Stolen IDs Lead to a Spike in Student Financial Aid Scams

Student financial aid fraud is soaring, thanks to identity thieves. Scammers have stolen millions of dollars by using artificial intelligence and other means to enroll fake students in classes just so they can collect loans and grant funds.

The problem is so bad that the Department of Education in June began requiring colleges and universities to verify the identities of first-time applicants for financial aid. Data “has made it clear that the rate of fraud through stolen identities has reached a level that imperils the federal student aid programs,” the Education Department said.

California, which has 116 community colleges, has been hit particularly hard, according to the Associated Press and CalMatters, an investigative website.

The AP documented that California colleges had 1.2 million fraudulent applications in 2024, with 223,000 “suspected fake enrollments” and more than $11 million stolen. It said that scammers were using AI chatbots to enroll students in online classes, taking spots that real students needed in order to graduate. Some professors discovered that their entire class enrollments were fake.

A chatbot is a computer program that engages in conversation and may sound like a human voice. While chatbots are used in various business practices – mundane as taking an order for pizza – the technology increasingly is being seized on by scammers who masquerade as trusted authorities. Moreover, artificial intelligence is continuing to improve the ability of chatbots to be used in seemingly lifelike conversations that are fraudulent.

In April, CalMatters reported that federal officials were investigating fraud rings at various California colleges. The reporters obtained public records that showed the fraudsters used the identities of 57 different people to steal more than $1.2 million in federal loans. The California Community Colleges Chancellor’s Office reported that 34 percent of its college applicants were fake, the website said.

The AP also reported that the student aid scheme has been prosecuted in Texas, where one scammer pleaded guilty to using the names of prison inmates to apply for student loans, and in New York, where a fraudster admitted to a $450,000 student aid scam.

As with many identity theft schemes, if your name is used to take out a student loan, you may spend months trying to resolve the debt, according to the AP.

Report: Impersonation Scams are on the Rise

A new report from the Identify Theft Resource Center found that impersonation scams, also known as imposter scams, grew 148 percent from 2023 to 2024. Business impersonation made up 51 percent of the cases, followed by financial institution impersonation, which involved 21 percent of the scams.

The fraudsters used spoofed emails and internet searches to impersonate businesses, but relied on inbound phone calls when pretending to be financial institutions, the report said. In a spoofed email, scammers hide their identity by using an address that looks legitimate, like that of a corporation or government agency – typically with subtle changes that consumers may not notice.

While impersonation of government officials was somewhat less common, this tactic jumped 32 percent over the prior year.

The report also concluded that fewer people are reporting they are victims of identity theft, but those who do are suffering greater financial losses. It said their findings were similar to those at the Federal Trade Commission and the FBI. One possible reason: Artificial intelligence enables crooks to target their victims “more precisely, so they don’t need to attack as many people, but those they do attack lose more money,” the report noted.

…And They Can Take Many Forms

Criminals may use phone calls, text messages, emails or even a knock on the door to commit impersonation scams. But the goal is generally the same: to gain the trust of their victims who then provide money or personal information that enables identity theft. According to US law-enforcement officials, people should be on the lookout for a range of imposter scams such as:

Government imposter scams. With the exception of official letters – unexpected communications, such as emails or text messages from individuals claiming to represent agencies like the Internal Revenue Service or the Social Security Administration, could be a scam.

Charity scams. Scammers know that appeals for charitable causes may prompt good-hearted citizens to reach for their wallets. But it is always important to confirm that you are dealing with a legitimate organization.

Tech support scams. Fraudsters who pretend to be computer repair technicians may warn that your computer has a problem or is vulnerable to hackers. But in reality, they are trying to gain access to your equipment and potentially steal valuable personal information.

Grandparent scams. In this well-known fraud, a crook pretends to be your grandchild with a financial emergency, such as the need for bail or an urgent auto repair. This fraud has gotten a boost from new technology that enables voices to be imitated.

Phony Federal Agents Scam Washington, DC-area Residents

In an imposter scam reported by the Washington Post, criminals who pretended to be federal agents defrauded victims out of $700,000 – including a 59-year-old woman in Prince George’s County, Maryland, who lost more than $85,000.

Posing as employees of the Federal Trade Commission, the scammers sent text messages to their victims, including one claiming that their Apple identification had been hacked. The scammers then advised victims to protect their money by withdrawing cash from their accounts and turning it over to them for safekeeping.

County police arrested Zheng Xie, 30, of Flushing, New York, and Jianwei Wang, 27, of Monterey Park, California, the Washington Post reported, and they were indicted by a grand jury in June. They have been charged with multiple crimes, including theft and conspiracy to commit a theft.

Older individuals are often the target of such scams, which exploit people’s willingness to trust others, making impersonation scams an all-too-common example of elder fraud. According to the Post, the average age of impersonation victims in Prince George’s County was 69.

“Fraud and theft are not just financial crimes,” State’s Attorney Tara Jackson told reporters in Prince George’s County. “These crimes are deeply personal, and oftentimes embarrassing. They violate people’s trust, their financial stability and overall sense of safety, and that is why we are committed to educating and empowering our residents with the knowledge and information needed to not fall victim to these scams.”