California students get robbed by AI scams stealing millions in financial aid

In California, a rising wave of fraud involving artificial intelligence has led to the theft of over $10 million in federal financial aid, affecting community colleges across the state. Between March 2023 and March 2024, scammers created AI-generated student profiles to enroll in colleges, only to become eligible for disbursements intended for low-income students. These deceptive practices, known as 'Pell runners,' have resulted in significant financial losses for institutions and taxpayers alike. The scam emerged following the relaxation of financial aid restrictions during the COVID-19 pandemic, which made it easier for eligible students to access one-time grants designed to keep them enrolled despite lockdowns. The situation has reached alarming proportions, with approximately 34 percent of community college applicants found to be fake, as reported by the California Community Colleges Chancellor's Office. Notably, this figure represents a dramatic spike from an earlier estimate that indicated 20 percent of applications were fraudulent. The FBI has noted that this issue has spread beyond California, with investigations in Maryland, South Carolina, and Alabama, costing educational institutions over $100 million nationwide in 2023 alone. The implications of this fraud are particularly concerning as each fraudulent enrollment effectively takes away a space from a legitimate student needing to complete their education. The rise of AI has enabled scammers to produce convincing submissions and impersonate individuals who could evade strict identity verification processes in community colleges. Many bots impersonate vulnerable populations, such as homeless individuals or former foster care students who typically do not need to verify their identity to gain admission. The increased prevalence of AI-generated coursework has made it difficult for instructors to distinguish between real and fake students, further complicating the situation. Despite California allocating over $150 million since 2022 toward cybersecurity efforts focusing on authenticating students, fraud continues to escalate, resulting in legislatorial calls for investigation into the state's higher education system. The California Chancellor's Office has reported that only a small fraction of fraudulent students make it to the financial aid distribution stage, but the increasing sophistication of these scams raises serious concerns about the legitimacy of online education and the protection of federal funds.