How a hidden scam plaguing college campuses has racked up a multimillion-dollar price tag
A federal crackdown on student aid fraud has uncovered a widespread scheme in which scammers create fake identities — sometimes using artificial intelligence — to enroll in colleges and steal millions in federal financial aid money, according to a fraud expert warning students and families as the fall semester begins.
Mallory Wortman, a senior fraud investigator at financial crime prevention firm Abrugu, explained that fraudsters look for vulnerable programs such as student loans and unemployment benefits, especially when oversight is low. “People, scammers specifically, look for vulnerable places like student loans and unemployment fraud to take advantage of those channels because historically they have been lax in their controls,” she said.
The U.S. Department of Education reported in June that requiring government-issued identification for high-risk applicants applying for federal student aid through the online FAFSA system helped save taxpayers nearly $200 million in fraudulent payments over two months. Officials estimate the new identity verification requirements could save more than $1 billion across the current aid cycle.
Federal authorities have criticized previous policies, saying the Biden administration required fewer than 1% of students to verify their identity after submitting their FAFSA during the pandemic. In response, the Trump administration has strengthened verification procedures and launched enforcement actions targeting suspected fraud rings.
Vice President JD Vance announced earlier this month that over 870,000 borrowers linked to alleged COVID-era fraud would be barred from future federal loan programs and could face criminal prosecution. Wortman noted that such schemes aren’t new but praised recent efforts to address them.
“Anytime there’s an opportunity where funds are flowing, like financial aid fraud, or another example would be when there’s unemployment fraud during COVID, they’re gonna use that as a method to get those funds,” she said.
Wortman described the tactics of what she calls “ghost students” — fake or stolen identities used to enroll in college and collect aid without ever intending to attend classes. She drew parallels to her own experience in community college, where she witnessed students receive aid refunds only to disappear from their courses shortly afterward.
“That’s kind of what we’ve seen, straw student schemes turning into today,” she said. “Today’s fraudsters’ main objective is attaining the aid rather than pursuing an education.”
With thousands of students heading back to campus, Wortman cautioned families to watch for warning signs including unusual enrollment patterns, repeated applications with similar information, and sudden changes to accounts before funds are released. She emphasized that detecting fraud often involves reviewing financial records for shared data, odd fund movements, and suspicious activity across seemingly unrelated individuals.
“You’re going to have shared information, that unusual movement of funds and then multiple apparently unrelated customers with common either connection activity, IP addresses, and then funds flowing through the account that just don’t make sense,” she explained.
The full scope of the problem came to light last year when the Department of Education said it had prevented over $1 billion in fraudulent aid disbursements while identifying nearly $90 million already paid out unlawfully. Of that amount, over $30 million went to deceased individuals and more than $40 million supported companies using automated bots posing as fake students.
“This has been going on, and I’m glad that they’re finally doing something about it,” Wortman said.
She advised students and parents to protect themselves by closely monitoring personal financial information and staying alert to potential irregularities.
“Just be aware and keep tabs on your personal financial information,” she said.
Fox News Digital’s Ashley J. DiMella and Joshua Q. Nelson contributed to this report.