Financial aid fraud is growing at California’s community colleges


The Los Angeles Community College District, which includes East Los Angeles College and eight other colleges, is one of many community college districts that have been victims of financial aid fraud.

Michael Burke/EdSource

Since the Covid-19 pandemic, California’s community colleges have been plagued by scammers who pose as students and enroll to steal financial aid — and now it’s getting even worse. 

The state’s 116-college system has lost more than $7.5 million to financial aid fraud this year, state data shows. That’s already much higher than the colleges reported losing all of last year. Most of it is federal aid, in the form of Pell Grants intended for low-income students. 

Colleges have increased their efforts to detect and deter the fraud through both more human interaction and automated detection. Officials believe they are getting better at doing so, but the increasing losses show that the college system is still vulnerable to scammers, who are often part of sophisticated crime rings, some overseas. 

Community colleges have long been susceptible to fraud, since they are generally open access and usually don’t deny admission to students who meet basic requirements as the more selective University of California and California State University do. The problem was made worse by the Covid-19 pandemic. The shift to remote instruction “created fertile ground” for fraudsters, said Paul Feist, a spokesperson for the chancellor’s office overseeing California’s community colleges. The scammers wanted to get their hands on the nearly $2 billion in federal stimulus dollars available for emergency student aid available across the colleges. 

That stimulus aid is now depleted, but the fraudsters aren’t slowing down, according to the data EdSource obtained through a public records request. In 2024, through September, community colleges in California reported disbursing more than $7.6 million in aid that they later wrote off as fraud. The data was provided to EdSource in late October, but the system did not yet have October data available.

The $7.6 million is up from about $4.4 million that was reported lost all of last year. And that was much larger than the $2.1 million that was reported lost between September 2021 and the end of 2022. September 2021 is when the state chancellor’s office asked colleges to begin reporting monthly about application, enrollment and financial aid fraud. EdSource requested those reports via the state’s Public Records Act. In response, the state shared data on the amount of fraud reported each month but redacted the names of individual colleges. 

Some officials attribute the latest spike in fraudulent activity to the Department of Education rolling back verification rules for the Free Application for Federal Student Aid (FAFSA), requiring colleges to verify fewer applications. Fraudsters may have seen those changes and sensed an opportunity to get their hands on aid. 

Pretending to be legitimate students, the fraudsters apply online for admission. Some frauds are caught there, but those who successfully get admitted and enroll in classes can request financial aid, which colleges often distribute to personal bank accounts via direct deposit. 

Some colleges, as a result, are going back to the old-fashioned method of requiring students to show up in person and prove they are real before they can become eligible for aid. Others, acknowledging the possibility of human error, are also turning to automated methods, including using artificial intelligence to detect suspicious applicants. 

It is also likely that the colleges are more consistently reporting the fraud. When the chancellor’s office first began asking the colleges to report monthly, there was only “modest participation,” a chancellor’s office official said in a 2022 memo. Now, colleges are reporting at higher rates, though some have still not submitted their reports for months. College officials also believe they have improved at detecting fraud over the past three years.  

Feist said it can take more than six months from when a scammer applies online for colleges “to detect, investigate and confirm” the fraud. He added that he expects the college system to have better information about the scope of the fraud by the end of this year.

The scams can have consequences for actual students. With a finite number of seats for each course, real students are often left on waiting lists and unable to enroll in necessary classes because fraudsters are taking up space.

For the colleges, combating the fraud is a never-ending battle. They have to constantly adapt to the fraudsters, who themselves evolve and come up with new tactics. 

“This past year, essentially, we would think we’re a step ahead and then the next day we would be a step behind. We were always playing cat-and-mouse,” said Nicole Albo-Lopez, vice chancellor of educational programs for the Los Angeles Community College District. 

Fraud going up

In total, colleges since fall 2021 have reported distributing $14.2 million in financial aid that they wrote off as fraud. Federal aid has accounted for the majority of that, but colleges have also distributed more than $3 million in state and local aid to the scammers.  

Feist noted that is a small percentage — less than 1% — of the total aid the colleges have distributed to students in that time. 

The fraud initially spiked in 2021, when the colleges had billions of dollars available in emergency financial aid grants for students. Between March 2020 and March 2021, the federal government passed three pandemic relief bills and awarded California’s community colleges $4.4 billion, of which $1.8 billion was allocated for emergency grants. 

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The financial aid office at East Los Angeles College in Monterey Park.

Distribution of emergency grants ended in 2023, but the fraud did not. Some colleges have reported eye-popping losses of federal aid, leading to the $7.6 million the system has lost so far this year. 

