Education Department Says It Blocked $1 Billion in 'Ghost Student' Financial Aid Fraud Last Year

College financial aid offices have a new word for an old scam: ghost students.

According to Fox News Digital, fraudsters are stealing real identities or fabricating new ones, sometimes with artificial intelligence, to enroll at colleges and collect federal student aid never meant for them. Mallory Wortman, a senior fraud investigator at the financial crime prevention firm Abrigo, told Fox News Digital that scammers go where the money is loose.

"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," Wortman said.

How the Scheme Works

According to Payments Dive, the fraud takes a few forms. In one version, a fraudster invents a fake identity, applies for admission and aid, collects the disbursement, and disappears before classes even start.

In another, called a "straw student" scheme, a real person hands their personal information to a scammer, who enrolls them and collects the aid payment in that person's name. The straw student may keep a cut, which is the incentive to participate, according to a July 24 alert from the Treasury Department's Financial Crimes Enforcement Network, known as FinCEN.

FinCEN also flagged a third method: fake payment portals designed to look like a university's legitimate billing system, tricking students or parents into sending money straight to a scammer instead of the school.

Students normally have to stay enrolled for at least 60% of a term to keep their aid, so FinCEN said some fraud rings now use AI to complete coursework and keep the fake enrollment looking real long enough to collect the money.

Jen Martin, who heads consumer fraud and claims at Citizens Bank, said the Federal Student Aid program sends out roughly $120 billion a year, according to Payments Dive, giving fraudsters a large target. Emily Griffin, who directs the financial crimes practice at Moody's analytics unit, said straw-student recruitment and fake portals are increasingly common tactics layered on top of each other.

The Numbers, and Who's Citing Them

The Education Department told Fox News Digital it saved taxpayers nearly $200 million in June after requiring high-risk FAFSA applicants to show government-issued identification, a system folded into the online application. The department estimated the broader verification push will save more than $1 billion this aid cycle.

Separately, according to Payments Dive, the department said it intercepted $1 billion in attempted financial aid theft last year. The available reporting does not clarify whether that $1 billion figure and the $1 billion savings estimate for this cycle describe the same money or two different tallies. The department's numbers have not been independently audited in the sourcing reviewed here.

The Education Department has also pointed a finger backward, telling Fox News Digital that under President Biden, less than 1% of FAFSA applicants were required to verify their identity after submitting the form during the COVID-19 era. No Biden administration official is quoted responding to that characterization in the available reporting.

Enforcement Widens

Vice President JD Vance announced that more than 870,000 borrowers tied to alleged COVID-era fraud will be suspended from future federal loan programs, and said they could face federal prosecution. No indictments tied to that specific group are detailed in the sourcing reviewed here, so that remains an enforcement action and a stated threat, not a completed prosecution.

Crystal Trout, a managing director at Baker Tilly's risk advisory practice, told Payments Dive that banks and payment processors are now the last line of defense once the fraud has already happened. "The fraud has already happened, but it hasn't ended," Trout said, referring to the fact that stolen aid money still has to move through the financial system, giving investigators a chance to trace it.

What's Still Unresolved

Stricter identity checks are aimed at scammers, but they also add friction for real students, particularly low-income applicants who may not have easy access to a government-issued ID. None of the sourcing here includes a named critic raising that concern directly. What is documented: FinCEN's July 24 alert is still active guidance to banks, the Education Department's identity verification system is now live inside FAFSA, and Vance's 870,000-borrower suspension list is the first large-scale enforcement step tied to this specific fraud wave. Whether any of those suspended borrowers face actual federal charges remains to be seen.