Stop Fraud, Not Students: A Balancing Act for Financial Aid Offices and Administrators

AI-driven application fraud is rising fast, but without adequate staffing and resources, prevention efforts risk blocking the very students aid is meant to serve.

Applying for financial aid is one of the most critical actions a low-income student can take to make their postsecondary education a reality. Completing the Free Application for Federal Student Aid (FAFSA) unlocks federal, state, and institutional resources that can bring the costs of college within reach. Each year, the U.S. Department of Education (the Department) selects millions of student applications for a taxpayer safeguard and compliance process known as verification. Financial aid verification is split into three main categories – V1, V4, and V5 – all of which are used to confirm that the income, household size, and identity information reported by a student on their FAFSA is accurate. This process can involve submitting tax records, identification documents, or other materials to resolve potential discrepancies. While the goal is to ensure that limited financial aid resources are distributed appropriately, verification creates a real tension: trying to safeguard public taxpayer dollars without introducing delays, confusion, or additional barriers that disproportionately impact the students who can least afford them, and potentially pushing them out of the educational pipeline.

Across the nation, college and financial aid administrators have warned that the rate of financial aid fraud has surpassed anything they’ve seen in the past, with “ghost students” emerging as a major concern. These bad actors are using stolen or synthetic identities to apply for aid and enroll in colleges with no intent to attend, instead seeking to collect financial aid and then disappear. Community colleges, which often have more open-access admissions and higher volumes of aid applicants, have been disproportionately affected by this trend. While this problem has long existed, the use of advancing technology to scale fraudulent aid applications has surged as it facilitates mass enrollment and can even generate coursework that can appear legitimate.

This is not isolated to one or even a few states. In Minnesota, colleges flagged more than 7,000 fraudulent or suspicious applications in a single year. In Nevada, one college reported over $7 million lost in a single semester due to fraudulent enrollments. And nationally, federal investigators have examined more than $350 million in ghost student fraud cases over the past five years. Unfortunately, the most staggering numbers are coming out of California, where colleges have reported roughly 900,000 fraudulent college applications in 2024 and more than $11 million lost in aid. While the total money lost remains very small compared to total aid, the rise in this activity is swamping limited aid administration capacity and can undermine trust in the program for key stakeholders, including policymakers who allocate the funds for aid.

In response, both states and institutions are acting. Colleges are deploying AI-powered detection tools, implementing stricter identity verification, or front-loading identity verification through their application process, amongst other measures. At the federal level, the the Department is reinstating fraud detection protocols, including identity screenings and cross-agency data checks. Even Congress has begun to respond through the recent introduction of the Student Aid Fraud Oversight and Accountability Act of 2026 (H.R. 7891), the No Aid for Ghost Students Act of 2026 (H.R. 7892), and the FAFSA Verification Efficiency Act (H.R. 7893). Taken together, these efforts signal a growing recognition that fraud prevention must be strengthened. But how it’s done matters for students. A lot.

The California Case Study

For the past few years, the California Community Colleges (CCC) have been fighting an uphill battle against ghost students who are getting their hands on federal, state, and even institutional aid by taking advantage of the community college mission to provide open access to all students no matter when they start their educational journey.

TICAS has learned from financial aid administrators that the AI tools they are using to combat this problem are getting better and increasing detection. Online verification platforms and methods have replaced paper-based systems, allowing students to more easily submit required documents rather than coming in person. And staff at many colleges are proactive in their student outreach to offer support in navigating this process, even with limited resources.

Compliance and protective measures taken by California’s colleges, no matter how thoughtfully designed and implemented, are just one side of this equation. On the other side, we need to track and center the experiences of students with the processes—especially as the Department is stepping in by expanding V4/V5 verification rates. For undocumented students, students from mixed-status families, formerly incarcerated students, foster youth, and others who already navigate institutions with caution, being told “show me your ID” or “come into the office to prove you’re real and that you are as poor as you reported” can feel threatening. Without careful communication, these processes can feel punitive, invasive, and in today’s reality, connected to immigration enforcement or federal data sharing that students fear. This fear is not hypothetical, and addressing it will take time, intentionality, and both fiscal and human resources.

Yet, across California, financial aid offices are being asked to do more with less. Adding identity verification on top of their normal duties of helping students file a FAFSA or CADAA or navigate processes like Satisfactory Academic Progress and professional judgement requests are heavy lifts. The CCC system and its financial aid administrators cannot sufficiently carry out increased, more complex, and student-centered verification practices along with their other work without sufficient resources.

If California wants to protect taxpayer dollars as well as students’ access to an affordable education, the state must adequately fund financial aid offices to do both well and in an equitable way. Widely supported budget requests reflect this reality, such as an existing ask for an additional $10 million ongoing CA Proposition 98 funds to support the Student Financial Aid Administration (SFAA), which many advocates support and the Chancellor’s Office has uplifted. Alternatively, California could implement a reoccurring cost-of-living adjustment to the SFAA base or ensure they earmark a portion of any Student Support Block Grant investments for this purpose.

Regardless of the approach, California has the opportunity to create a national model for balancing program integrity with student access. To do so, it must begin with a sustained state investment in financial aid offices to augment resources that support vital counseling and advising, clear communication, and secure technology.

Looking Ahead

As policymakers and institutions respond across the country, it’s critical that they all intentionally balance program integrity with student access. TICAS offers the following high-level principles to help guide decision-makers grappling with how to address this issue:

1. Ensure all verification processes are clear, transparent, and student-centered, with strong communication to all affected parties about why verification is happening.
2. Center the experiences of students—particularly those from vulnerable populations—who may experience verification as confusing, intimidating, or even unsafe.
3. Prepare multilingual outreach materials for students and families whom English is a second language to clearly explain the reasons for verification, next steps, and other supports.
4. Avoid unnecessarily expanding verification requirements beyond the student applying for aid—especially towards dependents or family members.
5. Protect student privacy and data security, especially as new technologies like AI are introduced and used to mine or filter sensitive data.
6. Provide adequate funding and staffing so financial aid offices can have training to understand these processes and implement them effectively.
7. If colleges choose to build systems that front-load documentation and identity verification through their applications, invest in that infrastructure early and test it thoroughly to ensure it is as simple and easy as possible to complete.