Twelve and a half million dollars of Minnesota-based federal student aid fraud led federal Secretary of Education Linda McMahon to call for Gov. Walz’s resignation via a letter posted Monday on X.
Much of the fraud dates back to federal student aid policy changes enacted during COVID-19. During the pandemic, the Biden administration relaxed verification requirements on federal student aid connected to the FAFSA, requiring less than one percent of students to provide identity verification.
The Biden administration claimed that fraud protection would still be in place, but would focus on identity theft and fraud. A 2021 Brookings report called these changes “moves in the right direction,” pointing out that college financial aid offices, not the federal government, are responsible for administering FAFSA documents. It noted, “We estimate that community colleges…spend almost a quarter of their financial-aid-office operating budget on verification procedures alone, compared to only 1% at private universities.”
Unfortunately, it now seems clear that the new requirements quickly led to high levels of student aid fraud across the nation.
When students apply for financial aid, funds are initially disbursed to the school. Any leftover funds go into the student’s pocket, supposedly to pay for textbooks and other living and attendance costs. Would-be fraudsters falsely apply for colleges as “ghost students”, never intending to attend, and pocket the additional disbursed funds. Online, two-year, and community colleges are usually prime targets for this type of scheme, as tuition prices are generally low enough to ensure a substantial kickback and financial aid offices tend to be too small to catch malfeasance.
The grifters aren’t local, small-scale criminals. Reports from the U.S. Department of Education suggest that the fraudsters are generally “coordinated international rings” and “AI bots pretending to be students.”
Fraudulent activity not only inconveniences institutions of higher education, but can lead to steep financial penalties — for example, one Nevada college lost $7.4 million to scammers and had to pay back all fraudulently disbursed funds to the federal government. It’s believed that at least 34 percent of all California community college applications are now fraudulent.
Some Minnesota colleges have felt the impacts for years now. In an April 2025 testimony to the Minnesota Senate, Joe Haker, a history instructor at Century College in White Bear Lake, said that he found out in 2023 that 15 percent of his students were “basically an organized crime ring…The problem has worsened from there.”
A press release from the U.S. Department of Education highlighted that
In Minnesota, reports indicate Riverland Community College averaged more than 100 potentially fraudulent applications per year during the last two financial aid periods. In addition, Century College in Minnesota reports a similar rate of fraud to what is being seen in California.
Fraudsters exploiting Minnesota’s colleges have the opportunity to snag both federal and state grant aid. Minnesota State Grants were given to 71,500 students in 2024, with an average grant amount of $3,406. In total, $243 million was given in 2024. The only requirements to receive the gift aid are that 1) the student must be a Minnesota resident and 2) they must be taking at least three undergraduate classes at a qualifying Minnesota school. Under the Minnesota DREAM Act, signed into law in 2013 by Gov. Mark Dayton, undocumented students can file alternative requests for funds and still receive grants.
Lawmakers, including Sen. Heather Gustafson and former Minneapolis mayoral candidate Omar Fateh, put forward a bill in April 2025 to create a statewide working group to address the consistent fraud. The bill passed during the 2025 special session as part of the Higher Education omnibus policy bill. The working group must provide policy recommendations to the fraud prevention and state agency oversight policy committee in January 2026.
This past year, the federal Department of Education announced that it had discovered that nearly $90 million in federal student aid had been fraudulently disbursed, including more than $30 million disbursed to deceased individuals and more than $40 million disbursed to companies using bots disguised as fake students. In June 2025, the Department of Education announced that they were implementing stronger safeguards for identity verification. The new requirements included that all applicants show a physical ID to their registrar’s office either via video call or in-person visit.
The safeguards were a success. Last week, the federal Department of Education announced that the new safeguards had prevented a billion dollars’ worth of fraud. Minnesota has not yet created similar safeguards for state-based grants, but it is anticipated that new policies will follow the working group’s January report.
In a fiery letter posted on X this Monday, Education Secretary Linda McMahon reported that “In Minnesota, 1,834 ghost students were found to have received $12.5 million in taxpayer-funded grants and loans.”
Mentioning the continuous revelations of documented fraud connected to government programs, she called for Gov. Tim Walz’s resignation. She argued that Walz’s “careless lack of oversight and abuse of the welfare system has attracted fraudsters from around the world.”
While it’s undoubtedly true that Minnesota has seen unacceptable levels of fraud under the Walz administration, McMahon’s letter did not point out particular policies by the Walz administration that left Minnesota’s colleges uniquely vulnerable to fraud. Past press releases from the Department of Education have emphasized that the federal student loan fraud affects colleges across the country, and that the primary source of the fraud comes from international fraudsters. Colleges are independently responsible for submitting accurate requests for federal aid.
However, it is possible that Minnesota colleges are made a profitable target by the state’s Minnesota State Grant program, which predates Walz. If fraudsters can expect to gain both federal and state funds by one false application, it’s understandable that they might choose to direct their attention to the North Star State. Currently, there are no reports that there is large-scale fraud taking place in the Minnesota State Grant Program — but given the information being released by the federal government, lawmakers should turn their attention to the program to ensure that is truly the case.
