Financial aid fraud is on the rise in California. How federal officials plan to crack down

Faced with growing reports of fraud, the U.S. Department of Education will make it harder for certain students to access financial aid, including some who could see delays of weeks or even months before cash is disbursed.

This month the department announced it would begin a new “screening process” for all financial aid applicants starting this fall. While that process is developed, the department will require colleges to do additional vetting of applicants this summer, which will place more of a burden on California’s community colleges. 

Unlike four-year universities, such as the University of California system, the state’s community colleges are designed to accept everyone, and they use a simple application process. But as classes moved online during the COVID-19 pandemic, fraud rings increasingly exploited that process by posing as students to steal financial aid.  

Kevin Harral, financial aid director at Las Positas College in Livermore, said he’s already “bracing for what’s to come.” He said the education department could force his team to spend hours of additional work double-checking students’ identification this summer. While those students wait for verification, they may see long delays before they can access their financial aid.  

Some students may decide to forego financial aid altogether, Harral said. “There’s some people who may not have the documents, may not have the ID, but there’s also the students where this is another barrier, maybe a psychological barrier, particularly if they have undocumented parents.”

In April, CalMatters reported that financial aid fraud was growing and that fake students stole more than $10 million in federal aid and more than $3 million in state aid from California’s community colleges in the prior 12 months — more than twice as much as the year before that. 

In response to CalMatters’ reporting, college officials and federal and state lawmakers sprang into action this spring. 

Anyone with a high school diploma or equivalent — and some without that — can apply to community college and enroll in classes, at which point they are eligible to receive federal Pell grants if they meet the income requirements. These grants, sometimes up to nearly $7,400 a year, cover tuition first, but for low-income students at a community college, whose tuition is free, the money goes directly into their pockets, covering other expenses, such as rent or food. 

For scammers — who pretend to be low-income community college students — that’s a gold mine.  

Many college officials are optimistic that by the fall, the education department’s new screening process, likely fraud-detection software, could stem the onslaught of financial aid abuse in California, which has burdened administrators and shut real students out of classes they need to graduate. The education department has said it will focus on screening first-time applicants but has not provided more details, such as what software it will use.

The California Community Colleges Chancellor’s Office, which oversees the state’s 116 community colleges, has said that fraud represents less than 1% of the billions in federal and state financial aid that go to its students each year. Asked by CalMatters about the education department’s new identity screening, Melissa Villarin, a spokesperson for the office, said she’s “waiting for more information.” 

‘I’ll believe it when I see it.’

The federal aid application process, known as the Free Application for Federal Student Aid, or FAFSA, already has a number of ways to vet students. It requires applicants to submit their Social Security number, date of birth, and details about their income, which are verified by the Social Security Administration and the Internal Revenue Service. Scammers get through that process by submitting personal information they have stolen from other people.

A small subset of applicants are also required to prove their identity, either because they are randomly selected or because their applications are suspicious. Those applicants have to submit a notarized document or show up to the college’s aid office with an ID in hand. 

“The fraudsters, they won’t show up,” said Harral, leaving the legitimate students with the burden to verify themselves.

Under the new policy many more students will need to prove their identity this summer by presenting identification to their college. Starting in the fall, the new screening process will ultimately minimize the amount of work that colleges have to do, according to the department’s announcement.

“Do we support this or do we have concerns? Yes and yes,” said Karen McCarthy, vice president of public policy for the National Association of Student Financial Aid Administrators. She said she supports the federal government “taking on a stronger role in fraud detection” but is worried that the new policy will mean more work for college aid officers this summer.

For Harral, and many other financial aid directors, any changes to the federal financial aid system are nerve-wracking. In 2023 the education department created a new version of the FAFSA, which it was supposed to release on its usual October date. But it delayed the release until the end of December, sending students scrambling to submit their applications before the deadline. A glitch also prevented thousands of California students whose parents don’t have Social Security numbers from initially applying. The FAFSA was delayed once again this year to avoid “the kind of system errors that can derail millions of students,” according to a statement by the department. 

Harral said he’s worried that the new screening process won’t be ready this fall, forcing his staff to continue verifying many students’ identities manually.

“The recent track record of our education department is them not delivering things on schedule,” said Harral. “I’ll believe it when I see it.”

Has fraud really gone ‘unaddressed’?

While California’s colleges control which students they accept, they rely on the U.S. Education Department to help determine who is eligible for financial aid. Even California’s state financial aid program, Cal Grant, vets applicants using FAFSA. However, the Trump administration has cut staffing at the education department, hindering its ability to administer aid and investigate abuses. 

In April, Republican Congress members wrote to U.S. Education Secretary Linda McMahon and U.S. Attorney General Pam Bondi, citing CalMatters’ reporting and asking for a federal investigation of the financial aid process for California’s community colleges. The Congress members accused the community college system of allowing fraud “to go unaddressed.”

The U.S. Education Department referred to the Republicans’ letter when justifying its new screening policy. 

California’s community colleges have acknowledged the financial aid problem and spent roughly $150 million since 2021 boosting their fraud prevention and cybersecurity. Last month, the board of governors for California’s community college system agreed that it will eventually require all applicants to verify their identities. 

The board also considered charging an application fee, which could disincentivize fraud rings from submitting hundreds of fake applications at a time. Students opposed that policy, saying the harm outweighs the benefit, and the board delayed a decision on the matter.  

Speaking about the new screening policy, Daisy Gonzales, the executive director of the California Student Aid Commission, which oversees the Cal Grant program, said she’s concerned that eliminating fraud might complicate the financial aid process for students. “Over-compensating for the actions of bad actors cannot be solved by penalizing low-income students who rely on financial aid to pursue higher education.”