As fraud involving stolen identities, synthetic applicants, and organized fraud rings continues to impact colleges and universities nationwide, the U.S. Department of Education recently issued new guidance outlining best practices institutions can use to strengthen fraud prevention efforts and safeguard Title IV funds.
The Department emphasized that institutions play a critical role in identifying suspicious activity, preventing improper disbursements, and ensuring federal aid is awarded only to eligible students. While Federal Student Aid continues to enhance fraud detection tools and identity screening processes, institutions remain the first line of defense in protecting federal student aid programs from abuse. ([fsapartners.ed.gov][1])
Below is a summary of the key recommendations highlighted in the Department’s Electronic Announcement and actions institutions should consider when reviewing their fraud prevention and compliance strategies.
1. Use Account Holds Aggressively When Risk Indicators Appear
The Department recommends that institutions take immediate action when fraud indicators are identified and use account holds to prevent disbursements until concerns have been fully reviewed and resolved.
Recommended Actions
- Place administrative or disbursement holds when identity, eligibility, or fraud concerns arise.
- Prevent refunds and aid disbursements while reviews are pending.
- Review suspicious application activity before releasing Title IV funds.
- Coordinate reviews across campus offices when concerns involve multiple departments.
- Maintain documentation supporting the basis for the hold and the institution’s review process.
- Remove holds only after eligibility concerns have been resolved.
2. Require Layered Identity Verification for Higher-Risk Cases
The Department encourages institutions to move beyond a single-point identity review for higher-risk applicants and use multiple methods to confirm student identity when fraud indicators are present.
Recommended Actions
- Require valid government-issued photo identification.
- Compare identifying information across FAFSA records, admissions records, and institutional systems.
- Use live, remote, or in-person identity verification procedures when appropriate.
- Request additional documentation when identity concerns remain unresolved.
- Evaluate account activity and enrollment behavior as part of the identity review process.
- Maintain detailed documentation supporting identity verification decisions.
3. Treat Conflicting Information as a Campuswide Responsibility
Resolving conflicting information is not solely a financial aid responsibility. The Department reminds institutions that all offices involved in student administration play a role in identifying and resolving discrepancies that may affect Title IV eligibility.
Recommended Actions
- Establish procedures for sharing information across campus departments.
- Encourage Admissions, Registrar, Academic Affairs, Student Accounts, and Financial Aid staff to report concerns.
- Review conflicting information regardless of where it originates.
- Resolve eligibility concerns before aid is disbursed.
- Document how conflicting information was identified and resolved.
- Ensure institutional policies support cross-functional fraud detection efforts.
4. Check Attendance and Academic Engagement Before Refunds Go Out
The Department notes that many fraud schemes involve students who receive aid but never academically engage. Institutions should evaluate participation and engagement before releasing refunds.
Recommended Actions
- Review attendance and academic engagement prior to issuing credit balance refunds.
- Monitor participation in courses, particularly for online programs.
- Identify students who receive aid but show little or no academic activity.
- Coordinate with instructors and academic departments when participation concerns arise.
- Delay refunds when engagement concerns require additional review.
- Document reviews conducted before releasing funds.
5. Use Unusual Enrollment History and Transfer Patterns as Risk Indicators
Enrollment and transfer activity can reveal patterns associated with fraud. Institutions should use these indicators as part of a broader fraud risk review process.
Recommended Actions
- Review unusual enrollment history indicators.
- Evaluate frequent transfers between institutions.
- Examine patterns involving short-term enrollment followed by withdrawal or inactivity.
- Assess whether students appear to be enrolling primarily to obtain aid.
- Conduct additional reviews when transfer or enrollment activity raises concerns.
- Consider enrollment history alongside other fraud indicators.
6. Strengthen Processes for Reviewing Subsequent ISIRs and Post-Disbursement Discrepancies
The Department emphasizes that fraud detection efforts should continue after aid has been awarded and disbursed. Subsequent ISIR transactions and newly identified discrepancies should receive prompt review.
Recommended Actions
- Review all subsequent ISIR transactions in a timely manner.
- Investigate FAFSA corrections that significantly affect eligibility.
- Resolve conflicting information discovered after disbursement.
- Reevaluate eligibility when new information becomes available.
- Return Title IV funds when required by federal regulations.
- Maintain documentation supporting post-disbursement reviews and decisions.
7. Build a Formal Red Flags Program and Train Staff
Institutions should establish a structured fraud prevention framework that clearly identifies risk indicators and provides staff with guidance for responding to suspicious activity.
Recommended Actions
- Develop a formal fraud detection and prevention program.
- Identify institutional red flags associated with FAFSA and Title IV fraud.
- Create documented escalation and reporting procedures.
- Train staff regularly on emerging fraud trends and schemes.
- Update fraud prevention training as threats evolve.
- Ensure employees understand their responsibilities for identifying and reporting suspicious activity.
8. Protect Refund Processes and Account-Change Requests
The Department highlights refund fraud as an area of growing concern and recommends strengthening controls around account changes and disbursement processes.
Recommended Actions
- Require verification before processing banking or direct deposit changes.
- Review account-change requests that occur shortly before refunds are issued.
- Monitor requests involving changes to addresses, phone numbers, email addresses, or payment information.
- Establish procedures to validate refund recipients.
- Restrict access to refund-processing functions.
- Regularly review refund controls for vulnerabilities.
9. Refer Credible Fraud Information to the Department’s OIG and Document the Basis
When institutions identify credible evidence of fraud, the Department recommends referring the information to the Office of Inspector General (OIG) and maintaining sufficient documentation to support the referral.
Recommended Actions
- Refer credible fraud cases to the Department’s OIG promptly.
- Maintain documentation supporting institutional concerns.
- Preserve records related to suspicious activity and communications.
- Document identity verification efforts and institutional findings.
- Maintain an audit trail demonstrating how concerns were identified and evaluated.
- Cooperate with requests for additional information from federal investigators.
Additional Information
For more on the FSA announcement see: (GENERAL-26-31) Best Practices for Institutions to Prevent FAFSA Fraud and Protect Title IV Funds
How College Aid Services Can Help
As institutions face increasing verification requirements, more sophisticated fraud attempts, and heightened scrutiny surrounding FAFSA fraud, having the right processes, training, and compliance support in place is more important than ever.
College Aid Services partners with colleges and universities nationwide to improve operational efficiency and ensure compliance with evolving federal regulations. Whether your institution needs assistance managing increased verification volume, staffing shortages, reviewing fraud prevention practices, training, or developing a comprehensive compliance strategy, our team is here to help. To learn more, contact us at 833-438-2271, info@collegeaidservices.net, or click here.