Colleges and universities are facing a new fraud tactic that has made them more susceptible to digital theft. Known as ghost students, hackers are exploiting pandemic-related vulnerabilities to steal millions of dollars in student financial aid.
Over the past five years, the federal government has uncovered more than $350 million in fraud perpetrated by ghost student schemes, said Jason Williams, the assistant inspector general for investigations at the Department of Education's Office of Inspector General, to ABC News. "And that's only in the universe of what we know, and what we have adjudicated."
‘Scourge’ on America’s colleges
For thousands of colleges across the country inundated with ghost students, these “sophisticated thieves have become a scourge,” ABC News said. The scammers use stolen or fake identities to enroll in online classes and apply for grants and loans, then disappear once they receive the funds. The fraudsters are “robbing the federal government of hundreds of millions of dollars and leaving an untold number of victims.”
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"It's a huge issue," Williams said to ABC. As they steal identities, these “loans are not being repaid.” They are being assigned to people who “don't even know they have a debt” with the DOE until the Internal Revenue Service alerts them. Thieves have tried to steal financial aid for decades, but when the pandemic hit, “everybody went to online learning,” which “really did open the door” for more widespread fraud.
The ghost students have even “resorted to submitting homework” completed with AI: “anything to try to keep from getting dropped from a class,” said Fortune. Sometimes, “all they’ll get away with is a college email address,” but even that is valuable, “giving the scammers a veneer of legitimacy as a college student,” a security expert said, per Fortune.
The scope of the fraud is “enormous,” said ABC. In California alone, “nearly a third of all community college applicants in 2024 were identified as fraudulent,” according to the California Community Colleges system. Other states are affected by the same problem, but “with 116 community colleges, California is a particularly large target,” said The Associated Press. In some cases, “professors discover almost no one in their class is real.” Community colleges are targeted because “their lower tuition means larger percentages of grants and loans go to borrowers.”
Fighting back with AI
The federal government is “on the hook for tuition aid lost to scammers,” said ABC News. But it is the community colleges, which “accept almost all applicants through open enrollment,” that often “carry the burden of sniffing out fake applications.” Doing so requires “resources, technology and expertise that many institutions do not possess.”
The Department of Education implemented “enhanced fraud controls and identity verification requirements” last year, which “helped schools combat fake applicants,” said ABC. The DOE found that $90 million had been disbursed to ineligible students, including $30 million that went to deceased individuals whose identities had been stolen. To help “root out the fraud,” community colleges have turned to a “growing marketplace of identity verification software vendors,” ABC said.
Minnesota is using AI and has partnered with other schools and security consortia to identify new techniques used by ghost students to infiltrate their schools, said Craig Munson, Minnesota’s chief information security officer, to Fortune. “Just as we leverage AI to protect ourselves, the attackers also continue to leverage it in new and interesting ways.” It’s like an “arms race.” Every six months, the attackers “tend to stop one way of doing things and move to a different tactic.”
After being hit hard by ghost students in 2024, the California Community College system “started fighting the AI-driven scheme — with AI,” said Fortune. The CCC began using N2N’s LightLeap.AI platform to detect fraudulent enrollments last summer. Following the rollout, 79,016 fraudulent applications were detected across over half a million applications. “The only answer for a bad guy with AI is a good guy with AI,” said the CEO and founder of N2N Services, Kiran Kodithala, to Fortune.
