WASHINGTON — The Treasury department is urging banks, credit unions and other financial institutions to strengthen efforts to detect and report fraud targeting federally funded student aid programs, warning that organized criminal rings are increasingly using stolen and synthetic identities to steal taxpayer dollars.
The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) on Friday issued an alert outlining how fraudsters exploit federal student aid programs and directing financial institutions to identify suspicious activity and file Suspicious Activity Reports when appropriate.
According to FinCEN, organized criminal groups are using stolen personal information, fabricated or “synthetic” identities and so-called “ghost students” to fraudulently enroll in colleges and universities, obtain federal financial aid and divert the proceeds into accounts they control. The schemes not only result in losses to taxpayers but also can prevent legitimate students from enrolling in courses because fraudulent enrollments occupy limited class seats.
“Every dollar stolen from Federal student aid is a dollar taken from taxpayers and deserving students,” Treasury Secretary Scott Bessent said in a statement accompanying the alert.
FinCEN said financial institutions play a critical role in disrupting the schemes because they are often in the best position to identify suspicious account activity associated with fraudulent student aid disbursements. The agency urged institutions to strengthen monitoring programs, enhance customer due diligence and promptly report suspicious transactions to law enforcement through Suspicious Activity Reports.
Common Characteristics
The alert identifies several common characteristics of the fraud schemes, including:
- The use of stolen or synthetic identities to apply for federal student aid.
- Fraudulent enrollment in colleges or universities by “ghost students” who do not intend to attend classes.
- Opening bank accounts to receive student aid payments under false identities.
- Rapid movement or withdrawal of student aid funds after they are deposited.
- Activity linked to organized criminal networks conducting similar transactions across multiple institutions.
FinCEN also provided financial institutions with red-flag indicators to help identify potentially fraudulent transactions and said institutions should include the alert’s designated key term when filing related Suspicious Activity Reports to assist law enforcement in tracking the schemes.
Stepping Up Efforts
The warning comes as federal agencies have stepped up efforts to combat fraud involving student aid programs. In April, the U.S. Department of Education launched a nationwide fraud prevention initiative that added real-time identity screening to the Free Application for Federal Student Aid (FAFSA) process and began reviewing previously submitted applications using enhanced fraud-detection technology.
Treasury said cooperation between financial institutions and law enforcement will be essential to disrupting organized fraud rings that continue to exploit federal education assistance programs and siphon funds intended for eligible students.
