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Discover how one university implemented a multi-layered fraud prevention strategy

Identifying, Monitoring, and Reducing Application Fraud

As colleges and universities expand online learning and broaden access to education, they are also confronting a new and rapidly evolving challenge: ghost students. During a recent URMIA webinar, Excelsior University leaders Lizz Petroski and Sarah Egerton shared how their institution identified, monitored, and dramatically reduced application fraud through a layered risk management strategy.

Their experience offers valuable lessons for risk managers, enrollment leaders, financial aid professionals, and institutional administrators across higher education.

What Is a Ghost Student?

A ghost student is not a legitimate learner pursuing an education. Instead, these individuals, or organized fraud rings, use fabricated or stolen identities to enroll in courses for the purpose of accessing federal financial aid funds.

The scheme is often straightforward. Fraudsters submit applications, enroll in classes, complete just enough activity to appear academically engaged, and remain enrolled long enough for financial aid to disburse. Once refund checks are issued, they disappear.

The consequences extend far beyond financial losses.

In many cases, real people become victims of identity theft. Individuals may not discover their identities were used until they receive notices regarding student loans or educational debt they never incurred. Institutions must then manage compliance concerns, potential regulatory scrutiny, operational disruptions, and reputational risks. As Petroski emphasized, ghost student fraud is no longer simply a financial aid issue. It is an institutional risk issue, a compliance challenge, and increasingly an identity theft concern.

A National Problem Growing at Alarming Speed

One of the webinar's most striking messages was that ghost student fraud is not isolated to a handful of institutions.

According to statistics highlighted during the presentation:

• More than 200 federal investigations related to student aid fraud and identity-based enrollment schemes are active at any given time.
• Federal authorities have investigated over $350 million in ghost student fraud during the past five years.
• California community colleges reported that 31.4% of reviewed applications showed indicators of fraud.
• Institutions in Utah alone spent more than 15,000 staff hours combating enrollment fraud.

These numbers reveal that the cost of fraud extends well beyond fraudulent aid disbursements. Institutions are dedicating significant staff time and resources to investigating suspicious applications, verifying identities, correcting records, and meeting reporting obligations.

Every hour spent investigating a fraudulent enrollment is time that cannot be spent supporting legitimate students.

Why Is Ghost Student Fraud Increasing?

The presenters pointed to several factors that have contributed to the recent surge.

The Expansion of Online Education

The COVID-19 pandemic accelerated the adoption of online and hybrid learning models across higher education. While increased accessibility has created opportunities for more learners, it has also eliminated many traditional in-person identity verification checkpoints.

Fraudsters can now complete much of the enrollment process remotely, making it easier to exploit institutional vulnerabilities.

Artificial Intelligence

The rise of AI has significantly increased the sophistication of fraud attempts.

Today's bad actors can leverage:

• Synthetic identities
• AI-generated coursework and discussion responses
• Fake documentation
• Deepfake technology for identity verification attempts

These advances make manual fraud detection increasingly difficult and resource-intensive.

Open Access Admissions Models

Many institutions have embraced open-access admissions to expand educational opportunities for underserved populations. While this supports important institutional missions, it can also reduce barriers that previously discouraged fraudulent applicants. As Egerton noted, institutions must find ways to preserve access while protecting against abuse.

The Hidden Costs of Ghost Students

The financial implications of ghost student fraud can be substantial.

Institutions often lose tuition revenue when fraudulent students withdraw or disappear after aid disbursement. They may also face increased bad debt and potential compliance risks if fraud incidents are not handled appropriately.

Operational impacts can be equally damaging.

Fraudulent enrollments:

• Consume admissions and financial aid staff resources
• Distort enrollment reporting
• Inflate institutional performance metrics
• Occupy course seats intended for legitimate students
• Influence strategic planning decisions based on inaccurate data

For institutions that pay faculty based on enrollment counts, those impacts may extend directly to instructional budgets and workforce planning.

