Ghost Students, Real Losses: How Higher Ed Can Stop AI-Powered Financial Aid Fraud

Watch on YouTube: https://www.youtube.com/watch?v=AJhghXYnehI

“Ghost students” are no longer a fringe problem. They’re a fast-scaling form of identity-based fraud that targets online enrollment workflows – especially at open-admissions institutions – and drains time, resources, and financial aid dollars meant for real learners. (Denver 7 Colorado News (KMGH))

VerifiNow recently spoke with Denver7 Investigates about what we’re seeing on the ground: fraud rings using stolen and synthetic identities, fake IDs on video calls, and automation to blend in long enough to trigger aid disbursements. 

This post breaks down what “ghost student” fraud looks like today, why it’s accelerating, and a practical, student-friendly approach institutions can take to reduce risk – without turning access into a barrier.

What are “ghost students”?

Ghost students are fraudulent identities (stolen or synthetic) used to apply, enroll, and seek federal student aid, often in online programs. The goal is simple: get through enrollment and financial aid processes, collect funds, and disappear – sometimes leaving real people with surprise accounts or debt in their name.

Investigators describe the problem as widespread. ABC News reports federal investigators have 200+ open cases related to these scams and that the federal government has investigated $350M+ tied to “ghost student” schemes (and that’s only what’s been found and adjudicated). 

Why the problem is accelerating

Several forces have converged:

1) Online learning expanded the attack surface

As more enrollment and learning shifted online, fraudsters gained more opportunities to exploit remote processes. 

2) Open enrollment + limited friction = easy scale

Community colleges are often targeted because accessibility is a feature – and fraud rings attempt to weaponize that accessibility. 

3) AI and automation help fraudsters “look legitimate”

Reports describe scammers joining live Zoom sessions and holding up fake IDs, while others use AI to simulate participation and coursework long enough to avoid detection. 

The real-world impact on campuses (and students)

Ghost student fraud isn’t just a financial loss line item. Institutions report:

• Operational disruption: admissions, financial aid, and IT teams spending significant time investigating suspicious applicants and cleaning up enrollments. 

• Seat blocking: fake enrollments can occupy seats and waitlists, making it harder for legitimate students to register. 

• More friction for real students: when fraud rises, everyone feels the drag – more manual checks, slower processing, and more burden on those who truly need aid. 

• Harm to identity theft victims: some victims only learn about the fraud when they discover accounts or obligations they never created. 

A Colorado example underscores the scale problem: an Arapahoe Community College leader recalled a weekend with 900+ applications that appeared to originate within a five-mile radius. (Denver 7 Colorado News (KMGH))

What government action signals about where things are heading

In June 2025, the U.S. Department of Education announced new identity validation efforts to combat student aid fraud, including requiring schools (in specified scenarios) to validate identity using an unexpired government-issued photo ID presented in person or via live video conference, and preserving a copy of the documentation. (U.S. Department of Education)

Whether requirements vary by program or award year, the direction is clear: identity verification is becoming more central to protecting student aid programs – and institutions will need approaches that are both effective and equitable. (U.S. Department of Education)

Common “ghost student” patterns to watch for

Fraud rings change tactics quickly, but schools repeatedly report patterns like:

• High-velocity applications (sudden spikes over weekends/overnight)

• Geographic clustering (many applicants tied to the same small area or inconsistent location signals) 

• Repeated/linked attributes (similar emails, devices, IP ranges, phone numbers, mailing addresses)

• Mismatch signals (PII that doesn’t align with ID data, low-quality document images, or inconsistent identity attributes)

• “Participation theater” (minimal engagement punctuated by just enough activity to avoid removal until aid disburses)

The key: no single indicator proves fraud. What works best is layering and risk-based decisions.

A layered defense that won’t punish legitimate students

The most effective strategy we see is a layered, step-up model – where most applicants experience a smooth path, and only higher-risk cases see additional verification.

Layer 1: Identity proofing at application (lightweight, fast)

Start with checks that can be completed quickly and remotely:

• Government ID validation (document authenticity + data extraction)

• PII consistency checks

• Risk signals (velocity, duplication, device/network intelligence where appropriate)

Layer 2: Biometric match + liveness (prove the person is real and present)

Ghost student tactics increasingly involve fake or manipulated identity artifacts. Adding liveness detection helps confirm the applicant is a live person—not a replay, mask, or synthetic injection.

Layer 3: Step-up verification at high-risk moments

Instead of forcing heavy checks on everyone, apply step-up at moments that matter most, such as:

• First login / onboarding

• Course add/drop windows

• Financial aid disbursement milestones

• Bank account changes

• Password reset / account recovery

This approach aligns with the broader direction of live identity validation expectations (e.g., live video-based checks) while keeping friction targeted. 

Layer 4: Continuous monitoring + faster response loops

Fraud rings iterate. Schools need:

• Clear escalation workflows between admissions, financial aid, and IT

• Audit trails for reviews and decisions

• Rapid “containment” actions (hold disbursement, disable suspect accounts, require step-up)

Where VerifiNow fits in

In our Denver7 interview, we discussed how identity verification can help institutions identify fraudulent applicants earlier – before they enroll and before aid is disbursed. (Denver 7 Colorado News (KMGH))

VerifiNow supports a layered approach that includes:

• Government ID verification

• Biometric matching

• Liveness detection

• Configurable step-up verification

• Integration-friendly workflows to fit enrollment, student systems, contact centers, and remote support processes

A practical “next 30 days” checklist for higher ed teams

If you’re building a near-term response plan, start here:

1. Map your fraud exposure points – Application, account creation, first login, add/drop, disbursement, account recovery

2. Define what triggers a step-up – Velocity spikes, attribute reuse, location anomalies, identity mismatch, suspicious participation patterns

3. Implement identity proofing + liveness for flagged cohorts – Keep the default path simple; reserve step-up for risk

4. Create a cross-functional response playbook – Admissions + financial aid + IT + compliance: who does what, how holds are placed, how appeals work

5. Measure student friction – Track completion rates, time-to-verify, support tickets, and appeal outcomes to ensure equity and access remain central

Final thought

Ghost student fraud is evolving quickly because the tools to scale deception are getting cheaper and more automated. But the solution doesn’t have to be “more friction for everyone.” With risk-based identity proofing, liveness, and step-up verification at the right moments, institutions can protect aid programs and reduce operational burden – while keeping doors open for the students who genuinely need access.