In 2025, a fraudulent enrollment scheme siphoned $673,745 in federal funds from the University of Montana’s Missoula College, as revealed by a recent report from the Legislative Audit Division. The University of Montana (UM) reimbursed the federal government the following fiscal year, incurring a net cash loss of $377,937. UM Vice President of Communications Dave Kuntz confirmed an insurance claim has been filed to recover the stolen funds. This scheme has impacted numerous academic institutions nationwide, according to U.S. Department of Education Deputy Undersecretary James Bergeron.
AI bots are at the core of this fraud, stealing identities, applying to multiple colleges, and sometimes securing federal aid. Known as “ghost students,” these fraudulent entities vanish when required to interact directly with educational institutions. The Department of Education is actively working on recovering misappropriated funds, and prosecutions are in progress. Bergeron highlighted a new verification system that has saved $400 million in just four months since its implementation.
UM has strengthened its fraud detection methods, implementing enhanced monitoring, increased review of suspicious activities, and expanded identity verification. The Trump administration aims to dissolve the Department of Education, but safeguarding taxpayer funds remains a White House priority. Student aid is transitioning to the Department of the Treasury, focusing on fraud prevention.
‘Ghost students’ cost UM
The audit identified 70 identity theft cases from 2024 to 2026, leading to improper federal disbursements. UM detected the fraud after an identity theft report related to online course enrollment. Subsequent reviews of summer 2025 enrollments uncovered 94 fraudulent cases, with 63 receiving federal aid. Despite existing controls, the evolving nature of fraud outpaced UM’s defenses. Kuntz outlined new measures including targeted identity verification checks and scrutiny for distance-only students.
Resource limitations hinder UM’s ability to conduct a comprehensive retrospective fraud investigation. The college’s high online enrollment and lower tuition costs made it a target for fraudsters, though MUS spokesperson Galen Hollenbaugh noted these factors alone don’t explain the attack. Efforts to counter fraud involve sharing information about known fraudulent patterns across campuses.
The Department of Education’s Office of Inspector General has recovered $35 million from student aid fraud before 2025, with international investigations finding crime rings in Africa and Eastern Europe. The DOE has adopted a private sector tool used by major financial institutions to safeguard federal resources. Academic institutions have the capability to override this system, but the DOE ensures funds are not misallocated. “It’s intended to serve students, not fraudsters,” Bergeron emphasized.
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