By Lance Izumi, Pacific Research Institute
While fraud in California’s hospice programs has garnered national headlines, financial aid fraud in California’s community colleges has gotten Congress to act, with a large bipartisan majority on a House committee passing anti-financial aid fraud legislation.
Across the country, financial aid fraud in higher education has skyrocketed, causing big budgetary hits for colleges and negative impacts for law-abiding students in true need.
Perhaps the biggest explosion in financial aid fraud has taken place in the nation’s largest system of higher education—the California Community Colleges.
With 2.2 million students in 116 colleges, California’s sprawling community college system dwarfs most other higher education systems.
According to its website, “Our students receive the education, support and guidance they need to reach their potential, whoever and wherever they are on their educational journey.”
But what if a lot of those students do not actually exist? What if many students are just phantoms, not taking an educational journey, but sucking up taxpayer dollars meant for real students?
In fact, that is exactly what is happening at many of the state’s community colleges.
Fraud perpetrators use stolen or fake identities to enroll in college, then they apply for federal and state financial aid.
According to Forbes, community colleges are particularly attractive for fraudsters because tuition costs are very low, which means that they can keep the bulk of the aid—up to $7,400 for supposed living expenses per case—as ill-gotten profit.
Then, “instead of attending classes, these ‘ghost students’ disappear once the funds arrive [in their bank accounts].”
This fraud is often committed using AI-generated bots, so fraud can be attempted on a massive scale.
California Congressman Kevin Kiley, a former educator, recently observed, “Over a third of applications [for community colleges] in our state, 1.2 million in all, were fakes used for financial aid fraud.”
The fraud numbers at individual colleges are shocking.
For example, the Foothill-De Anza Community College District in the San Francisco Bay Areareceived around 26,000 applications for the spring quarter in 2024. However, according to district officials, 10,000 of these applications were flagged for fraud.
Overall, the trend of fake admission applications has been rising alarmingly over the last several years.
According to the California Community Colleges Chancellor’s Office, 20 percent of applications in 2020 were fraudulent. That proportion rose to 25 percent in 2024 and then leapt to 34 percent in 2025.
But, as one top state community college official noted, “Those are all the ones that are stopped,” meaning that there are fraudsters who do get through and steal taxpayer dollars.
CalMatters reported that that in a 12-month period spanning much of 2024, the state’s community colleges “reported giving more than $10 million in federal dollars to fake students and over $3 million in state money.”
While state data appears to indicate that fraud represents only a small part of the financial aid pie, the publication noted, “It’s hard to tell how accurate the data is because compliance is spotty,” with months of missing data “from as many as half the colleges.”
Indeed, an official from the Kern Community College District said, “What we’re hearing is that [fraud] is happening more widespread than people are letting on, but people just have their heads in the sand because it looks good to have your enrollment going up.”
Also, since community college funding is linked to enrollment, faculty members feel pressure to keep their class numbers up because districts could face financial losses otherwise. As one instructor at Berkeley City College said, “if they see I’m running a class that starts with 35 students and ends with 15, that looks terrible.”
Further, the reported fraud amounts do not take into consideration the significant negative impact on real students.
A De Anza College student said that one of her professors had 70 students enroll in a class, but within a week “almost all of those students had dropped out except the 15 that were actually human.”
The student lamented that the fake students are “taking up space for students who are actually here and actually want to be here.”
To combat fake students and resulting financial aid fraud, the state’s community college application system now uses an identity verification tool. However, Forbes has warned that “sophisticated AI-driven tools allow fraudsters to defeat document verification methods.”
The scope of the financial aid fraud is so widespread that Rep. Kiley and three other members of Congress, have sponsored “No Aid for Ghost Students Act of 2026,” which just passed the House Education and Workforce Committee on a bipartisan 30-3 vote.
Under the bill, the U.S. Secretary of Education is instructed to “use an identity fraud detection system to review each [financial aid] application” in order “to determine whether the application presents a reasonable suspicion of identity fraud.”
If there is a reasonable suspicion of fraud, colleges will be prohibited from disbursing federal financial aid until the identity of the applicant is confirmed “using in-person verification or live, synchronous audiovisual verification.”
Kiley said that the bill is needed “because we want aid to go to real students, not ghost students” and “fraudsters who are simply advancing criminal aims.”
For decades, community colleges have been one of the unsung jewels of higher education, providing students with highly useable lower-cost education ranging from transfer credits to four-year universities to career technical education for real world jobs. Unless the financial aid fraud scandal is addressed immediately, taxpayers will start to rethink their investment, especially if the fraud continues to metastasize.
Lance Izumi is senior director of the Center for Education at the Pacific Research Institute. He served two terms as president of the Board of Governors of the California Community Colleges.
