Understanding the Crackdown on FAFSA Fraud

Earlier this month, the House of Representatives passed the No Aid for Ghost Students Act, which would require the Department of Education to screen federal aid applications for potential fraud in response to schemes that costs colleges and universities millions of dollars annually.

The legislation, sponsored by Republican Rep. Burgess Owens of Utah, would essentially codify an initiative the department had already launched independently this spring. Dubbed “Real-Time Fraud Detection,” the new Free Application for Federal Student Aid feature screens all applicants in what financial aid experts have called a major win for institutions that have been fighting these schemes alone for years.

The legislation itself has been somewhat more controversial, passing largely along party lines; only 36 Democrats voted with Republicans to advance it. Rep. Bobby Scott, the top Democrat on the House Education and Workforce Committee, said on the House floor that Congress should wait and see how the department’s real-time detection system works before making it permanent.

“Codifying this new system, without assessing its effectiveness, just doesn’t make any sense,” he said. Republicans, however, say the legislation offers a “common-sense solution” to the issue.

The No Aid for Ghost Students Act is one of three bills that House lawmakers have advanced this year to combat FAFSA fraud.

What Is FAFSA Fraud?

Bad actors have been stealing financial aid funds for at least 10 years, according to Karen McCarthy, vice president of public policy and federal relations at the National Association of Student Financial Aid Administrators. At first, the fraudsters primarily targeted open-access institutions, where students didn’t have to provide as much information to enroll, but the scams have expanded over the years.

“I would say that we see it pretty much almost everywhere. It’s definitely still prevalent at those types of institutions, but I would say almost all institutions have dealt with some type of identity fraud at some level at this point,” she said.

Here’s how it works: Fraudsters, sometimes referred to as “ghost students,” use stolen identities to apply for federal aid and loans. Once they have the money in hand, they vanish.

According to EdSource, an education news outlet covering California, perpetrators have become increasingly skilled at avoiding detection, pretending to be under age 18 or homeless to avoid certain verification requirements. Others even take a full semester of courses in order to then steal aid the next semester.

ED officials have said that the prevalence of these scams skyrocketed during COVID-19, when online programs, which most financial aid scammers apply for, became widespread. The scams have also increased with the rise of generative artificial intelligence, as some scammers use those tools to send mass applications.

How Does Fraud Affect Institutions?

Financial aid fraud can be costly for universities, which have to pay the stolen money back to the federal government. There’s no clear estimate of how much these scams have cost universities in total, but figures out of California estimate that the state’s 116 community colleges lost almost $2 million in just the first quarter of 2026. According to a recent state audit, eight Utah public colleges lost as much as $1 million to the schemes in 2025. The federal government has said it curbed $1 billion in attempted financial aid fraud in 2025.

Some states and individual institutions have taken their own steps to combat FAFSA fraud. Most California community colleges now use AI to screen financial aid applicants, for example, which has significantly decreased the number of successful scams in recent years.

Historically, institutions themselves have been responsible for weeding out scammers. But as the volume of scams has surged, financial aid offices have said that they don’t have the bandwidth to do so and have implored the federal government to intervene. The Education Department responded to the calls by adding the new fraud-detection features to the financial aid application.

The scams also leave the individual whose identity was stolen with debt, a damaged credit score and difficulty securing real financial aid in the future.

How Does Real-Time Detection Work?

ED first said it would make tackling FAFSA fraud a priority in 2025 and announced Real-Time Detection earlier this year. The tool was rolled out in April for the 2026–27 FAFSA, and the department has since retroactively screened any applications filed before the rollout.

The fraud-detection software analyzes the behaviors of applicants as they fill out the FAFSA, and if they exhibit enough signs of fraud, they’ll be prompted to verify their identity on camera. If they opt not to do so or the verification isn’t successful, their application will be rejected, alerting institutions not to disburse funds to them.

The department said earlier this month that the new system has “prevented more than $100 million from falling into the hands of fraudsters.”

The details of how, exactly, the FAFSA screens for those red flags aren’t publicly available, because ED didn’t want to give fraudsters information they could use to get around the system.

According to McCarthy, this new system should take the burden of FAFSA fraud detection almost entirely off institutions.

“The school doesn’t have to reach out [to potential scammers] and say, ‘Hey, you’ve been selected, I need you to send us a copy of your ID,’” she said. “The only requirement is that if a student who has one of these rejected FAFSA comes forward [and] they’re an actual person, they appear in the aid office or reach out … the institution has to offer them the opportunity to submit identity documents. But the idea is that the pre-screening will weed out the vast majority of potentially fraudulent applications.”

Although financial aid administrators have largely praised the tool as it exists now, McCarthy noted that there’s some concern about the language in the No Aid for Ghost Students Act, which gives ED broad permission to implement identity screenings on those filing FAFSA to determine if there is “reasonable suspicion” of fraud. College access advocates have warned that increased identity-verification requirements could be burdensome or confusing for students and families, especially those who are not native English speakers, and have stressed the importance of data security for any sensitive documents students must submit.