AI, ghost students and payment risk: how higher education fraud is getting smarter

Higher education institutions operate on openness, access and trust. But the same qualities that enable academic collaboration and innovation can also create significant fraud risk. As colleges and universities expand online instruction, automate admissions and accelerate payments, fraud is shifting from opportunistic scams to organized, identity-driven abuse.

Fraud in higher education

Today’s fraud landscape includes artificial intelligence (AI)–enabled social engineering, ghost student schemes, student email compromise, business email compromise (BEC), vendor impersonation, and financial aid and refund fraud. These threats go beyond technical vulnerabilities. They also exploit institutional processes and trusted workflows.

How AI is reshaping fraud

AI has dramatically changed the scale and effectiveness of fraud. In fact, generative AI is bolstering 15 different attack techniques across industries. Bad actors are using AI to work faster at every stage — from spotting security gaps to writing malware. Industry research shows attackers now use AI to automate reconnaissance, generate convincing phishing emails and leverage publicly available data to strengthen their impersonation attempts.

For higher education, this presents a unique challenge. Faculty, staff and administrators routinely interact with unfamiliar individuals, including prospective students, adjunct instructors, vendors and visiting researchers. AI-generated messages blend seamlessly into this environment, making traditional red flags easy to miss.

Ghost students and admissions-driven fraud

Ghost student fraud occurs when criminals use stolen or synthetic identities to apply for admission, often targeting online or low-friction enrollment programs. Once admitted, these fake students apply for financial aid or institutional refunds, collect the funds and disappear.

These schemes can:

• Cause direct financial losses from unrecoverable aid and refunds 
• Create compliance and audit risk related to Title IV federal student aid reporting 
• Inflate enrollment figures 
• Increase administrative burden for admissions and financial aid teams

Because applications and disbursements move through approved systems, ghost student activity often appears legitimate and bypasses traditional cybersecurity controls.

Student email compromise as an entry point

Compromised student email accounts are frequently the starting point for broader financial fraud. Once attackers gain access, they may reset passwords for connected systems, redirect refunds, submit fraudulent documentation or use the account to target staff and peers. Common risk factors include:

• Credential reuse across student systems 
• Account access from unmanaged personal devices 
• Delayed detection of compromised accounts

BEC and vendor impersonation

BEC is another fraud method that relies on impersonation. The FBI defines BEC as “an email message that appears to come from a known source making a legitimate request.” In higher education, attackers commonly pose as finance leaders, vendors or payment partners to request urgent payments or bank account changes.

Vendor impersonation adds complexity, especially at schools with many vendors and approval processes spread across departments. Fraudsters take advantage of year-end urgency, grant deadlines and legitimate process exceptions, hoping to catch people off guard and pressure them to act before they take a closer look.

Financial aid and refund fraud

Financial aid fraud blends identity theft and payment manipulation. Attackers may submit aid applications using stolen identities or compromise existing student accounts to reroute refunds. These incidents expose institutions to financial, regulatory and reputational risks.

Why traditional security controls fall short

Across these fraud types, attackers abuse legitimate identity and trusted workflows. Emails come from real accounts, applications pass through approved systems and payments occur through standard processes. As a result, many traditional security tools fail to detect fraud.

Managing and fighting fraud: a layered approach

Effective fraud management requires coordination across people, processes and technology. To reduce risk, institutions can:

• Strengthen identity and access controls with phishing-resistant multifactor authentication 
• Apply risk-based verification to admissions and financial aid workflows 
• Secure refund and payment processes with bank validation and anomaly detection 
• Train staff to recognize social engineering and impersonation tactics 
• Establish clear incident response and recovery playbooks

Fraud is a shared campus responsibility. Admissions, financial aid, IT, bursar, procurement and compliance teams all play a role in managing risk. Institutions that treat fraud prevention as an operational discipline are better positioned to protect students and safeguard funds.

Final thoughts

Fraud in higher education is increasingly identity-driven, process-based and amplified by AI. Institutions that adapt by embedding controls where money moves, strengthening identity assurance and empowering staff to verify transactions will be best positioned to maintain trust and resilience.

As bad actors continue to evolve their methods, it's important that you evolve your security measures in response. Implementing fraud prevention tools and best practices can help mitigate risks. Learn how a higher education payment tool can improve your cybersecurity infrastructure to protect your data and funds.