutely correct in 100% of all known cases, right?
The FBI only busted them because a person they were investigating for a completely separate issue told them about this in hopes to get a more lenient sentence. So yes, it is the system working, but we got very lucky the FBI stumbled upon this information.