Excelsior University's Wake-Up Call

Excelsior University, a predominantly online institution serving adult learners, experienced a dramatic increase in fraudulent applications.

Historically, the university saw manageable levels of fraud. However, following the pandemic and the rapid advancement of AI technologies, application fraud surged dramatically.

One important discovery was that previous fraud activity had not been consistently tracked. Once the university analyzed the data systematically, the scope of the problem became impossible to ignore.

The rising trend elevated ghost student fraud from an operational concern to a significant institutional risk requiring executive attention.

Building a Layered Defense

Rather than relying on a single solution, Excelsior implemented a multi-layered fraud prevention strategy.

1. Multi-Factor Authentication

The first step introduced multi-factor authentication during the admissions process. Applicants must verify their phone number immediately after creating an admissions account. If they fail verification multiple times, they are required to speak directly with admissions staff.

This simple step created little inconvenience for legitimate students but significantly increased friction for fraud rings submitting large volumes of applications.

2. Predictive Risk Modeling

Excelsior partnered with its analytics and data science teams to build a predictive fraud model.

The model examines patterns and characteristics commonly associated with fraudulent applications, including:

• Generic email addresses
• Newly created contact information
• Application timing patterns
• Program selection trends
• Communication behavior
• Identity inconsistencies across records

By combining these indicators, the model generates a risk score that allows staff to prioritize reviews more effectively.

The university reports that its model currently operates at approximately 96.5% accuracy.

3. Third-Party Identity Screening

The final layer adds external identity verification tools capable of accessing broader databases and detecting risk signals unavailable internally.

Applicants are categorized as low, medium, or high risk:

• Low-risk applicants proceed normally.
• Medium-risk applicants may be asked to provide additional identification.
• High-risk applicants must complete more rigorous verification steps, including live photo or video validation.

Notably, Petroski reported that none of the high-risk applicants required to complete live video verification actually appeared for their appointments.

The Results

The impact was immediate and dramatic.

Before implementation of mitigation strategies, 22.8% of Excelsior's admissions applications were considered suspicious.

After introducing multi-factor authentication, that percentage dropped to 12.6%. Following deployment of the predictive risk model, suspicious applications decreased further to just 4.5%.

These results demonstrate that institutions do not necessarily need to eliminate fraud entirely to make significant progress. Increasing friction for bad actors while maintaining a smooth experience for legitimate students can substantially reduce risk.

Reporting Matters

Institutions participating in federal Title IV aid programs have reporting responsibilities when fraud is suspected.

Petroski strongly encouraged institutions to report suspected financial aid fraud to the US Department of Education's Office of Inspector General (OIG), even when aid has not yet been disbursed.

An important takeaway from the webinar was that institutions should document everything. Seemingly minor patterns and details may later help investigators identify broader fraud networks operating across multiple institutions.

Key Lessons for Higher Education Leaders

The webinar closed with several important takeaways:

• Ghost student fraud is a nationwide challenge affecting institutions of all sizes.
• AI is accelerating both the volume and sophistication of fraud attempts.
• Fraud prevention requires a layered approach combining preventive, detective, and corrective controls.
• Cross-functional collaboration among admissions, financial aid, academic affairs, risk management, IT, and executive leadership is essential.
• Data analysis is critical for identifying trends and measuring mitigation effectiveness.
• Institutions must balance fraud prevention efforts with their mission to provide equitable access to education.

Perhaps most importantly, ghost student fraud should be viewed as an enterprise risk, not merely a financial aid issue. As higher education continues to evolve, institutions that proactively build fraud detection and identity verification into enrollment processes will be better positioned to protect students, preserve resources, and maintain trust in the educational system.

The ghosts may be getting smarter, but as Excelsior University's experience shows, institutions can successfully fight back with data, collaboration, and a layered defense strategy.

URMIA members can view the webinar in its entirety when logged into the URMIA website.

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