Financial Aid Fraud: A Progression of Due Diligence
Financial Aid Fraud: A Progression of Due Diligence
It has been a long-standing expectation by the U.S. Department of Education (ED) that student aid flows accurately with integrity of purpose to eligible students only. For several years, ED leadership shared a consistent message asking financial aid administrators to help ensure we are “getting the right money to the right students at the right time”. The slogan was so consistently used that Federal Student Aid Conference attendees would regularly chime in to finish the sentence whenever an ED representative would start referencing it. There is strong support for the concept within the entire financial aid community, yet fulfilling that goal has become increasingly difficult over the years as technology and the expansion of online learning programs continued to open new opportunities for potential fraud.
THE 2025 FEDERAL PUSH AGAINST FRAUD
On June 6, 2025, ED announced intentions to launch new initiatives aimed at eliminating identity theft and fraud from the federal student aid programs starting in fall 2025. Through this push, ED made some changes to the list of acceptable documentation associated with identity validation, most notably instilling the requirement that selected aid applicants would be required to present—either in person or through a live video connection—“an unexpired, valid, government-issued photo identification to an institutionally authorized individual.” This proved to be a substantial change sparking challenges for aid offices, as it is often difficult for new students to present identity documents in-person if they live a significant distance from campus and video conferencing is a very high-touch, one-on-one activity that few larger schools can accommodate due to volume.
Yet by the end of the calendar year, ED boasted a $1 billion savings due to the fraud prevention efforts of their department and school partners. They launched a new webpage, StudentAid.gov/scams, to assist students and families in identifying financial aid scams and “fake schools.” They also declared a commitment to continue developing additional tools to help impede student aid fraud attempts.
CURRENTLY
In April 2026, ED initiated another substantial Free Application for Federal Student Aid (FAFSA) fraud prevention program. This one incorporated fraud detection tools directly into the FAFSA filing process. They noted that “applicants who display a certain level of fraud risk will now be required to present government-issued identification before accessing federal student aid funds such as Pell Grants and federal student loans.” It was anticipated that these steps would help relieve some of the administrative burden of identifying potential fraud situations off the shoulders of schools. The department also launched a one-time review of previously filed 2026-2027 FAFSAs using this new technology.
On May 14, 2026, the Department released a statement that they had completed their one-time retroactive review of 2026-2027 FAFSAs, noting approximately 300,000 applications, which appeared questionable. Each of these has now been triggered to require Verification Tracking Group V5 identity confirmation by their college. Schools are receiving system-generated, updated Institutional Student Information Records (ISIRs, which is the student information data sent to colleges after a student lists them to receive their FAFSA information, for each of these students.
VERIFICATION GROUPS
There are five verification groups established by ED, labeled V1–V5. The V5 verification group requires confirmation of all standard information to be reviewed by the V1 group as well as documenting identity as required by the V4 group. This is not a new concept as broader FAFSA verification policies were established in the 2014-2015 financial aid year. However, V5 usage is expanding with the current fraud review process.
While the phrase is not currently being touted by ED, the concept stands that there is a strong push for “getting the right money to the right students at the right time”. ED is charging towards this goal with FAFSA technology upgrades and selecting additional students for schools to obtain documents from and to take the time to review. It appears to be a reasonable initiative toward the goal of protecting public funds, but doing so while OBBBA rule and guidance delays are creating a timing plight for financial aid administrators may make it difficult to get the delivery of funds to be “at the right time.”
WAYS WE CAN HELP
Institutions can establish helpful practices to curb their vulnerability to fraud attempts, too. This is particularly important for those who offer online educational programs at any level. Recommended technical steps to enact include:
- Developing automatic reviews of incoming FAFSA data noting any students who share:
- Addresses;
- Phone numbers;
- Email addresses;
- Regularly compare the IP addresses used for communications to the school looking for similarities between students, and;
- Ensure staff are fully trained on and are diligent in watching for potential cyber hacking attempts. While this is a different angle through which fraud may occur, it can couple with others mentioned above in an overall attempt to obtain unjustified funds.
About the Author
Thomas Ratliff has over 35 years of higher education experience, teaming with peers to serve students at private, public, and proprietary institutions. He has worked with traditional and nontraditional populations pursuing certificate programs through doctoral degrees within term-based, non-term, and nonstandard term academic calendars. He has been blessed with a variety of experiences that help him relate to the partner school’s challenges.
Thomas has made presenting at conferences a staple of his career, as it helps his colleagues expand their understanding and instill the ideas in their hearts. He has also enjoyed serving financial aid communities through a variety of leadership roles, including as President of four professional associations: ISFAA (Indiana), TASFAA (Texas), MASFAA (Midwest), and SWASFAA (Southwest). When taking a break from helping schools excel, Thomas cherishes life with his family and enjoys autocross racing his 1965 Chevrolet Corvair.
