Fake Students are Driving Real Losses in Higher Education

Highlights:

• The shift to digital applications and the use of AI is escalating "ghost student" fraud, which includes schemes like synthetic identities and first-party fraud, leading to millions in lost funding, denied student opportunities, and eroded trust across the higher education system.
• Higher education institutions can strengthen early detection by deploying advanced digital identity proofing solutions from Equifax, which use analytics and machine learning to verify applicants in real-time, helping to detect up to 30% more high-risk fraud and cut potential losses by up to 44%.

Within the context of student aid fraud, $2.5 million is a staggering number. It’s not the total amount of fraud last year, or even at a single college. Not even close. 

It’s the total amount stolen by a single perpetrator who operated undetected for 10 years. In March of 2026, Michelle Hill from Detroit pleaded guilty to fraud linked to a decade-long scheme to fraudulently obtain more than $2.5 million in federal student aid.

Student aid fraud isn’t new. But the shift to digital applications and enrollment—combined with rapid advances in AI—is making it harder to detect and far more costly, especially when it goes undetected. Here’s what institutions need to know about this growing threat, the evolving response, and warning signs that can help stop it earlier.   

Fraudsters often exploit the “open-to-all” acceptance policies at community colleges and online universities, where their applications are more likely to be accepted. For instance, in California alone, roughly one in three community college applications was recently found to be fraudulent.

Once admitted, fraudsters enroll in classes, apply for aid, and then vanish—earning it the nickname of “ghost student” fraud because of the empty seats it creates in classrooms. 

The attacks are often automated. Bots will flood college systems overnight with high volumes of fake applications, overwhelming controls, and increasing the likelihood that some will slip through the school’s online security.  

The costly impacts of student aid fraud on schools, students, even alumni donors, and community scholarship sponsors cannot be overstated. And the longer it goes unnoticed, the more damaging and far-reaching the impact becomes. 

• Community colleges lose millions in funding typically supported by student aid. Classrooms are filled with empty seats, affecting curriculum planning, budgets, and faculty morale. “Real students” are waitlisted or denied, creating negative experiences at a time when colleges are working to boost enrollment. And rampant student aid fraud increases compliance risk with federal regulators. 

• Students are denied a college education because they can’t access tuition support, or there’s no room for real students due to ghost students. Or, a student enrolls, but the reduced availability of tuition support forces them to take on student loan debt, altering their long-term financial trajectory. 

• Donors, such as alumni, community partners, and business sponsors, who would typically contribute to scholarships, grants, and more, stop giving, reducing crucial funding streams. 

While tactics continually evolve, most student aid fraud falls into three categories:

• Identity theft and manipulation occur when criminals steal real identities and use them to enroll and apply for student aid. Since the identity is legitimate, the application passes basic fraud checks. Fraudsters then update the contact information, rerouting all communications and aid disbursements to them. 

• Synthetic identities are created using a mix of real and fabricated identity information, often using AI. They’re notoriously difficult to detect and can easily pass standard application and enrollment systems. Once approved, it’s nearly impossible to track down the perpetrator; they simply disappear with the funds.

• First-party fraud is a form of credit abuse in which applicants use their real identity to apply for student aid with no intent to attend or repay the loan. These applicants appear legitimate, look good on paper, and often pass standard fraud controls. This category includes loan stacking, in which “real” applicants simultaneously open multiple loans with no intention of repaying. 

As losses mount, government agencies are getting involved. Nearly $90 million in fraudulent student aid disbursements was recently identified by the U.S. Department of Education, prompting the agency to enhance its fraud controls, including:  

• Real-time data sharing with the Social Security Administration to flag deceased identities.  

• Resuming automated post-screening of student aid records to stop federal Pell grant overpayments beyond “lifetime limits.”

• Using advanced data models to detect suspicious or inconsistent data on student aid applications. 

Lawmakers are also doing their part, advancing legislation targeting fraud in federal student aid programs, including the Student Aid Fraud Oversight and Accountability Act of 2026, the No Aid for Ghost Students Act of 2026, and the FAFSA Verification Efficiency Act. If enacted, two of these laws could take effect as early as October 2026, pointing to the growing urgency to curb systemic losses. 

At the institutional level, there are key red flags colleges and universities can look for to stop fraud earlier: 

• Suspicious geolocation data: Look for applications submitted from an IP address with a nonsensical location that isn’t linked to the applicant’s contact information, that is associated with high-volume application activity, or that is associated with known fraud incidents. 

• No engagement from the applicant: Repeated applicant outreach with no response can be another fraud signal. 

• Government-issued IDs and passports: Given today’s advanced AI capabilities, fake documents can look and feel authentic, so always confirm government-issued IDs with a trusted source. 

• Frequently updated contact information: Fraudsters often reroute communications to email addresses, phone numbers, and physical addresses that only they can access and control.  

Equifax has been helping institutions battle student aid fraud for years—not by reacting to threats, but by redefining how identity is understood and verified in a digital-first enrollment environment. 

The Equifax approach pushes beyond one-off checks. Through our suite of identity proofing APIs that seamlessly integrate with existing online systems, institutions gain a dynamic, connected view of each applicant, enabling smarter, faster decisions and more effective fraud prevention across the application lifecycle.   

• Purpose-built, composable solutions target today’s most costly threats and use cases, including identity theft, synthetic identity fraud, and credit abuse, to help institutions address specific vulnerabilities.  

• Advanced analytics and machine learning continuously analyze and link differentiated data across PII validation, geo/IP location, device intelligence, inquiry velocity, and more, revealing risk that static checks often miss. 

• Identities and relationships are automatically connected across these and other data points, providing colleges with a fuller picture of fraud. 

The result is a holistic, real-time view of applicant risk that empowers institutions to act with confidence and stop fraud before it escalates into a prolonged, costly exposure. 

And the impact is measurable. Our identity proofing APIs help institutions verify applicant identities online in real time, detect up to 30% more fraud in the highest-risk tier, and cut potential fraud losses by up to 44%. All this, without disrupting the enrollment experience for legitimate students. 

For today’s higher education institutions, student aid fraud is a growing problem that’s not going away. And the longer it persists, the more it threatens to drain school resources, limit student opportunities, and erode trust across the higher education system. 

The path forward should involve strengthening early detection through automated digital identity proofing, advanced identity verification strategies, and having the ability to immediately detect and act on emerging fraud signals using connected, big-picture views of applicant risk. Because the only risk greater than student aid fraud is fraud that continues for months or years, undetected. 

Discover how Equifax's networked data helps institutions identify and stop costly student aid fraud.