AI Bots in California Steal Over $10 Million in Federal Financial Aid

A scam that uses AI to “enroll” in community colleges to pocket student aid has skyrocketed in the Golden State and across the nation.

If you're a community college student in California, there's a chance that at least one of your fellow students is actually an AI bot robbing taxpayers. Recent data from the California Community Colleges Chancellor's Office suggest that these bots have stolen more than $10 million in federal financial aid and upward of $3 million in state aid between March 2023 and March 2024.

The scam is simple: Bots create AI-generated student profiles, apply for enrollment, and submit minimal online coursework—often AI-generated—to stay enrolled long enough to receive federal and state aid disbursements intended for low-income students. The scammers are known as "Pell runners," who disappear after collecting the $7,400 federal grant. 

According to reporting by CalMatters, cases surged after restrictions around financial aid were loosened during the COVID-19 pandemic to make it easier for eligible students to access the one-time grants, which were provided to keep students enrolled. At the same time, coursework was moved online to comply with the state's lockdowns, opening the door to virtual scammers. As early as 2021, the Chancellor's Office estimated that 20 percent of applications were fraudulent. Now, increasingly sophisticated AI tools have made the problem worse, and recent data suggest that around 34 percent of California community college applicants are fake. Despite California allocating over $150 million since 2022 toward cybersecurity to help authenticate students and combat fraud at community colleges, scammers have successfully stolen more financial aid with each passing year. 

California isn't the only state experiencing this problem. The FBI has investigated financial aid fraud cases across the country, including in Maryland, South Carolina, and Alabama. Nationwide, these crimes cost institutions over $100 million in 2023—a tenfold increase from the annual average before 2020.                                              

Making matters worse, each fake student enrolled in a class takes a spot away from a real student who needs credit to graduate, and instructors increasingly have to sniff out bots who weren't filtered out during the admissions process. Bots often impersonate homeless, undocumented, or former foster care students who do not need to verify their identity to enroll in a California community college and blame technological challenges for their inability to communicate with teachers. Additionally, the increased amount of AI-generated submissions by real students makes it difficult for instructors to identify scammers. 

Alarmed by the number of stolen taxpayer dollars, congressional Republicans from the Golden State have called for an investigation into their state's higher education system to "prevent further waste, fraud, and abuse" earlier this month. 

In a statement made to CalMatters, Chris Ferguson, a representative of the California Chancellor's Office, said the office has so far "not been contacted by the U.S. Department of Education or the U.S. Attorney General about an investigation." Ferguson also emphasized that a relatively low number of fraudulent students make it to the financial aid disbursement phase, making up only "about 0.21% in FY 2023-24."

Comments

[sarcasmic]

A true libertarian would say the federal government needs to get out of student aid.

[Don't look at me! (Why is penguin meat so expensive now?)]

Correct for once.

[NealAppeal]

Can't game the system if there is no system to game. But the elites like the system because it feeds their graft, too. Only ones on the hook are honest taxpayers.

[TJJ2000]

Well Said +1000000000000000000.....
A true libertarian would say the federal government needs to get out of *special-me* THEFT aid altogether.

[Stupid Government Tricks]

Might have been just a little more libertarianish if you'd mentioned that this scam is only possible because government is doling out the money and has no incentive to do anything but dish out more money. They don't give a rat's ass who gets the money, as long as they get to dish it out.

Contrast that with charities handing out grants. They actually have incentives to make sure their handouts are well-targeted, otherwise people stop donating. Even colleges doling out scholarships have to care if they want alumni to keep donating money.

Fire KMW.
Get out of DC.
Publish some libertarian content. This one is especially galling for this article. It should have been a slam dunk, the first thing a libertarian would have thought of: "Why is government stealing from me and handing out money?"

[Don't look at me! (Why is penguin meat so expensive now?)]

How can it be so difficult to find out who cashed the check?

[Stupid Government Tricks]

Ah, they'd have to want to find out for starters.

* Bureaucrats never want to solve problems which sustain their jobs.

* Bureaucrats never want to expose problems which make their jobs look bad.

If they had actually wanted to solve this problem, they would have done it on their own before Congress Critters publicized it. And the Congress Critters are only interested in press releases and votes; they've had their 15 minutes of fame and will move on to some now way to embarrass the opposition party.

ETA: Look at the GAO reports of $300-500 billion in fraud in Medicare alone. They've been reporting this for years. Every Presidential candidate promises to balance the budget by reducing fraud and waste. DOGE is the first time any politicians have made even an attempt at it, and all they've done is expose $150 billion or so.

There is no incentive to stop wasting taxes.

[damikesc]

And attempts to fix the fraud are "Trump's attack on Medicare".

[Rick James]

That would require looking at someone's ID which would be racist.

[Jerry B.]

Open a bank account on line with fake data and request that the school direct deposit your money. Then transfer it somewhere else.

[Don't look at me! (Why is penguin meat so expensive now?)]

Still left a trail.

[Longtobefree]

I say it again:
No federal tax money to any school for any reason.
It's unconstitutional.

[Rick James]

If you're a community college student in California, there's a chance that at least one of your fellow students is actually an AI bot robbing taxpayers.

But is the fraud widespread, and is the fraud being perpetrated only by US Passport holders?

[damikesc]

End.
Government.
Funding.
Of.
Higher.
Education.

Look, I just wrote something more libertarian than Reason has in years.

[Stupid Government Tricks]

Except FAFSA. We need to keep funding FAFSA.

[Zeb]

At least until the online forms work properly.

Cutting federal financial aid but keeping FAFSA would be a perfect bureaucratic absurdity. You can apply for aid, you just won't get any.

[AT]

Hahahahahahahahaha!

It's absolutely amazing how the cloth of wokeness and welfare nee liberal progressivism just keeps on unraveling and unraveling.

[Winston in Wonderland]

The problem isn't new, and it isn't even unique to online learning.

I taught in-person engineering classes at a Junior College that didn't do a particularly good job verifying that students had met enrollment criteria. My classes were packed with middle-easterners who needed to show that they were enrolled in an engineering program in order to keep their visas. More often than not, they didn't even live in my state.

I had a great deal of difficulty getting these students off my attendance roster--Even when they didn't show-up for class, so I often found myself in a nearly empty classroom explaining to students that they couldn't add the class because it was full. Of course, I let them attend, but I couldn't enroll them in any of the course's on-line resources until the deadbeats had officially "dropped."

[Eeyore]

Wouldn't the better requirement have been that they needed to actually pass an engineering class?

[Fats of Fury]

In California this is either a misdemeanor or not a crime.

[TJJ2000]

Crime? It's a GD RIGHT!!!! /s
That is literally what they said.

[Marshal]

Ferguson also emphasized that a relatively low number of fraudulent students make it to the financial aid disbursement phase, making up only "about 0.21% in FY 2023-24."

Sounds like he has internalized the Reason priorities.