AI used to defraud Community Colleges and taxpayer funds

Parents Forum
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“Nine Republican U.S. representatives are calling on U.S. Education Secretary Linda McMahon and U.S. Attorney General Pam Bondi to investigate financial aid fraud at California’s community colleges. In a separate letter sent Wednesday, state Assemblymember Blanca Rubio, a West Covina Democrat, asked the state to conduct its own audit on the matter.”

This rare moment of bipartisan concern comes after CalMatters reported that fake community college students have stolen more than $10 million in federal financial aid and more than $3 million in state aid in the last 12 months.

“ IN SUMMARY

Scammers have stolen more than $10 million in federal financial aid from California’s community colleges in the last 12 months — more than double what they stole in the prior year.”

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Things will get much worse going forward. Without the assistance that ED has traditionally supplied on its end, scammers will hit schools all over the country. The Department screened for scammers, and they developed methods to identify them along with requirements for identity verification. Clearly, they have not been successful against the bots, but if they aren’t providing robust support to identify fake students, attempts to scam will only increase. Opportunity thrives in a vacuum.

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I work for a community college in PA and we’ve been battling fake students for the past few years. It’s a huge problem, and uses valuable time of already overworked departments to identify fake apps. I know that our IT, Financial Aid, Admissions and Registration departments all have processes in place to help catch these fake students before government distribution of FA funds. I’m not directly involved, but I know it’s an exhausting battle. AFAIK, we’re more proactive than other CC’s in our area. As AI becomes more sophisticated, it will create even more work on our end to stop the bots.

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I am confused. How does a fake AI get money /aid? Don’t you have to get documents to show you need aid etc.

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Financial aid fraud keeps climbing in CA community colleges- CalMatters (referenced in the first post) references the arms race between the colleges’ identity verification methods and the fake students’ ways to get around them. Note that community colleges do have a mission to welcome all (real) students, including those coming from homeless or foster backgrounds who may lack some common identification documentation. Online/distance courses pose additional risks of fake students.

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I can’t address the state aid, because I don’t know anything about the application process for the state aid. As far as federal aid, though, they would have to file a FAFSA. The only thing I can think of is that they are using stolen identities to file the FAFSA. Those same stolen identities would be used to apply to the school. It’s sophisticated beyond my understanding. The fraud I dealt with when I worked in financial aid was real people who would file a FAFSA, enroll in classes, drop the last day of full tuition refund, and pocket the prorated amount of aid they had “earned” to that point. They’d enroll in multiple schools & pull that scam. Their fraud added up, but not as much as the latest fraud scams.

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Yes, that seems to be the gist of it. Scammers use AI to participate in online classes, then drop out and pocket the financial aid.

…”Assemblymember Rubio’s letter calls for a state audit that would examine the scope of fraud and the efforts to prevent it. State legislators will decide this June whether to pursue that audit, which could take years to complete.

California community colleges have been struggling to address fake students and financial aid fraud for years. Last spring, CalMatters reported that scammers continued to evade detection and that community colleges reported giving away over $5 million in federal funds and over $1.5 million in state and local aid. Earlier this month, CalMatters found the problem is only getting worse.

“Allowing this rise in fraud to go unaddressed is negligent on the Community College system, as these bad actors take away opportunities from real students in impacted courses such as accounting, nursing, etc,” wrote the California Republican representatives in their letter.

While students, faculty and community college administrators in California agree that it’s a serious and growing problem, they question whether an investigation or an audit will lead to a better solution.

Fraud is “a legitimate concern,” said Larry Galizio, president of the Community College League of California, which represents the interests of the state’s 73 community college districts — but the letter to the education department and the attorney general is “disingenuous” and “just flat wrong” in claiming that it’s gone unaddressed.

California has allocated more than $150 million since 2022 to improve cybersecurity at its community colleges.

“Blaming the victim and then cutting resources to the very entities that are trying to combat the fraud is not a policy approach that’s going to be effective,” Galizio said.

Overwhelmed with the number of fake students in their classes, “some of our faculty members feel like they’ve been screaming into the void,” said Stephanie Goldman, executive director of the faculty association of California Community Colleges. She said the federal scrutiny is particularly ironic, given that the Trump administration has dismantled the U.S. Department of Education and hampered its ability to investigate fraud.

Representative Young Kim — who flipped her Orange County district in 2020 — led the effort to write the congressional letter. Her spokesperson, Callie Strock, refused to respond directly to criticisms when CalMatters asked about them. She said Kim is still learning about the issue and that “California has a long history of abusing taxpayer dollars.””

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I don’t fully understand all the mechanics of how these fake students have been successful in pulling off this fraud. In some cases, there is certainly identity theft that has led to federal funds going to scammers. The process that scammers have used against us is they apply to our CC, file for FAFSA (almost always as Pell eligible students), self register in fully online classes that have no pre-reqs, and stay in the classes long enough for Pell to distribute the refunds for the unused portion of their grant.

