The US Department of Education recently announced the implementation of a new identity verification process to combat student financial aid fraud, with serious cases reported in community colleges in states like California, Minnesota, and Nevada.
According to the non-profit news organization “EdSource,” during the previous academic year, 116 community colleges in California alone lost over $7.5 million due to financial aid fraud, with a large portion of it being federal aid distributed to low-income students through Pell Grants. These are just the cases that have been discovered.
In a public announcement on June 6th, the Education Department revealed that in 2024, Foothill-De Anza Community College in Northern California received around 26,000 applications, of which 10,000 were put on hold due to suspected fraud. In Minnesota, Riverland Community College received hundreds of fraudulent applications on average in the past two financial aid years, with Century College seeing a fraud rate of 15%. The College of Southern Nevada incurred a $7.4 million loss due to enrollment fraud in the fall semester last year.
Education Secretary Linda McMahon stated in the announcement, “Rampant fraud is taking away financial aid from eligible students, disrupting university operations, and deceiving taxpayers. We have a responsibility to take action.”
Due to the COVID-19 pandemic, many institutions shifted to online courses, while the previous administration revoked identity verification protections and redirected resources meant for fraud prevention towards illegal loan forgiveness work. In the past week, the Education Department identified nearly 150,000 suspicious identities from the current Free Application for Federal Student Aid (FAFSA). Data also show that identity theft, especially involving high-tech (AI) fraud groups, poses a threat to the Federal Student Aid (FSA) program.
The Education Department plans to implement a permanent screening process for every FAFSA applicant starting from this fall, requiring applicants to present in-person or via video a government-issued, unexpired, and valid photo ID to the school.
As a temporary measure, starting this summer, the Education Department is mandating higher education institutions to verify the identity of specific first-time applicants.
In April of this year, nine Republican members of Congress from California, including Young Kim, Kevin Kiley, and Ken Calvert, jointly wrote to Secretary McMahon and Attorney General Pam Bondi urging an investigation into financial aid fraud at California community colleges.
According to the letter, based on the latest data from the California Community Colleges Chancellor’s Office, approximately 34% of applications from community colleges last year exhibited fraudulent activity, with fraudsters diverting tens of millions of federal funds and over $3 million in state aid, “This is not a trivial issue. It represents a serious misuse of public funds and a betrayal of Californians’ trust in educational institutions.”
The community colleges in California, open to anyone with a high school diploma or passing the equivalent high school exam, have a straightforward application process. According to EdSource, Paul Feist, a spokesperson for the California Community Colleges Chancellor’s Office, stated last year that the shift to remote learning created a “breeding ground” for fraudsters.
Some officials attribute the surge in fraudulent activity to the previous administration’s Education Department canceling FAFSA verification rules, giving fraudsters an opportunity to exploit the system.
Up to September of last year, California community colleges detected over $7.6 million in fraudulent financial aid, significantly higher than the $4.4 million reported in 2023 and the $2.1 million loss reported from September 2021 to the end of 2022.
Fraudsters pose as legitimate students applying online for admission. Once accepted and enrolled in courses, individuals can apply for financial aid, often choosing basic courses with no prerequisites that are easy to enroll in. The funds are typically directly deposited into the students’ personal bank accounts. The California community colleges waive tuition for low-income students, and this money is usually used for rent, food, transportation, and other living expenses.
Tuition at US community colleges is typically lower, with financial aid often used for living expenses, making them a prime target for such fraud schemes.
Feist mentioned that the process from a fraudster applying for admission to being discovered, investigated, and confirmed to have committed fraud could take six months or longer. Universities typically label aid they distributed as fraudulent because recipients completely cease attendance after receiving the money. These fraudulent actions also impact genuine students as enrollment quotas are limited, and fraudsters occupy spots.
Fraudulent activity has surged since 2021. From March 2020 to March 2021, the federal government passed three pandemic relief bills and allocated $4.4 billion to California community colleges, with $1.8 billion earmarked for emergency financial aid.
From reports of financial aid distribution since fall 2021, a total of $14.2 million has been identified as fraudulent, with the majority coming from federal sources and around $3 million from state and local funds. Feist mentioned that this accounts for less than 1% of emergency financial aid distributed by schools during this period.
Emergency financial aid stopped being distributed in 2023, yet fraud did not cease. In 2024, some colleges reported monthly losses in financial aid as required, but reports from dozens of schools showed at least one month with no losses, indicating that the actual financial aid loss due to fraud may be higher than reported.