FinCEN told banks to watch for 'ghost student' fraud that drains federal student aid

Every dollar stolen from Federal student aid is taken from taxpayers and students, Secretary Scott Bessent said on Friday. His department's Financial Crimes Enforcement Network issued an alert the same day, telling financial institutions to detect, prevent, and report suspicious activity tied to fraud against those programs.

FinCEN laid out two schemes. The first builds what it calls ghost students. Fraudsters steal personally identifiable information, sometimes from minors, then pose as legitimate students, and FinCEN said they increasingly use artificial intelligence to generate synthetic identities that fuse stolen data with fabricated details and clear identity checks. The people whose information is used often never know. The second scheme is simpler. Straw students hand over their own information for a fee, and a fraud ring enrolls them and pockets the aid refunds issued in their names.

Some of the help comes from inside. FinCEN said corrupt staff at educational institutions can recruit straw students and manipulate records to keep the money flowing.

The cost is not only public. The alert said fraudulent enrollments can fill seats and leave real students unable to get into classes. FinCEN framed the notice as the latest step in a broader Treasury effort against benefits fraud, and asked institutions to identify the activity and report it.