FinCEN warns of fraud schemes tied to student aid
The Treasury Department’s Financial Crimes Enforcement Network released another
Administrative Matters
FinCEN has noted that some fraud rings use theft and fraud, along with other techniques, to gain access to educational institutions and illegally obtain funds from federal student aid programs. In some cases, genuine students face difficulties in attending classes due to the large number of fraudulently registered “ghost students.” Tax professionals with clients whose children are applying for student aid may find themselves facing problems at tax time from these identity thefts.
To create these ghost students, fraudsters illegally get their hands on personally identifiable information to impersonate the stolen identity and pose as a legitimate student. They can also use artificial intelligence or other tools to overcome identity verification by creating fraudulent documents that combine stolen information with fabricated details, sometimes referred to as fake identities. Victims who are used as part of ghost student schemes, including minors, are often unaware that scammers are receiving federal student aid using their personal information.
In some cases, people willingly give their names to criminals in order to get money, allowing fraud rings to create what is called “straw money.” The fraudsters then place them in educational institutions and receive financial aid payments in their names. Scammers have devised some sophisticated methods of strawman student aid to get federal student aid. Corrupt employees at some educational institutions may act as intermediaries for fraud, using their opportunities to defraud federal student aid programs by recruiting unauthorized students and using educational records. After illegally obtaining student aid funds, fraudsters can launder student aid funds, including through mules, shell companies, and fraudulent accounts.
FinCEN encourages banks and other financial institutions to try to prevent this type of fraud. They can trace student aid refund payments through deposits made directly by educational institutions or through intermediaries. Payments made by the intermediary are usually made by automatic transfer to the Home Office, and the details of the transaction may include the word “refund” and the name of the educational institution or its abbreviation, for example, “Community College Refund” or “LCC REFUND.” In some cases, the recipient can be listed as defined in the transaction, e.g. “LCC EASY John Doe.”
“Every dollar stolen from federal student aid is a dollar taken from taxpayers and deserving students,” Treasury Secretary Scott Bessent said in a statement. “The Trump administration will not tolerate criminals who use government programs for their own ends. Treasury is working with financial institutions and law enforcement to identify these fraudulent schemes, recover stolen funds and punish those involved.”
