Cryptographic Authentication Critical to Ending Student Aid Scam

June 16, 2022

What do best-selling novelist Amy Tan, former Mayor of Los Angeles Antonio Villaraigosa, and legendary baseball player & civil rights activist Jackie Robinson all have in common? They all graduated from a California Community College. The California Community Colleges network is the largest higher education system in the nation and serves 1.8 million students across 116 community colleges scattered throughout the state. Students of all ages turn to their local California community college to learn new skills and earn degrees that will unlock better job opportunities. Unfortunately, the school system has become a prime target of fraudsters who have taken advantage of the system’s recent influx of cash to steal much-needed student aid.

In order to apply for student loans, an applicant must first enroll in a college. Because the goal of the California Community Colleges is to provide more equitable access to higher education, it does not require letters of recommendation, SAT scores, or lengthy essays, which studies have shown to be poor predictors of student success. Unfortunately, this more progressive enrollment process also makes it easier for fraudsters to gain admittance. Michael McCandless, VP of Student Services at Merced College, an institution that has first-hand experience with student aid scams, explains

“It’s great because we are trying to eliminate those educational barriers for potential students but at the same time, if you are interested in fraud, we are a great target.”

To make matters worse, new funding sources are also attracting fraudsters. Newly “flush with cash from three federal COVID relief packages,” the California Community College system is currently managing about “$4 billion in relief aid, about $1.6 billion of which is being targeted to students.“ With so much cash for the taking, fraudsters are having a field day at the expense of deserving students and taxpayers.

In order to prevent student aid scams from continuing, let’s first take a look at the sophisticated playbook fraudsters use to steal from the community college system: 

“The scammers typically start by enrolling at a college using “either stolen identities or by recruiting individuals who provide their personal information in exchange for a cut of the financial aid proceeds. They then apply for financial aid in the student’s name via the FAFSA process. After the scammer enrolls in classes and receives their FAFSA funds, they quickly transfer the money to another account and repeat the process using another fake identity.” 

Because there is an ongoing investigation, it’s impossible to confidently state just how much money has been stolen this way. However, given that multiple schools throughout the state have confirmed at least 60,000 instances of this type of fraud (student aid scams), it’s clear that significant taxpayer dollars have already been funneled into the hands of criminals using this exact playbook. 

Today, the California State Chancellor’s Office, the governing body of the school system, has made updating and securing CCCApply, the application portal for the community colleges, a priority. To address the root of the problem, the Chancellor’s Office should follow in the footsteps of leading banks and vendors and implement a digital identity solution that prevents synthetic fraud (the process of creating fake accounts using a mix of stolen and fictitious information). Because equity and accessibility are the cornerstones of the school system, special attention must be paid to ensuring that security fixes don’t serve as barriers to entry for legitimate students. Because cryptographic authentication can leverage the ubiquitous mobile phone to not only reduce fraud but also accelerate onboarding, it would be highly effective in solving this particular use case. Here’s how the onboarding flow could work: 

Early in the application process, the user will enter their phone number, and Prove will run a PRO check that verifies the possession, reputation, and ownership of a phone number:

  1. Possession: Prove authenticates users with something that the user possesses – a cell phone – rather than by relying on something they know (a password), which can easily be compromised. Instant Link™ is a powerful and nearly frictionless way to check for possession. 
  2. Reputation: The rise of SIM swap fraud makes checking the trustworthiness of a phone number absolutely critical. Phone numbers that have recently undergone a SIM swap or other high-risk event will have a lower Trust Score® than a phone number with a long track record of successful authentications. School systems can then use the Trust Score to make wise decisions when it comes to authenticating or verifying a customer. 
  3. Ownership: How do you prove that a phone number entered is actually owned by the user? That’s where the ownership check comes in. The ownership check measures how closely linked a user is with a phone number. This prevents bad actors from entering a stranger’s phone number while creating an account. 

In addition to running a PRO check, the school system could go a step further and employ Prove Pre-Fill® which auto-fills applications using verified data, saving applicants valuable time and effort while reducing user errors such as typos. In addition to accelerating onboarding, Pre-Fill also reduces fraud. Because Pre-Fill pulls verified data associated with a phone number, fraudsters have to either use their real information or opt out, making it simpler for fraud execs to identify them. 

What’s clear from this use case is that fraudsters are diversifying– they have taken the playbook that they use to defraud banks and digital lenders and are now defrauding newer and more unexpected victims like the community college system. Moving forward, incorporating cryptographic authentication to prevent fraud will be absolutely critical in stopping student aid scams, safeguarding public dollars, and ensuring student aid is used to help individuals transform their lives for the better through higher education.

To learn more about Prove’s identity solutions and how to accelerate revenue while mitigating fraud, schedule a demo today.

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