Treasury tallies $270M in suspicious financial aid transactions

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Dive Brief:

• The Treasury Department’s Financial Crimes Enforcement Network said this week that it has identified $270 million “in suspicious financial activity” potentially tied to fraud in federal student financial aid programs. It has referred its findings to law enforcement for further investigation, according to a Monday press release.
• Since a July alert issued by FinCEN regarding such financial aid fraud, financial institutions have filed about 100 suspicious payment activity reports that led to the agency’s review of some 20,000 suspicious transactions since February, according to Treasury’s release. It noted that such reports are not a complete picture of what may, or may not, be fraud.
• “The Trump Administration will not tolerate criminals who exploit government programs for personal gain,” Treasury Secretary Scott Bessent said in the release. “Treasury is working with financial institutions and law enforcement to identify these fraud schemes, recover stolen funds, and hold those responsible accountable.”

Dive Insight:

Lost taxpayer funds aren’t the only negative impact of financial aid fraud, as it also results in students being deprived of education funds and may saddle some students with debt that is not theirs. It also can result in students not getting into classes with seats taken by fake enrollees.

The increased scrutiny from the government can also slow the processing of legitimate student financial aid applications, Indiana Wesleyan University noted in an August website post.

The July FinCEN alert warned “that schools or their payment contractors often send aid refunds by electronic bank transfer and that the payment description often includes the word ‘refund’ along with the school’s name or initials.” 

The stolen money may travel through payments made by money mules, fake accounts or shell companies that hide the identities of criminals shifting around funds. 

The Treasury release explained how the student aid fraud takes place: Criminals steal personal information – such as names and Social Security numbers – and use them to create fake “ghost students” who are enrolled in classes under an unknowing victim’s identity. Artificial intelligence is making the problem worse.

“Fraudsters may also use super intelligence to produce fake documents that blend stolen information with invented details, which creates what are known as synthetic identities that can pass identity checks,” the release said.

In another type of fraudulent scheme, criminals pay real people for their information so they can create “straw students” to enroll students at schools and take the financial funds that are issued in those names. In some cases, corrupt school employees have helped recruit students and alter records to support the criminal rings, Treasury said.

In keeping with the Trump administration’s crackdown on fraud, Treasury said it’s seeking to further thwart financial aid fraud by increasing cooperation across the federal government and encouraging whistleblowers to come forward with information. In December, the Education Department also noted an increased focus on halting such fraud on its website.