One college, its name redacted in the data shared with EdSource, reported losing $405,395 in April, $344,296 in July and $119,262 in May. Another college lost $193,286 in April and $76,303 in June. When colleges write off aid distributions as fraud, it’s typically because the recipient stops attending classes altogether after receiving the aid.

At the same time, dozens of colleges did not report fraud numbers for at least one month this year, raising the possibility that the actual amount of aid lost to fraud is even higher than what has been reported.

Some officials theorized that the federal government’s relaxed FAFSA verification requirements could be playing a role. Typically, about a quarter of FAFSA applications are selected for verification, which involves the colleges verifying the information a student reports on their application. Under the new rules, colleges are now required to verify a much lower share of FAFSA applications — even lower than during the pandemic, when rules were also relaxed, according to the National Association of Student Financial Aid Administrators. 

The changes were implemented to help colleges more quickly process aid applications, particularly after the FAFSA delays that plagued colleges and students last academic year.

Victor DeVore, the dean of student services at the San Diego Community College District, said it is likely that the relaxed FAFSA verification led to more scams.

“It’s letting people know that, ‘Oh look, they’re relaxing their verification rules, so now I have a better chance of trying to get some aid fraudulently,’” he said. 

At the same time, colleges have also been have getting better at identifying the fraud. 

This year, about 25% of applications have been flagged as possible fraud, up from 20% last year. “Part of the reason is that our systems are becoming more effective at detecting fraud, even as the attempts become more sophisticated,” Feist said.

‘Nobody’s trained in this’

There are three stages of fraud: Application fraud, when scammers try to get admitted to the college; enrollment fraud, when they attempt to get a spot in a class; and financial aid fraud, when they successfully receive aid after enrolling.

Fraudsters often target classes with no prerequisites, since those are easier to access, said Tina Vasconcellos, vice chancellor of the Peralta Community College District, which is based in Oakland and has four colleges in Alameda County.

Spencer O’Bosky, a computer science major at Los Angeles Pierce College, tried several times in the spring to enroll in online math classes, only to see them fill up shortly after they opened for registrations. 

When he eventually was able to enroll in one, some of the other students listed on the course roster didn’t turn in any work and were dropped as suspected scammers. 

“I always thought I was the only one experiencing this, but then I heard about it happening a lot,” O’Bosky said. “I think it’s terrible. It stops people from being able to sign up for these classes.”

To keep the fraudsters out, several college officials said they have turned to a simple yet effective tactic. When a student is flagged as suspicious, staff ask them to either come to campus in person or join a video meeting to prove they are a legitimate student. 

But some still slip through the cracks, especially as scammers get more sophisticated.

“Nobody’s trained in this. We have humans doing this all over the state, all over every state trying to figure out how to mitigate this issue that nobody’s trained for,” Vasconcellos, the Peralta vice chancellor, said.

To reduce human error, colleges have looked for ways to automate fraud detection. 

The state chancellor’s office last year piloted a new ID proofing system, working with the online platform ID.me to verify identities of applicants. Feist said the verification system “has been effective in helping to reduce the amount of fraud and help mitigate local workloads” but added that “bad actors continue to shift their attacks.”

Some fraudsters now steal identities and submit the stolen but legitimate information — like a real address and real forms of identification — when applying, said Jory Hadsell, the vice chancellor of technology for the Foothill-De Anza Community College District. When the fraudster sets up direct deposit, they only need a bank account and routing number, not a name to match the one on their application. 

Scammers also changed their approach at the San Diego district after officials there successfully started sniffing them out by detecting that they were using virtual private networks (VPNs), which create a connection between the user’s computer and a network in another location, making it appear like the fraudster is in that location. For example, one student applied with their VPN set to a Los Angeles location, but their IP address showed they were actually in China.

Rather than VPNs, the fraudsters this past year started using burner phones, which come with a business IP address, said DeVore, adding that it’s harder to determine whether those are legitimate. “They switched up their game,” he said.

To add another layer of fraud detection, the Foothill-De Anza district is one of two in a trial test with an artificial intelligence platform, Lightleap, to identify potential scammers by analyzing “key data and behavioral elements,” according to a report presented to the state’s board of governors this summer.

The AI platform, for example, can identify “fraud clusters,” such as when many applications are coming from the same IP address, Hadsell said. 

Vasconcellos, who wants to similarly use AI at the Peralta district, said she is hopeful it will become a more common fraud detection tool, both at her district and across California.

“We just need to keep learning and keep trying to get ahead of it,” Vasconcellos added. “They keep changing, and we have to keep changing to address whatever new things, new ways they’re trying to get through.”

Delilah Brumer, a former member of the EdSource California Student Journalism Corps, contributed reporting.





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