Minnesota ‘ghost students’ stole $12.5 million in loans, sparking calls for new safeguards

Nearly 2,000 “ghost students” in Minnesota stole $12.5 million in taxpayer-funded grants and loans, Education Secretary Linda McMahon recently revealed in a letter to the state’s governor. 

The letter states that “ghost students” are financial aid applicants who “were not ID-verified and often did not live in the United States, or simply did not exist.” The fake applicants “collected checks from the federal government, shared a small portion of the money with the college, and pocketed the rest—without attending the college at all.”

The letter accuses Minnesota’s political elite of “turn[ing] a blind eye and even help[ing] facilitate the laundering of money that was meant to help America’s least fortunate.”

While financial aid fraud is not new, certain technological advancements could be making its practice easier, one expert told The College Fix.

Los Angeles Pierce College Professor of Criminal Justice Kim Rich told The Fix via email that she first noticed the “ghost student” phenomenon firsthand when she led an online class during the COVID pandemic.

After discovering that “bot accounts” comprised nearly half of the enrollment in her class, she began writing, teaching, and campaigning on the issue in California.

Various advancements in technology, when taken together, give new opportunities for fraudsters to engage in the “ongoing pilfering of American taxpayer dollars and identity theft,” she said. 

Rich said some contributing factors include distance and online education, eliminations and reductions in student identity verification, and a lack of consequences.

When asked about the role that higher education institutions play in such cases, Professor Rich said, “There are several California community colleges that have implemented procedures to greatly reduce the instances of application/enrollment/financial aid fraud.” 

Where safeguards are established and enforced, colleges, universities, and governments are capable of preventing billions of dollars of fraud. When removed or made optional, they cost taxpayers millions, she said.

Similarly, an AI expert told The Fix that new safeguards “against the weaponization of technology” need to be put in place to prevent this fraud.

Peyton Hornberger, communications director with The Alliance for Secure AI, said, “How confident do you feel our current systems are at preventing fraud? Scam phone calls and texts are almost indistinguishable from a real person.” 

The Alliance for Secure AI is a nonprofit organization that educates the public about the implications of advanced AI to protect society from its harmful effects.

Hornberger said, “Powerful technology, like advanced AI, is being used for financial fraud, and we expect the repercussions to get more dramatic. Without safeguards, advanced AI makes it easy for bad actors to exploit other people.”

According to the Department of Education’s December letter, the federal fraud prevention system prevented $1 billion of financial aid fraud over the last year. The department “implemented enhanced fraud controls such as mandatory identity verification for certain first-time applicants.”

The College Fix contacted the Department of Education, the Minnesota Department of Education, Minnesota Department of Higher Education for comment and did not receive a response. The National Center for Higher Education Management Systems declined to comment.

Minnesota isn’t the only state suffering from this problem.

“Ghost students” continue to steal millions in financial aid from the California Community College System, The College Fix previously reported.

Secretary of Education Linda McMahon said $1 billion in fraudulent financial aid is paid out to scammers in California annually.