By John L. Culhane, Jr., Ballard Spahr/Consumer Finance Monitor
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The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has issued an Alert “urging financial institutions to detect, prevent, and report suspicious activity connected to fraud schemes targeting student aid programs administered by the Federal government.”
“Every dollar stolen from Federal student aid is a dollar taken from taxpayers and deserving students,” said Secretary of the Treasury Scott Bessent.
“Fraud rings use stolen and fraudulent identities, as well as other tactics, to enroll in educational institutions and unlawfully acquire funds from Federal student aid programs,” according to FinCEN officials. “The schemes not only result in losses to Federal student aid programs, but in some cases, real students face difficulties enrolling in classes because of the number of fraudulently enrolled ‘students.’”
They said that the Education Department has launched an “effort to prevent fraud in Federal student aid programs to protect taxpayers while significantly reducing associated administrative burdens on colleges and universities. [The Education Department and its Office of Inspector General] have consistently worked to detect, investigate, and facilitate the prosecution of fraudsters, as well as to communicate emerging fraud risks associated with Federal student aid and other ED programs.”
In late 2025, ED officials said that it had prevented $1 billion in Federal student aid fraud during that calendar year.
Elaborating on how many of these sehemes work, FinCEN said that fraudsters often steal personally identifiable information to create “ghost students.”
“To create ghost students, fraudsters may illegally obtain Personally Identifiable Information (PII) to impersonate an identity theft victim and pose as a legitimate student,” according to FinCEN. “Fraudsters may also use artificial intelligence or other tools to overcome identity verification by generating fraudulent documents that combine stolen PII with fabricated details, commonly referred to as synthetic identities. Victims whose identities are leveraged as part of ghost student schemes, including minors, are unaware that fraudsters are receiving Federal student aid using their PII.”
FinCEN officials said that in addition fraud rings sometimes use complicit “straw students” to obtain federal student aid. Straw students are individuals who, for a fee, provide their PII to fraudsters, who enroll them at educational institutions and collect financial aid refunds issued in their names.
They added that corrupt staff at educational institutions may also take advantage of their positions to defraud student aid programs by recruiting straw students and managing their educational records.