Senate Preparing to Take Up FAFSA Fraud Bill

Later this month, the Senate is expected to consider the No Aid for Ghost Students Act (S. 4428), which would authorize the Department of Education to create a fraud detection system for the Free Application for Federal Student Aid (FAFSA), effectively codifying the real-time fraud detection system the agency has already implemented under Executive Order 14395. The Senate bill is its version of the House bill of the same name (H.R. 7892) that passed in June.

NAICU raised a number of concerns as the House considered its bill, many of which were addressed in the final version. Among the issues raised included recommendations to strengthen and provide clarity to the bill’s language, including the addition of certain identity verification standards instead of leaving that process entirely up to the Secretary’s discretion.

However, the final version of the bill also included a new provision that would create an accountability trigger for institutions that show a “pattern of disbursing [aid]” to flagged applicants that would prioritize these institutions for program reviews. This is concerning because there is no requirement that the fraud detection notice be sent to institutions in a timely manner, let alone before aid is disbursed, and students who later make a correction to their FAFSA application are re-evaluated by this system. The result is that applicants may be flagged throughout an academic term.

In addition to NAICU’s concern about notification timelines, some additional issues shared with the Senate include that:

• The bill should define what a “reasonable suspicion of fraud” is for a FAFSA applicant instead of leaving it to the Secretary’s discretion;

• The criteria for the detection system should be defined, written down, and available to Congress because the current system the Department is using is a black box and there are no transparency requirements in the bill to address that;

• The Department should provide students both a notification that their application has been flagged for identity verification and the basis for that flag; and

• There should be a safe harbor for institutions that have disbursed aid according to existing requirements before being notified that an application is potentially fraudulent.

While NAICU understands the Department’s need to address fraudulent FAFSA applications, it recommends that additional clarity and guardrails are needed to prevent the system from misidentifying, targeting, or being perceived as targeting, actual students as fraudulent.

If an institution has seen a significant increase in the number of identity verification requests for FAFSA applicants, especially if those flags are being disproportionately placed on certain types or groups of students, please contact Justin Monk, NAICU’s director of student and institutional aid policy at Justin@NAICU.edu.

For more information, please contact:
Justin Monk