The department flagged the potentially fraudulent activity as it seeks to stop criminals from stealing student financial aid payments.

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.

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