Growtika, Unsplash Every year, postsecondary institutions of all kinds distribute hundreds of billions of dollars in student financial aid across the United States—not to mention the tens of billions in aid allocated by state governments and institutions of higher learning themselves. Such aid ranges from loans with well-below-market interest rates to flat-out grants (such as Pell Grants), the lion’s share of which are propped up by taxpayer dollars. Since the end of the Second World War, America has invested heavily in higher education, for good reason. But a recent spike in financial-aid fraud is syphoning taxpayer dollars away from their intended purpose: enabling more Americans to attend and graduate from a postsecondary institution.
Fraud reported by California’s community colleges increased by a shocking 454 percent in the last two years. The threat of financial-aid fraud was recently highlighted by disturbing reports from California’s expansive community-college system. According to reporting, hucksters stole at least $11 million from the system in 2024. While $11 million is chump change in the grand scheme of our nation’s higher-education system, the rise in fraud is alarming. Fraud reported by California’s two-year colleges increased by a shocking 454 percent in the last two years, up significantly from just under $2 million in 2022.
It behooves policymakers to better understand what fraud looks like, how it’s being carried out, and what can be done to stop it. These figures should be taken with a grain of salt, of course, as schools have improved their ability to detect fraud in the last several years. Nevertheless, the trend seems to be at least partially the result of the proliferation of remote learning, with some fraudsters going so far as to deploy AI tools to complete assignments and “attend” virtual classes. As it turns out, sorting real students from fake ones is quite difficult in the digital world.
Federal and state lawmakers have taken an interest in the case, with nine members of Congress and one state assemblywoman calling on the U.S. Department of Education and the state of California to investigate. The Congressional delegation’s letter, addressed to U.S. Secretary of Education Linda McMahon and U.S. Attorney General Pam Bondi, cites troubling data indicating that approximately 34 percent of community-college applications filed last calendar year were fraudulent, up from 21 percent in 2021. While no comprehensive national data exist on financial-aid fraud, it seems likely that California’s recent discoveries are far from exceptional. It behooves system leaders and policymakers to better understand what fraud looks like, how it’s being carried out, and what can be done to stop it.
What is financial-aid fraud? How does it occur?
Financial-aid fraud is best understood as an inappropriate use of funds that were originally intended to support a student’s higher education. In the case of California’s community-college system, offenders created fake student identities using stolen or fabricated personal information. Next, they enrolled in courses and subsequently applied for financial aid. These fake “students” submitted coursework—with significant support from artificial intelligence—just long enough to have aid deposited into their bank accounts. Finally, they withdrew from courses and disappeared, pocketing the cash.
Fraud of this sort is enabled by poor identity-verification systems and the expansion of virtual learning in the wake of Covid. California does not require students to provide documentation when they enroll, instead requiring only that they sign an affidavit. In essence, the state’s identity-verification system relies on an honor code. Lawmakers have worked for decades to expand access to higher education, and, in doing so, they have done away with requirements that students thoroughly verify their identity. “We serve a large proportion of students who may not have documentation for a variety of reasons,” said one representative of the community-college system. Yet, in their good-faith effort to expand access, lawmakers have opened the door for fraud.
Moreover, virtual learning makes fraud much easier to commit. Instead of requiring flesh-and-blood students to show up in-person for classes, virtual courses allow students to complete coursework without ever having to meet their colleagues or professors in-person. Some online classes don’t even require you to turn your camera on during virtual seminars. Such learning modalities make a lot of sense when people are prohibited from gathering in close spaces because of the threat of disease. They also clearly expand access to education for some students who might not otherwise be able to commute to and from a brick-and-mortar campus. But access is not an unalloyed good. Like all things, it comes with costs.
Access is not an unalloyed good. Like all things, it comes with costs. Elizabeth Smith, a professor at Southwestern College, recently shared her experience concerning the growing number of fraudulent students. When the spring semester began, Smith was overjoyed with her class-enrollment numbers: Two of her online classes were completely full, and even class waitlists were at capacity. As the semester advanced, however, she quickly learned that many of her students weren’t real at all. “By the end of the first two weeks of the semester, Smith had whittled down the 104 students enrolled in her classes, including those on the waitlist, to just 15. The rest, she’d concluded, were fake students, often referred to as bots.”
Valuable time that could be spent teaching is consumed by verifying students’ identities. This proliferation of bot-students is compelling professors across California, and presumably elsewhere, to spend a lot more time making sure their students are real. Valuable time that could be spent teaching is instead consumed by crafting strategies to verify students’ identities.
How is financial-aid fraud currently being combated?
Considering the gravity of the problem and its potential for growth, lawmakers and administrators have taken early action to combat it. California has spent hundreds of millions of dollars in the last several years hiring cybersecurity contractors. These contractors, such as ID.Me, can verify students’ identity when they register for classes, though, at present, students in many districts can choose to opt out of such verification.
Even schools that have made systems such as ID.Me mandatory have identified fake students who have slipped through the cracks. Victor DeVore, student-services dean for the San Diego Community College District, says that his district now screens all applicants, “even those who have verified their identity through ID.Me.” Moreover, the state is limited in its ability to verify student identity because of prohibitions on requesting documentation.
Additionally, as in the case of Elizabeth Smith, professors are playing an active role in weeding out which of their students are real and which aren’t. This takes time and effort and is especially difficult in an era of virtual education. We can applaud these efforts while also recognizing that teachers shouldn’t need to play a dual role as both educator and identity-verifier.
What more can be done?
Three things are clear.
First, the proliferation of hybrid- and virtual-learning options has made it much easier for hucksters to syphon taxpayer dollars away from higher education.
Second, an overemphasis on access has opened the gates for fraudsters who don’t have taxpayer or student interests in mind.
Lastly, this problem will only get worse as fraudsters improve their methods and as institutions of higher learning shift more of their offerings online.
Institutional efforts to combat fraud, such as enhanced identity verification, can do much to stem the tide. Yet spending hundreds of millions of dollars on cybersecurity contractors that schools aren’t mandated to use and that don’t catch all fraudulent applicants in the first place is a half-measure at best (and an expensive half-measure at that). Requiring prospective students to present some form of government identification could root out fraud even further and likely not cost too much for schools to implement.
I challenge anyone to find a single soul within the state of California to whom the state wouldn’t give an ID. Critics will argue that such measures reduce access to higher education for certain communities that might not have access to government ID—and that the issue of fraud is not that big of a deal. After all, it seems to have cost the state only $11 million this past year, a minute sum in comparison to overall spending on higher education.
Though the latter point has some credence, financial-aid fraud remains quite easy to commit and is rising at an alarming rate. If steps aren’t taken soon, it will metastasize. As to the former point, I challenge anyone to find a single soul within the state of California to whom the state wouldn’t give an ID (other than, possibly, non-human bots).
As this article “went to press,” California community-college officials had begun debating possible measures to prevent future fraud, among them a “nominal” student fee to pay for AI-based defenses and an updated identity-verification process. Whatever their compromise, system leaders, administrators, and lawmakers will need to engage in thoughtful dialogue and work together to ensure that dollars earmarked for student learning actually contribute to student learning. The status quo is unsustainable.
Joe Pitts is the CEO of Odyssey Consulting, where he focuses on issues such as higher education, economic development, and smoking-harm reduction.
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