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The increased use of AI and the popularity of online classes have thrown open the doors to financial aid fraud. Scammers use AI bots to pose as students and enroll them in online classes just long enough to collect student loan payments.
In addition to the cost of this type of financial aid fraud, these “fake students” often fill up online classes, locking out real students who need the classes.
One victim’s ordeal
That’s the story of Heather Brady, who discovered that scammers had applied to multiple Arizona community colleges in her name, as reported by the Associated Press. The scammers fraudulently secured $9,000 in federal student loans using her identity; the money was ultimately sent to someone else.
“I just can’t imagine how many people this is happening to that have no idea,” Brady said.
Victims of this form of identity theft often have to spend months calling colleges, lenders, and the Federal Student Aid office to clear their debt.
Response by the Department of Education
In response to this growing threat, the Department of Education instituted a temporary rule requiring first-time federal student aid applicants for the summer term to prove their identity with a government-issued ID. Roughly 125,000 borrowers will be affected by this new policy, as the department plans more rigorous verification measures ahead of the fall term.
The department’s Office of Inspector General, which investigates fraud, has lost more than 20% of its workforce since October, raising concerns about enforcement capacity.
“I’m just nervous that I’m going to be stuck with this,” said Brady to AP. “The agency is going to be so broken down and disintegrated that I won’t be able to do anything, and I’m just going to be stuck with those $9,000 in loans.
Surge in related fraud cases
In March 2024, colleges reported 27,764 suspected fraudulent admissions applications and 15,026 suspected fraudulent enrollments. In January 2025, that number skyrocketed to 241,064 fraudulent admissions applications and 56,882 fraudulent enrollments.
“The rate of fraud through stolen identities has reached a level that imperils the federal student aid program,” the Department of Education said in its guidance to colleges.
The financial fallout is growing. California’s community colleges lost $11.1 million last year in unrecoverable aid disbursed to fraudulent accounts. Because tuition is relatively low at community colleges, more loan money is often left over, making them prime targets for abuse.
With fraudsters exploiting cracks in the system, the integrity of financial aid programs and the access they provide to real students is increasingly at risk.
Read eWeek’s coverage about Google’s scam-fighting efforts and how an AI “Brad Pitt” scammed a woman out of $800,000.