As per federal regulations, we must drop all students who haven’t attended any classes at all within the first three weeks. Those students lose their aid, and funds won’t be distributed at all. I think this requirement was one of the first ways the government tried to keep fake applicants from getting federal funds. But they’ve wised up and now do enough work to get to the federal refund date. In most cases, if we don’t catch them, they just abandon the class after that and end up with F grades. They don’t usually bother to drop the courses once they have their money.

I know our college tracks IP addresses from applicants, looking for apps that come from foreign IP addresses, or multiple apps that come from the same address. Then financial aid and the registrar look for other red flags or mis matching information to help identify the fake apps and flag them for fraud. It’s labor intensive and demands way too much time of our overworked staff.

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I am just not smart enough to pull that off. Lol . I can’t believe people actually do that. I am dumbfounded. This is really a wake up call to me.

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Perhaps the “AI” allows the scammers to have more fake students doing the work in the course long enough to collect the money than the number of fake students that could be maintained if they had to do all of the work by hand.

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And there was a thread about this same issue here on cc 2 years ago! See below):

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Doesn’t FAFSA pay colleges directly?

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Yes, FAFSA pays schools directly. But the Pell grant is more than CC tuition, so students get refunds back on the unused amount a few weeks into the semester. If the scammers aren’t using Pell eligible fake students or stolen identities, they can opt to take out the subsidized and unsubsidized loans, which again results in more money than college tuition. Real students use that money for living expenses. It gets distributed at the same time Pell refunds get distributed. CC’s are targeted in this scam because they are open enrollment and tuition is lower than the Pell grant or loan totals.

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In addition, if the student drops the classes within the period in which all tuition is refunded, the student still “earns” a portion of their Pell & loans based on number of days from start of classes to drop date. Personally, I would change this rule, but it’s federally mandated.

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Another update
…” The scope of the ghost-student plague is staggering. Jordan Burris, vice president at identity-verification firm Socure and former chief of staff in the White House’s Office of the Federal Chief Information Officer, told Fortune more than half the students registering for classes at some schools have been found to be illegitimate. Among Socure’s client base, between 20% to 60% of student applicants are ghosts.

“Imagine a world where 20% of the student population are fraudulent,” said Burris. “That’s the reality of the scale.

At one college, more than 400 different financial-aid applications could be tracked back to a handful of recycled phone numbers. “It was a digital poltergeist effectively haunting the school’s enrollment system,” said Burris.

The scheme has also proved incredibly lucrative. According to a Department of Education advisory, about $90 million in aid was doled out to ineligible students, the DOE analysis revealed, and some $30 million was traced to dead people whose identities were used to enroll in classes. The issue has become so dire that the DOE announced this month it had found nearly 150,000 suspect identities in federal student-aid forms and is now requiring higher-ed institutions to validate the identities of first-time applicants for Free Application for Federal Student Aid (FAFSA) forms….

The strikes tend to unfold in the quiet evening hours when campuses are asleep, and with surgical precision, explained Laqwacia Simpkins, CEO of AMSimpkins & Associates, an edtech firm that works with colleges and universities to verify student identities with a fraud-detection platform called SAFE….

Simpkins told Fortune the scammers have learned to strike on vulnerable days in the academic calendar, around holidays, enrollment deadlines, culmination, or at the start or end of term when staff are already stretched thin or systems are more loosely monitored.

“They push through hundreds and thousands of records at the same time and overwhelm the staff,” Simpkins said….

Maurice Simpkins, president and cofounder of AMSimpkins, says he has identified international fraud rings operating out of Japan, Vietnam, Bangladesh, Pakistan, and Nairobi that have repeatedly targeted U.S. colleges.

The attacks specifically zero in on coursework that maximizes financial-aid eligibility, said Mike McCandless, vice president of student services at Merced College. Social sciences and online-only classes with large numbers of students that allow for as many credits or units as possible are often choice picks, he said.

For the spring semester, Merced booted about half of the 15,000 initial registrations that were fraudulent. Among the next tranche of about 7,500, some 20% were caught and removed from classes, freeing up space for real students.

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I know that it’s a fact that this is a huge problem for some schools, but I honestly don’t understand how this can happen. I don’t understand how the federal systems are approving the FAFSA for dead or ineligible people. Any person can register for a class, but the student isn’t going to get federal aid if the government does its job and rejects a FAFSA for a dead, ineligible or nonexistent person. If this step is not being properly implemented, it’s on Federal Student Aid to fix it.

Once that FAFSA is approved on the federal side, it can easily be used at multiple schools to get aid … the schools have reports from the government that identify students getting Pell at multiple schools in the same semester, but it’s too late at that point if the school issues refunds right away. I used to monitor the reports and resolve federal overawards - it’s a very manual process. We were lucky and were able to resolve these situations … that was some years ago, and most situations were a misunderstanding of rules on the part of the student … but I know that schools are now getting hit hard by these “players” & can’t recoup the money. These schools are having to implement steps to try to stay ahead of the scammers. It’s become a huge time commitment and expense.

I don’t understand how validating identity solves the problem of using dead people’s identities, though, since it’s the government that has the systems to verify deaths and eligibility for federal aid. The focus needs to be on how to identify people who enroll in multiple schools and are receiving aid at multiple schools. It’s important to identify the issues properly and address them appropriately.

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