Ghost Students: The $180M Fraud Problem Haunting Colleges and Universities

Highlights: 

• Community colleges are facing a significant fraud problem with "ghost students" who steal millions in federal student aid, impacting school finances, student access, and donor contributions.

• Colleges can combat this by implementing stronger fraud protections, including building "identity trust" through validation and risk analysis, recognizing synthetic identities, and using secure multi-factor authentication.

Community colleges across the country are struggling with a scary ghost problem—and it’s not related to Halloween or haunted houses. 

Fraudsters are stealing millions of dollars in federal student aid money and scholarships by posing as fake students, i.e., “ghost students,” who collect tuition support but then never show up for class. 

Here, we examine this alarming trend and the costly, destabilizing impact it’s having on schools and students. We also share practical steps colleges can take to strengthen their fraud protections, enabling them to identify and shut down “ghost student” fraud, protect student aid funding, and provide better student experiences. 

Exploiting a Community College Vulnerability

Between the $150 million in financial aid doled out to “ineligible” students and the $30 million in aid money paid to college applicants using the stolen identities of deceased people, the U.S. Department of Education has uncovered a $180 million problem for the nation’s community colleges. 

Sophisticated criminal networks are exploiting the “open-to-all” acceptance policy of community colleges by submitting fraudulent student applications, knowing they will likely be accepted. Once accepted and enrolled in classes, the fraudsters apply for financial aid and scholarships, abscond with the money, and never attend classes, hence the “ghost student” nomenclature. 

The scheme is built on fraudulent student identities that mimic parts of a real person’s identity, altering the contact information to ensure all communication is routed to the fraudsters. For instance, they might change one or two digits in an email address, shifting it from ‘Johnathan.doe@gmail.com’ to ‘jonathan.doe@gmail.com’. They also use synthetic identities, which combine bits of real and fake personal data to create a new identity, and stolen identities of deceased people. 

They often strike in the middle of the night, using bots to flood college systems with fake online applications that often slip through the school’s online security, which enables the bots to enroll in classes and apply for financial aid.  

In California alone, this type of student aid fraud skyrocketed 74% in the past year, jumping from $7.5 million to $13 million. Community colleges in other areas, including Michigan, Minnesota, Oregon, and New Jersey, have also been hard hit.  

A Direct Threat to Colleges, Students, and Donors

The subversive impacts of ghost student fraud on both schools and students, even alumni donors and community scholarship sponsors, cannot be understated. Factor in anticipated declines in college enrollment driven by declining birth rates, expected to start as soon as 2026, and many colleges are on high alert, fighting to sustain and grow current enrollment numbers and, ultimately, keep the doors open. 

Here are a few disruptive, domino-effect consequences triggered by this insidious fraud: 

• Community colleges lose millions of dollars in funding that would typically be supported with student aid dollars. Classrooms that should be filled with students are filled with empty seats, which impacts curriculum planning, budgets, and the ability of faculty to plan and teach effectively. “Real students” are waitlisted or denied, creating negative experiences at a time when colleges are working harder than ever to attract students and boost enrollment. And last, rampant student aid fraud increases compliance risk with federal regulators. 

• Students are denied a quality college education because they can’t access tuition support, or there’s no room in the classroom for real students due to ghost students. Alternatively, a student manages to enroll, but the reduced availability of tuition support (because of fraud) forces them to take on student loan debt, which can alter their long-term financial trajectory. 

• Donors, such as alumni, community partners, and business sponsors, who would typically contribute to scholarship funds and other types of tuition support stop giving, reducing crucial funding streams for tuition assistance and other essential recruitment and enrollment initiatives. 

Stop Ghost Students in their Tracks

Most community colleges use an online system to accept and screen student applications, while a few may still rely on manual reviews. Either way, here are practical steps colleges can take to strengthen their fraud protections and stop ghost students in their tracks. 

1. Build “identity trust.” In short, this is about having confidence that: 1) a student applying to a college is who they say they are; and 2) their intentions are what they say they are. Schools must be able to trust student identities as they’re presented in real-time across any digital interaction or channel.

Consider integrating the following three steps into an existing online system and application review workflow: 

1. Start by validating an identity’s affiliations. This involves matching student application data against credible, validated, and/or authoritative third-party data sources to detect associations with other identities. For example, fraudulent identities are often linked together via a common IP address. 

2. Next is a risk analysis of data linked to the identity to detect fraudulent behaviors. For example, factors such as velocity (volume of applications within a short time), inherent fraud insights linked to contact information (pre-paid mobile phone vs. traditional mobile account), and fraud scores are potent fraud predictors. 

3. Last is identity authentication, which validates or proves the identity using key forms of personal identification. Examples of this might include using one-time passcodes, biometrics, document verification, and liveness detection testing.

2. Recognize hard-to-detect synthetic identities. Synthetic identities are notoriously difficult to spot since they’re made up of real and made-up identifiers. However, solutions are available that leverage vast, multi-source data, sophisticated machine-learning algorithms, and advanced matching logic to detect synthetic identity manipulations, behaviors, and patterns throughout the application process.  

Once the solution is integrated, schools can get real-time alerts when synthetic identity risk is detected. Alternatively, they can “batch” multiple student applications at once through the risk solution, which can be helpful for smaller colleges that still use manual workflows. 

3. Implement secure multi-factor authentication. This involves confirming—in real time—the authenticity of a student’s cell phone number. A hyperlink is sent to the student’s device or channel, which they can click to begin the authentication process. 

It’s a small, but powerful step that provides colleges with an additional layer of security and identity verification, while promoting a better, easier student experience that doesn’t involve retyping passcodes. 

As ghost student fraud continues to threaten the financial stability and integrity of community colleges across the country, institutions need a trusted partner with deep expertise in identity verification and fraud mitigation. 

Equifax has a long history of helping organizations detect and prevent sophisticated identity-based fraud. Using advanced data analytics, real-time risk assessments, and sophisticated digital identity and authentication solutions, Equifax can help colleges strengthen their fraud defenses, protect critical student aid funding, and increase enrollment by offering better experiences for “real” students. Learn what Equifax can do for your institution.