A rapidly growing form of financial aid fraud is impacting colleges and universities nationwide, and institutions are being advised to take immediate action.
Known as “ghost student” fraud, this threat involves the use of stolen or synthetic identities to enroll in academic programs, secure financial aid, and redirect funds through institutional systems. What is driving concern is not only the scale of the activity, but how quickly and effectively it is evolving. Federal investigators have reported more than 200 open cases of this type of fraud in recent years, with overall losses believed to be in the hundreds of millions of dollars.
A Growing and Organized Threat
In recent years, fraud rings have increasingly leveraged automation and artificial intelligence to submit high volumes of applications, often targeting institutions with open enrollment models and online admissions processes.
As a result, financial aid systems that were designed to support access and efficiency are now being exploited at scale, with community colleges and institutions with open enrollment models among those most heavily affected.
Federal Controls Improved, Risk Remains
The U.S. Department of Education has taken significant steps to enhance protections, including the launch of real-time fraud detection within the FAFSA process in April 2026. Institutions also have opportunities to strengthen controls earlier in the process through application review, identity verification, and student vetting while reinforcing safeguards at disbursement where funds remain particularly exposed.
In some cases, fraudsters allow applications to pass initial screening and exploit downstream processes, such as payment routing or account updates, to redirect funds – for example, by changing ACH (direct deposit) information within institutional systems. While mechanisms are in place at both the federal and institutional levels during the application stage, these risks often emerge within institutional processes and controls later in the aid and disbursement cycle.
Why This Matters for Colleges and Universities
Institutions remain responsible for addressing key areas of exposure, including:
- Disbursement workflows and last-minute payment changes
- State and institutional aid programs outside federal controls
- Previously submitted applications and legacy student records
In many cases, fraud is only discovered after funds have been transferred, often when the real identity owner is alerted to unexpected enrollment or loan activity. Beyond immediate financial loss, institutions also face regulatory and reputational risks tied to data protection and identity misuse.
The Risk Has Moved Closer to Home
It’s important to note that ghost student fraud is no longer confined to the application stage-it has shifted into the operational processes that institutions control directly.
The most significant risks now exist within student information systems, disbursement timing, and payment verification practices. Without additional safeguards at these points, institutions may remain exposed even when federal controls are functioning as intended.
What Institutions Should Do Now
Institutions should prioritize a review of their current controls, particularly around disbursement and payment verification. Immediate focus areas include monitoring for late-stage changes to banking information, validating payment updates through independent channels, and ensuring staff are aware of common fraud indicators. Institutions should also explore the use of AI-driven tools to identify anomalous application patterns and flag potentially fraudulent activity earlier in the lifecycle.
Coordination across financial aid, IT, bursar, and compliance teams is essential to identify and mitigate suspicious activity before funds are released.
Let CBIZ Help
Ghost student fraud is evolving quickly, and the window to proactively reduce exposure is narrowing. Institutions that act now can reduce exposure before losses occur, rather than responding after the fact.
CBIZ is working directly with higher education institutions to assess vulnerabilities, strengthen disbursement workflows, and align fraud prevention strategies with current regulatory expectations. Our team brings a deep understanding of financial aid operations, cybersecurity risk, and compliance requirements, helping institutions take focused, practical steps to reduce exposure.
If your institution has not recently evaluated its disbursement processes, ACH change controls, or fraud detection capabilities, now is the time to act.
Connect with the CBIZ Cybersecurity team to schedule a targeted risk assessment. We can help you identify immediate gaps, prioritize actions, and implement defenses that protect your institution before funds – and reputations – are at risk.
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