The US Department of Justice charged five individuals in the first broad federal crackdown on "ghost students," fraudsters who steal Americans' identities to pose as fake college students and obtain federal student loans. The DOJ seized more than $750,000 in cryptocurrency from a network associated with Kenyan nationals.
The scheme works by purchasing personally identifiable information of high school graduates who never attended college, then submitting fraudulent FAFSA applications. Bad actors use AI to fill out applications, complete coursework, and create fake attendance in virtual classes. When student aid is distributed, leftover funds go to bank accounts controlled by fraudsters, with dozens of Americans serving as money mules.
The Department of Education identified over 830,000 potentially fraudulent federal student aid accounts. If all are ghost students, total losses approach $130 million, according to the DOJ. Assistant Attorney General Colin M. McDonald said investigators "identified more than $32 million in actual loss tied to these specific subjects" and believe the total is substantially higher. In one case, a defendant used multiple bank accounts to receive over 700 fraudulently obtained refund deposits totaling approximately $1,439,548.
Data analysis flagged suspicious patterns of coordinated fraud involving FAFSA. The DOE's Office of Inspector General first detected the patterns, and the FBI traced money to US and foreign bank accounts and crypto wallets. The DOJ suspects the scheme has been running since at least 2021.
Americans whose data is stolen often do not discover the fraud until the government pursues them for loan repayment years later, damaging their credit. McDonald acknowledged the victims face a difficult situation. "The Department of Education does a great job to help unravel that mess, but it is a mess that no one should have to endure," he said.
The Trump administration introduced online identity verification requirements for FAFSA that require students to present government-issued IDs to cameras in real time. However, advocates warned that the verification process and potential associated fees could become barriers to higher education access for low-income students who may lack secured driver's licenses or other required identification.