Financial institutions are encouraged to report suspicious account activity that could point to fraud targeting federal student aid programs, according to an alert from Treasury’s financial crimes enforcement unit.
Friday, the Financial Crimes Enforcement Network (FinCEN) issued an alert on such fraud, providing background on its methodologies. It offers several “red flags” to help financial institutions determine whether activity they see may indicate potential fraud reportable on a suspicious activity report (SAR) under rules implementing the Bank Secrecy Act (BSA). The alert references a March White House executive order (E.O. 14249), “Protecting America’s Bank Account Against Fraud, Waste, and Abuse.”
The alert, issued in consultation with the federal Department of Education, its inspector general’s office, and the FBI, says fraud rings “use stolen and fraudulent identities, as well as other tactics, to enroll in educational institutions and unlawfully acquire funds from Federal student aid programs.” Such fraud, it notes, causes program losses and, in some cases, difficulties for real students enrolling in classes because of the number of fraudulently enrolled “students.”
“Because no single red flag is determinative of illicit or other suspicious activity,” it says, “financial institutions should consider the surrounding facts and circumstances, such as a customer’s historical financial activity, whether the transactions are in line with prevailing business practices, and whether the customer exhibits multiple related red flags, before determining if a transaction or attempted transaction is indicative of fraud or is otherwise suspicious.”
Below are the noted red flags:
- A customer who has no previous history of, or customer profile information that would be consistent with, enrollment at an educational institution receives a student aid refund, especially where the stated recipient of the refund listed in the transaction reference is an individual with no known connection to the customer. These funds are then rapidly transferred to another account via P2P or wire transfers, used to purchase digital assets, or used in transactions with online money services businesses that typically process international funds transfers.
- A customer uses funds received from a student aid refund to quickly purchase digital assets, which the customer then rapidly transfers to another digital asset wallet for no business or apparent lawful purpose.
- Multiple unrelated students use the same account for the deposit of federal student aid refunds.
- A customer’s account receives multiple student aid refunds, for no business or apparent lawful purpose, especially if the stated recipients listed in the transaction reference are unrelated individuals with no known connections to the customer. These funds may then be rapidly transferred to other accounts via P2P or wire transfers, used to purchase digital assets, or used in transactions with online money services businesses that typically process international funds transfers.
- A newly established customer account is funded solely by student aid refunds and lacks other financial activity. These funds may then be rapidly transferred, in whole or part, via P2P or wire transfers to other accounts, used to purchase digital assets, or used in transactions with online money services businesses that typically process international funds transfers.
- A business account receives multiple student aid refunds—especially if the stated recipients listed in the transaction reference are individuals with no known connections to the customer—for no business or apparent lawful purpose. These funds may be rapidly transferred to other accounts held by business entities or used in transactions with online money services businesses that typically process international funds transfers.
- A customer receives multiple P2P or wire transfers from accounts that recently received student aid refunds, for no business or apparent lawful purpose.
- Multiple accounts that receive a student aid refund are accessed from the same out-of-state or international IP address or the same device.
- Multiple accounts are created online within a short timeframe at a financial institution and receive student aid refunds on a one-to-one basis (i.e., one account receives one refund). These funds, in whole or part, may be rapidly transferred to other accounts via P2P or wire transfers, used to purchase digital assets, or used in transactions with online money services businesses that typically process international funds transfers.
FinCEN asks that institutions reporting suspected student-loan fraud to reference Friday’s Alert in SAR field 2 (Filing Institution Note to FinCEN) and the narrative by including the key term “FIN-2026-FSAFRAUD”; and select SAR field 34(z) (Fraud – Other) and include the term “Federal Student Aid Fraud” in the text box.
Release: FinCEN Issues Alert on Fraud Schemes Targeting Federal Student Aid
Alert: FIN-2026-Alert004
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