Fighting fraud on campus

Fraud schemes are targeting federal student aid programs, and now institutions have been warned.

The Financial Crimes Enforcement Network (FinCEN) consulted with the FBI and other federal authorities to issue a recent alert about suspicious activity targeting approximately $131 billion in annual Federal Student Aid awards.

The alert, FIN-2026-Alert004, urges institutions to detect, prevent and report fraud-related activity and identifies two primary types:

• Ghost students: Fraud rings use stolen or synthetic personally identifiable information, increasingly generated with artificial intelligence tools, to impersonate applicants, enroll them in institutions and collect financial aid refunds. Victims may be unaware that fraud has occurred.
• Straw students: Individuals knowingly provide their own information, enroll in academic programs and transfer resulting aid refunds to organizers of broader fraud schemes.

FinCEN also warned that institutional insiders can enable these schemes by manipulating enrollment or academic records, or by assisting with recruitment efforts. Earlier this year, the Department of Justice established the National Fraud Enforcement Division (the “Fraud Division”) to escalate anti-fraud enforcement with dedicated resources and advanced technology capabilities. More recently, the Fraud Division specifically indicated that prosecutors will focus on protecting benefit and grant programs, including student loans.

As a result, institutions are facing increased attention to their admissions processes, financial aid administration and institutional control environments. The Department of Education reported preventing $1 billion in student aid fraud during 2025, and enforcement activity continues to increase. 

While the FinCEN alert is focused on student aid fraud, it reflects a broader set of fraud, compliance and integrity challenges that are confronting higher education institutions.

Boards, finance leaders, legal teams and administrative teams increasingly face questions about whether existing controls remain effective in a rapidly changing risk environment. Six emerging trends are contributing to that pressure.

1. AI-enabled identity fraud

Fraudsters are using AI capabilities to bypass identity verification processes, create synthetic applicants and generate convincing supporting documentation. The same technologies can also produce coursework and communications that complicate traditional review procedures. 

2. Third-party and vendor exposure

Institutions depend on a range of external partners, including enrollment management providers and refund-disbursement intermediaries. Each relationship introduces potential vulnerabilities and additional regulatory scrutiny. 

3. Athletic compliance developments

Executive Order 14400 and other recent changes related to name, image and likeness programs, revenue-sharing arrangements, NCAA core guarantees and new athletic oversight structures have expanded the scope of college athletic compliance. Institutions must now address a broader range of compliance obligations, including student-athlete health and wellness, financial literacy, career preparation, Title IX requirements, sports betting risks and legal and financial oversight. At the same time, they must manage increasing fraud, regulatory and reputational risks. 

4. Insider threats and control weaknesses

Manipulation of enrollment records, misuse of financial aid funds and inappropriate access to institutional systems remain persistent areas of concern. These risks often require a combination of governance, monitoring and fraud-risk assessment activities to identify potential vulnerabilities. 

5. Cybersecurity and compliance pressures

Higher education institutions continue to face significant cybersecurity threats while navigating an increasingly complex compliance landscape. Together, these challenges can increase both operational and regulatory risk. 

6. Expanded federal oversight

With evolving oversight structures and increased involvement from federal agencies, institutions may face greater consequences when control deficiencies remain unaddressed. Enforcement authorities are placing greater emphasis on fraud prevention, reporting and institutional accountability. 

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To address these emerging trends, institutions must do more than respond to individual incidents. They must broadly evaluate how they identify, manage and monitor fraud risks across student aid, admissions, athletics and third-party relationships.

Some key areas for fraud risk assessment include:

• Governance and oversight of fraud risk management
• Identity verification and applicant validation controls
• Financial aid disbursement and refund monitoring
• Third-party risk management processes
• Investigative response capabilities
• Compliance training and awareness programs
• Data analytics and ongoing monitoring activities

With a stronger fraud risk framework, institutions can proactively identify threats earlier, improve response readiness and support compliance with evolving regulatory expectations.

Proactive leaders in higher education can ensure a fraud risk framework assessment that incorporates and complements a series of specific actions:

• Fraud risk assessment should focus on identifying and prioritizing institutional fraud exposures across financial aid, admissions and third-party channels.
• Anti-fraud maturity assessment can evaluate governance, controls, investigations and monitoring against leading practices.
• Monitoring and analytics can help institutions identify unusual activity and emerging fraud patterns.

The latest FinCEN alert serves as another indication that the fraud threats to higher education are becoming more sophisticated, interconnected and difficult to detect. As fraudsters increasingly leverage AI, third-party channels and insider access, institutions should consider whether their control environments, monitoring capabilities and compliance programs are equipped to address evolving risks.

An updated anti-fraud blueprint and proactive assessment of fraud risk management capabilities can help institutions strengthen their financial aid integrity and reduce regulatory exposure in the face of emerging threats.