The Treasury Department’s Financial Crimes Enforcement Network issued an
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FinCEN noted that some fraud rings use stolen and fraudulent identities, along with other tactics, to enroll in educational institutions and unlawfully acquire funds from federal student aid programs. In some cases, actual students face hardships enrolling in classes because of the number of fraudulently enrolled so-called “ghost students.” Tax professionals with clients whose children are applying for student aid may find themselves dealing with problems at tax time from these stolen identities.
To create these ghost students, fraudsters illegally get their hands on personally identifiable information to impersonate an identity theft victim and pose as a legitimate student. They may also use artificial intelligence or other tools to overcome identity verification by generating fraudulent documents that combine the stolen information with fabricated details, sometimes referred to as synthetic identities. Victims whose identities are leveraged as part of ghost student schemes, including minors, are often unaware that fraudsters are receiving federal student aid using their personal information.
In some cases, however, some people willingly provide their identities to the criminals in exchange for money, allowing the fraud rings to create so-called “straw students.” The fraudsters then enroll them at educational institutions and collect financial aid refunds issued in their names. Fraudsters have organized some sophisticated networks of individual straw students to obtain federal student aid. Corrupt staff members at some educational institutions can act as insiders for fraud schemes, taking advantage of their positions to defraud federal student aid programs by recruiting straw students and manipulating their educational records. After illicitly obtaining student aid refunds, fraudsters may launder student aid funds, including through money mules, shell companies, and fraudulent accounts.
FinCEN is encouraging banks and other financial institutions to try to deter such fraud. They can identify student aid refund payments either through deposits made directly by educational institutions or by contracted intermediaries. Payments made by an intermediary usually occur through Automated Clearing House transfers, and the associated transaction references can include the term “refund” and the educational institution’s name or abbreviation, for example, “Local Community College Refund” or “LCC REFUND.” In some cases, the stated recipient may also be listed in the transaction reference, for example. “LCC REFUND John Doe.”
“Every dollar stolen from Federal student aid is a dollar taken from taxpayers and deserving students,” said Treasury Secretary Scott Bessent in a statement. “The Trump Administration will not tolerate criminals who exploit government programs for personal gain. Treasury is working with financial institutions and law enforcement to identify these fraud schemes, recover stolen funds and hold those responsible accountable.”
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