Federal college aid scams soaring, ‘easy’ to get money online with phony student applications

Scams targeting Pell Grants and federal student loans have surged as lawmakers pour more money into higher education to shore up flagging enrollment.

Phony student aid applications using names taken by identity theft netted about $100 million over the past 12 months, said the LexisNexis Risk Solutions’ government group, which works with federal agencies to combat the schemes.

That was up from $50 million a year during the COVID-19 pandemic and less than $10 million a year before 2020, the New York-based software company told The Washington Times.

Legislation for taxpayer-subsidized tuition, recent cyberattacks on state motor vehicle records and the rapid growth of artificial intelligence bots such as ChatGPT indicate that college aid scams could become “a billion-dollar enterprise” in coming months, said Haywood Talcove, government group CEO at LexisNexis.

“We have government leaders saying we need to make it easier for people to get this money, but they’re taking away the very tools that protect you when they do that,” Mr. Talcove told The Times. “Here you have large sums of money and an antiquated system. Criminals are like moths to the light.

“It’s been going on for decades, but it accelerated during COVID, when no one had to go to school in person,” he added. “It’s really easy to get this money online. It’s not a hard lift.”

Experts say financial aid fraudsters started finding more success with community college aid applications during pandemic shutdowns, when government officials poured billions of dollars of stimulus money into higher education and schools switched to remote learning. The scams grew as pandemic unemployment benefits and small business loans dried up, leaving cybercriminals with fewer options for plunder.

Organized crime networks have started testing the ability of chatbots such as ChatGPT to beat the admissions process at selective four-year colleges that require more financial aid than two-year colleges, according to LexisNexis.

The Education Department inspector general’s office said it is investigating 48 student aid fraud rings nationwide.

“The department continuously takes steps to protect the integrity of the federal student aid programs,” an Education Department spokesperson told The Times. “Among other efforts, we regularly work with law enforcement partners to detect, investigate, and prosecute fraudsters, and we also regularly emphasize to financial aid professionals the importance of fulfilling verification requirements, particularly those focused on identity and fraud.”

The National Association of Student Financial Aid Administrators, a nonprofit college financial aid officers group, said no national database tracks the scams.

“It is crucial to strike a delicate balance between fraud prevention and student access to education,” Dana Kelly, a vice president at the association, told The Times. “By employing advanced technologies, clear policies, supportive systems and collaboration, we can mitigate fraud risks while ensuring that legitimate students can pursue their educational goals without unnecessary barriers.”

Fraud investigators said gangs of five to 10 criminals plan most college aid scams on social media channels such as Telegram and WhatsApp. Gang members include “mules” in their 20s, who steal driver’s licenses and pose as college students, and bosses ages 35 to 50, who mastermind the capers.

The mules also steal personal information from U.S. Postal Service mailboxes to create fake IDs. That lets them fetch information from credit bureaus and banks.

In a typical scam, fraudsters use fake driver’s licenses based on stolen information to apply online for college aid through the Department of Education. Aid amounts at the most selective schools can range up to $20,000 per Pell Grant, requiring no repayment, and up to $70,000 for a student loan, which requires repayment.

Once the gang members are notified that they have been approved for a federal grant or loan, they sit through a couple of classes online or send a mule to do so, fulfilling college attendance requirements to receive financial assistance. They then drop out of college and pocket the rest of the money, which the government sends them as a refund.

Months later, the identity theft victims get notices about owing money on college loans they never received. Those who apply for Pell Grants discover that the government thinks they already have the funding, leaving them rejected for the aid.

“I would say 90% of the fraud happens at the community college level because every applicant gets in,” said Mr. Talcove of LexisNexis. “It also happens at schools offering remote learning — any school with easy and open admissions.”

‘More advanced’ scams

The California Community Colleges Chancellor’s Office said about 20% of applications to the state’s 116 community colleges are scams. That includes more than 460,000 of the 2.3 million requests sent to the state’s online application system since July.

Community colleges must step up online security to confront the deepfake technology of generative AI that has made it easier for criminals to process fraudulent grant and loan applications in seconds, said Tyrone Howard, an education professor at the University of California, Los Angeles, who specializes in racial equity.

“Various scams have been happening for decades when it comes to higher education,” Mr. Howard said in an email. “The challenge is that now with social media [and] AI, the scams have gotten so much more advanced.”

Georgia State University criminologist David Maimon said most college aid scammers target institutions in California, Florida, New York, Illinois and Pennsylvania. These states traditionally have high rates of organized crime.

“It’s more difficult to scam money from the banks than the government at this point,” said Mr. Maimon, who directs the Evidence-Based Cybersecurity Research Group at GSU. “The criminals brag about it, posting screenshots of their aid letters on the dark web. The government has improved since the pandemic started, but the criminals have improved as well.”

Mr. Maimon, whose team tracks scammers digitally, said the government must start checking the credit histories and spending habits of student applicants as thoroughly as commercial banks do for credit card applicants.

“Even if you need to be there physically, you can manufacture a fake driver’s license and send one of your mules to sit in class and collect the money,” he said. “Online, you can now fetch as much information as you need about anyone to get college aid money.”

The amount of state and federal funding pouring into higher education during the pandemic has given criminals a reason to salivate.

State funding for public universities grew 4.9% without adjusting for inflation last year and surpassed pre-recession spending per student for the first time since 2008, the State Higher Education Executive Officers Association reported on May 25.

State and local government funding for higher education totaled $120.7 billion, including more than $2.5 billion in federal stimulus funding. Among public schools, two-year institutions received $55 per student and four-year institutions $169 per student in federal stimulus money.

Multiple reports show that higher education enrollment and tuition revenue have declined during the pandemic. More high school graduates cite rising costs as a reason for skipping college.

It takes several years for the government to catch and convict collegiate fraudsters.

In November, Karen Warren, 43, of Danville, Virginia, pleaded guilty to using the personal identifying information of others to receive at least $264,000 in federal student loans from 2013 to 2018. She faces up to 15 years in prison for falsifying the Free Application for Federal Student Aid at online universities, according to the U.S. attorney general’s office for the Western District of Virginia.

One obstacle to cracking down on fraud is that government and college officials don’t want to make it harder for legitimate students to access federal financial aid, said Peter Wood, president of the conservative National Association of Scholars.

“Colleges and universities have long been lax in verifying student identities,” said Mr. Wood, a former associate provost at Boston University. “As they face significant drops in enrollment, community colleges in particular are reluctant to impose the sorts of bureaucratic controls that would deter the scammers.”