Ghost Student Scams Cost Federal Aid System Millions, Expert Warns

A sophisticated scam involving "ghost students" is defrauding the federal student aid system of millions of dollars, with fraudsters exploiting college campuses by using stolen or fake identities to enroll and claim financial aid. Mallory Wortman, a senior fraud investigator at financial crime prevention firm Abrigo, highlighted the red flags students and parents should be aware of as the fall semester commences.

Wortman explained that scammers target vulnerable areas like student loans and unemployment fraud because these systems have historically had lax controls. "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 told Fox News Digital.

The U.S. Department of Education has been cracking down on these schemes. In June, the department announced it had saved taxpayers nearly $200 million by requiring high-risk applicants to present government-issued identification when applying for federal student aid. This identity verification system, integrated into the online FAFSA application, is estimated to save taxpayers more than $1 billion this cycle. Officials criticized the Biden-era administration for requiring verification from less than 1% of students during the COVID-19 pandemic.

In parallel, Vice President JD Vance recently announced that over 870,000 borrowers linked to alleged COVID-era fraud would be suspended from future federal loan programs and could face prosecution.

Wortman described "ghost students" as stolen or fake identities, sometimes created with artificial intelligence, used to enroll in college and claim federal student aid, loans, or grants. She noted that the primary objective for these fraudsters is to obtain aid rather than pursue an education, a shift from earlier schemes where students might enroll, receive a financial aid refund, and then drop out.

As students return to campus, Wortman advised looking out for several indicators of fraudulent activity. These include multiple applications with common information, unusual enrollment patterns, and suspicious changes to accounts before funds are disbursed. Similar patterns can be found in banking records, where fraudsters may use data breaches and phishing messages to obtain personal information. Signs include shared information, unusual fund movements, and multiple unrelated customers with common connections, IP addresses, or inexplicable fund flows.

In the past year, the Education Department blocked over $1 billion in fraudulent student aid and identified nearly $90 million that had been disbursed fraudulently. This included over $30 million going to deceased individuals and more than $40 million to companies using bots posing as fake students. Wortman expressed that she is glad these issues are finally being recognized and addressed.

To protect against such scams, Wortman emphasized the importance of monitoring personal financial information closely. "Just be aware and keep tabs on your personal financial information," she advised.