A police officer knocked on Heather Brady’s door while she was napping at her San Francisco home on a Sunday afternoon, which is not very common. The officer informed her about someone using her identity to apply for community college in Arizona, gathering financial aid through fraudulent means. It didn’t stop there; when Brady checked her student loan account, she discovered a loan exceeding $9,000 had been taken out in her name for a course at the University of California.
“I can’t even fathom how widespread this must be,” she remarked.
The surge in financial aid fraud can be linked to the growth of artificial intelligence and the increase in online classes. Scammers are now enrolling so-called “ghost students”—essentially, AI bots—who can participate in online courses and collect financial aid checks.
Strikingly, professors sometimes find that their entire class roster is fabricated. As these bots fill classes, genuine students may be forced out of essential courses needed for graduation. Those who fall victim to identity theft might spend months trying to contact the Federal Student Aid Agency to resolve the fraudulent loans.
This past Friday, the U.S. Department of Education announced new temporary regulations requiring first-time federal student aid applicants to show government-issued ID to verify their identity. This change will affect about 125,000 borrowers this summer, with more robust screening methods expected to roll out in the fall.
Public universities have lost millions of dollars in fraud
An analysis by the Associated Press revealed that in 2024, the University of California reported an astounding 1.2 million instances of fraud, along with 223,000 suspicious registrations. Other states have also seen similar issues, but California, particularly with its 116 community colleges, experiences a significant amount of fraud.
Victims reported that at least $11.1 million in federal, state, and local financial aid was fraudulently obtained from California community colleges just last year.
Universities typically receive part of the loan allocated for classes, with the remaining funds sent directly to students for other expenses. Low tuition rates often make community colleges susceptible to fraud involving grants and loans.
University Registration Fraud Skyrocketing
In one class, students were required to submit homework assignments to validate their identities. However, someone used a chatbot to impersonate Chau and submit an assignment.
“The way they talked, it felt just like me,” Chau reacted. Luckily, he didn’t incur any financial loss since it involved grants, not loans. He attempted to report the identity theft to the Social Security Agency but became frustrated after waiting five hours without getting through.
As the administration shifts its focus away from the educational sector, it may hinder efforts to catch these criminals and assist identity theft victims. In March, the Trump administration terminated over 300 jobs within the Federal Student Aid Office, and since last October, more than 20% of fraud investigators in the department have left.
“I’m worried about what lies ahead,” Brady confided. “The agencies are just broken. I might be stuck with these $9,000 loans.”
The range of criminal cases highlights the scale of these fraud operations. Recently, investigators indicted a man leading a Texas fraud ring that misused stolen identities to obtain $1.5 million in student aid. Another individual in Texas pled guilty after trying to secure more than $650,000 in student aid using names of inmates. Meanwhile, someone in New York admitted to running a $450,000 student aid fraud scheme for a decade.
Identifying victims of fraud who have never attended university will suffer from student debt
Brittney Nelson from Shreveport, Louisiana, recalled taking her daughter to daycare two years ago when she was alerted that her credit score had plummeted by 27 points. She discovered loans had been taken out in her name from universities in California and Louisiana. Although she managed to cancel them before they were processed, she faced unresolved debts exceeding $5,000 from Delgado Community College in New Orleans.
Running her own cleaning business and having never attended college, Nelson had been vigilant about her credit, even enrolling in identity theft protection. Nonetheless, her debt nearly went into collections before she could clear it, which finally happened after two years of efforts.
“I felt like someone really invaded my personal space,” she stated.
She expressed hope that federal measures to verify borrower identities would offer some protection.
“It would be a huge step toward protecting people in the long run if they could make these processes a bit tougher,” she suggested.
Delgado’s spokesperson noted that while the issue is serious, the ultimate responsibility for approving loans lies with the federal agency.
In San Francisco, loans taken out in Brady’s name remain unresolved, compounding her challenges. After losing her job, she enrolled at City College San Francisco, but all courses were full. Eventually, when she secured a spot, the professor apologized for the delay, attributing it to the spike in fraudulent applications.
