There’s a scam targeting student financial aid, and it’s leaving some Americans with “phantom” student debt.
As of October 1, applications for Free Application for Federal Student Aid (FAFSA) are now open. But, along with students, fraudsters will apparently be applying for aid, too. Thanks to Artificial Intelligence, “ghost students” are becoming a major problem for colleges and universities, particularly with the prevalence of online classes.
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“We’re talking about organized networks leveraging AI to manufacture these phantom enrollments at scale,” finance expert Michael Ryan told Newsweek. (1)
Here’s how it works: fraudsters use stolen or AI-generated IDs to create synthetic identities that enroll in college, collect financial aid and then disappear into thin air — like a ghost. Some classes now require students to submit homework to prove they’re actually human, but fraudsters can take the scam one step further by submitting AI-generated assignments.
The financial toll of ghost students
While there aren’t any federal statistics available, California colleges reported 1.2 million fraudulent applications in 2024, according to the Associated Press. This resulted in 223,000 suspected fake enrollments and a total loss of $11.1 million in federal, state and local financial aid — a loss that cannot be recovered. (2)
With 116 community colleges, California is an attractive target for cybercriminals. Open-admissions colleges — which were designed to lower educational barriers for low-income Americans — are also a particularly attractive target since they offer automatic acceptance.
California, however, isn’t the only state impacted by ghost students. The College of Southern Nevada, for example, reported a loss of $7.4 million over fraudulent enrollments during the fall 2024 semester. (3)
But the cost isn’t just monetary. If a stolen identity is used to collect financial aid, the victim then has phantom debt in their name, which can damage their credit and impede their ability to get the aid they actually need.
Ghost students take financial aid away from legitimate students who need that money to fund their education. They can also take spots in classrooms from students who are then forced onto waitlists, and professors may find themselves teaching a “full” class that’s half empty.
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What’s being done about it?
The Department of Education has introduced a temporary rule that requires first-time applicants for federal student aid to prove their identity via a government-issued ID — either in person or on a live video conference. (4)
However, that’s just one line of defense. If student identities were stolen from a previous data breach, fraudsters have real student identities they can then use to stay ahead of basic fraud detection checks.
In May, for example, a cyberattack at Columbia University compromised 870,000 people, including their Social Security numbers. This stolen data could, in theory, be sold on the dark web and used to create synthetic identities. (5)
That’s why some colleges are fighting AI scams with advanced technology, such as using AI tools to flag anomalies in mass applications and conducting real-time verification of students with biometric checks.
A number of AI-driven fraud detection tools are entering the market, such as N2N Services’s LightLeap AI, Element451’s BoltAI (which integrates fraud detection into admissions software) and AMSA’s S.A.F.E. (for real-time identity validation).
“As we see a rise in sophisticated identity fraud attacks like synthetic identities and camera injection attacks, colleges and universities should also consider adopting liveness detection, which can detect fake static images or video injections,” Fred Kwong, VP and chief information security officer at DeVry University, told Dark Reading. (6)
What to do if it happens to you
Victims of identity theft don’t usually notice something is wrong until it’s too late — when the fraudster has already used their identity to open accounts or take out loans in their name.
So, what can you do about it? You can start by signing up with a credit monitoring service, which provides real-time alerts if there have been any changes to your report. You can also freeze your credit if you believe you may be the victim of identity theft — just remember that you’ll need to freeze your credit with all three credit bureaus: Experian, Equifax and TransUnion.
“When a credit freeze is in place, nobody can open a new credit account in your name. There’s no cost to place or lift a credit freeze, and it doesn’t affect your credit score,” according to the Federal Trade Commission. (7)
You can also place a fraud alert with the three credit bureaus, which means lenders must verify your identity before granting new credit in your name.
If someone is impersonating you for student financial aid and even submitting assignments in your name (likely using a chatbot), it could take months of calling college administrators, loan services and the Federal Student Aid office to clear your phantom debt. This has been made even more difficult since the Trump administration fired more than 300 people from the Federal Student Aid office in March.
If you are a victim of identity theft, file a police report (which provides official documentation of the crime). In addition, report it to your bank, credit card issuers and anywhere else you may have accounts. You can also file a report with the Federal Trade Commission online or call 1-877-438-4338.
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Newsweek (1); The Associated Press (2); U.S. Department of Education (3); Federal Student Aid (4); Inside Higher Ed (5); Dark Reading (6); Federal Trade Commission (7)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.