Fraudsters hit Missoula College in national financial aid ‘ghost student’ scheme

A fraudulent enrollment scheme drained $673,745 in federal money from the University of Montana’s Missoula College in 2025, according to a new report from the Legislative Audit Division.

The report says UM returned all the money to the federal government in the 2026 fiscal year, and the university’s net cash loss was $377,937.

UM Vice President of Communications Dave Kuntz said UM has submitted an insurance claim to recover the money lost to theft.

The scheme has hit nearly every academic institution in the country in some way, according to U.S. Department of Education Deputy Undersecretary James Bergeron.

Bergeron said an estimate of the total dollars stolen isn’t yet available but will be in the tens of millions.

Generally, the theft has taken place when AI bots steal identities, apply to multiple institutions at one time, and in some cases, receive federal aid, Bergeron said.

But when it comes time to connect with institutions in any variety of “touch points,” such as a one-on-one meeting with a professor, they disappear, earning them the name “ghost students,” he said.

Bergeron said the Department of Education is working to recover funds and combat the fraudsters, and at least a few prosecutions are underway. As of April, he said, so is a new verification system to access federal loans.

“We calculated we saved about $400 million from falling into the hands of fraudsters in just those four months since the new technology went into effect,” Bergeron said.

Other Montana University System campuses have seen similar attempts at theft, but a limited volume, according to an MUS spokesperson.

The audit report said UM has since strengthened its fraud detection through “enhanced monitoring,” more review of suspicious activity across departments, and expanded identity verification.

The Trump administration has a goal to dissolve the Department of Education and transfer control to the states.

But Bergeron said the effort to ensure taxpayer dollars are spent effectively remains a priority for the White House irrespective of the status of the Department of Education.

He said as student aid moves to the Department of the Treasury, the work to protect funds will be a focus for those officials as well.

“The staff there are very engaged and interested in combatting fraud,” Bergeron said.

Montana Legislative Auditor Angus Maciver said online scams are constantly changing and growing more sophisticated, and UM should continue to strengthen its security measures.

He said the Legislative Audit Committee would take up the report, intended to increase public trust in state government, at its meetings this week.

“We expect the Audit Committee discussion to provide additional context about these risks, how they are affecting universities, and what institutions are doing specifically to respond,” Maciver said.

‘Ghost students’ cost UM

The Legislative Audit Division outlined the scheme in Montana as part of a comprehensive review of the state budget.

The audit counted 70 identity theft instances from the 2024 to 2026 fiscal years that led to improper federal disbursements. UM became aware of the fraud when an individual reported their identity had been stolen to enroll in online courses, the audit said.

UM then reviewed all summer 2025 online enrollments and identified 94 that were fraudulent, of which 63 received federal aid, the report said. It said seven additional cases have been found since.

The report says UM had controls in place, but “the sophistication and evolving nature of the fraud schemes exceeded the effectiveness of controls commonly used across higher education at the time.”

Kuntz said UM has put the following safeguards in place:

• It is conducting identity verification checks on select populations prior to admission. This prevents potentially fraudulent students from being admitted, so they never receive access to federal aid. UM selects populations based on historical fraud activity, primarily students applying for distance-only programs.
• Once admitted, UM has seen “ghost students” switch from in-person to distance modality. UM has established an identity verification check step for students who were admitted into an in-person program and attempt to switch to a distance program (or switch to exclusively distance-only courses).
• Even after admitted and registered for courses, UM is flagging all new distance-only students for federal aid verification, which means they are subject to closer scrutiny by the Department of Education in order to receive financial aid.

Kuntz said the university has had extensive communication with the Department of Education, “including notifying them of the situation the moment we uncovered it.”

But the audit said a lack of resources at UM means it hadn’t yet uncovered the full scope of fraudulent enrollments. Kuntz said the resource challenge remains.

“A lack of staffing resources continues to prevent us from doing a comprehensive, retroactive look backwards,” Kuntz said in an email. “As a result, we have not uncovered any additional bad enrollments beyond what was disclosed in the audit.”

Auditors suspect the college was targeted because of its higher volume of online enrollment and lower tuition costs, which result in greater cash disbursements to schemers after tuition and fees are paid.

Montana University System spokesperson Galen Hollenbaugh said the college has a high number of online enrollments, but it isn’t the largest in the system, and the university system doesn’t “necessarily conclude that one institutional feature” is the reason it was attacked.

Hollenbaugh said the MUS does not have a record of whether any fraud attempts at other campuses have been successful, but it is working to thwart attacks across the system.

“Other Montana University System campuses have seen similar attempted fraudulent activity in varying forms,” Hollenbaugh said in an email. “We are working with a vendor across campuses to share information about known fraudulent identities, patterns, and methods of attack, with the goal of closing potential points of entry as quickly as possible.”

Bergeron said the Department of Education’s Office of Inspector General already conducted investigations on student aid fraud rings before 2025 and recovered $35 million, including in restitution, settlements and fines.

“This is a fraction of what we think it will be” for the ghost student scheme, Bergeron said.

He said international investigations also are underway and found crime rings overseas, including in the middle of Africa and eastern Europe, stealing the identities of Americans.

For a solution, Bergeron said the Department of Education approached a handful of colleges that already were vigilant with identity verification, and they pointed the DOE to a tool used in the private sector.

He said the result is the DOE is using a “best in class” private sector tool that 19 of the 20 largest financial institutions in the country use to be sure federal resources go where intended.

Academic institutions can override the federal system and still award federal aid, Bergeron said, but the DOE is auditing them to be sure those dollars aren’t going to thieves.

“It’s intended to serve students, not fraudsters,” Bergeron said.