How VPNs, Proxies, and Other Anonymization Services Enable Fraudsters to Steal from the U.S. Federal Student Aid Program​

Many students and their families are currently completing the Free Application for Federal Student Aid (FAFSA) for the 2026-2027 school year. With application volume increasing, now is the time for the higher education system to be aware of potentially fraudulent activity.

Every year, billions of dollars in federal student aid support legitimate students pursuing higher education in the United States. But in recent years, new scams have emerged that siphon those tax-funded dollars into criminal hands. These schemes use stolen or fabricated identities to obtain federal aid without ever intending to attend classes, often obscuring fraudster identities with advanced anonymization tools like VPNs and residential proxies.

This post examines the “ghost student” scheme, the tangible risks it poses to both schools and taxpayers, the role that anonymization services play, and how higher education can utilize advanced IP intelligence to discover and stop these schemes from happening.

What Are “Ghost Students” and How Are They Able to Defraud Schools?

“Ghost students” are fraudulent identities – either synthetic (for example, AI-generated) or based on stolen personal data – created to secure federal student aid funds such as Pell Grants and student loans. Individuals as well as organized fraud rings use a combination of these identities, in addition to bot and script automation and anonymization services, to submit FAFSA applications that appear legitimate. Once enrolled, these ghost students may even upload homework or log into their college portal accounts just frequently enough to avoid suspicion. Once financial aid is disbursed, these ghost students disappear, leaving institutions and taxpayers to foot the bill.

This fraud has real financial consequences. Reports from the U.S. Department of Education (DoE) indicate that there were more than 150,000 suspect identities in the 2025-2026 FAFSA application cycle, amounting to millions of aid dollars at risk, and several noted incidents among community colleges.

The DoE announced an effort In June 2025 to combat these instances of identity theft and fraud, including:

• Verifying the identity of certain first-time FAFSA applicants – either in person or via live video – before federal aid funds are disbursed.
• Requiring enhanced checks on flagged FAFSA forms.
• Expanding identity verification to all FAFSA applicants starting with the 2026-2027 cycle as part of a centralized fraud prevention strategy.

How Anonymization Tools Help Obscure Fraud

Measures implemented by the DoE will help schools by verifying identity prior to fund disbursement, but they do little to address the most common tactic used to obscure a digital identity: the use of anonymization technologies.

VPNs (Virtual Private Networks)

VPNs route internet traffic through remote servers, masking a user’s real IP address. Using a VPN, a fraudster can appear to log in from multiple geographic locations, making them look like different individuals. This can aid in bypassing IP-based security rules that flag repeated attempts from the same origin. By hiding the originating IP, VPNs make it difficult for FAFSA systems or college IT teams to link suspicious applications back to any one source.

Residential Proxies

Residential proxies use IP addresses assigned to real consumer devices, making traffic appear as though it’s coming from genuine home users. That’s particularly useful for fraudsters because residential IPs are far less likely to be blocked compared to datacenter IPs. They also mimic normal behavior at the network level, making it harder for fraud-detection tools that rely on IP reputation to catch anomalies.

Other Obfuscation Techniques

Importantly, VPNs and residential proxies aren’t the only tools used by fraudsters. Tor networks anonymize traffic by routing through volunteer servers globally. Device fingerprint spoofing fakes device characteristics like browser, OS, and hardware signatures.

How to Use Advanced IP Intelligence to Detect Indicators of Fraud

As ghost student fraud grows more sophisticated, traditional controls like basic IP blocking or manual review are no longer sufficient or scalable. Modern fraudsters rotate IPs frequently, leverage large residential proxy pools, and mimic normal user behavior. To counter their tactics, institutions and government agencies are turning to advanced IP intelligence as a critical layer in modern fraud detection. IP intelligence delivers insights that answers questions like:

• Does this IP behave like a real student applicant?
• Is this network environment consistent with prior activity from this user?
• Is this IP infrastructure commonly associated with fraud or automation?

3 Key IP Intelligence Signals That Expose Fraud

1. Proxy and VPN Usage

Because ghost student fraud often relies on high-trust residential IPs, detecting proxy infrastructure is critical. Repeated FAFSA submissions from proxy-associated IPs, especially when paired with new identities, are a strong risk signal. Advanced IP intelligence can identify whether traffic is coming from commercial VPN providers, residential proxy networks, mobile proxy farms, or Tor exit nodes.

2. Geolocation and Velocity Anomalies

While any single anomaly may be explainable, patterns of implausible movement often indicate anonymization or account sharing. IP intelligence can surface inconsistencies that are difficult to explain legitimately, such as:

• Rapid geographic shifts between logins.
• FAFSA applications submitted from multiple states or countries within short time windows.
• Mismatches between claimed residence, institution location, and network origin.

3. Shared Infrastructure and Network Clustering

Ghost student fraud often occurs at scale. Clustering analysis helps expose organized fraud rings, even when each individual application appears legitimate in isolation. Advanced IP intelligence can identify:

• Multiple applicants originating from the same proxy subnet.
• Reuse of network infrastructure across supposedly unrelated identities.
• Coordinated submission timing from different “students” using the same proxy networks.

How Spur Helps Detect Key Fraud Signals in IPs

Ghost student fraud isn’t just an identity problem, it’s a network and infrastructure problem too. By analyzing how, where, and from what kind of network applicants connect, advanced IP intelligence gives institutions a powerful way to surface hidden risks that fraudsters work hard to conceal.

Spur delivers real-time IP intelligence that identifies VPNs, residential proxies, hosting providers, and other anonymization services commonly used in large-scale fraud. This gives institutions clear, correlated, and actionable signals when an application or account is attempting to conceal its true origin, without introducing unnecessary friction for legitimate applicants.

With Spur, you can centrally:

• Observe: Continuously observe global network traffic, anonymization infrastructure, and routing behavior across hundreds of millions of IP addresses and more than 1,000 VPN and proxy services.
• Enrich: Analyze and classify each IP using 20+ technical attributes spanning geography, ASN, tunnel metadata, and behavioral signals.
• Act: Distribute intelligence through flexible delivery options – API, on-prem data feeds, and edge session enrichment – and integrations into common security, fraud, and authentication tooling, ensuring the same fidelity and explainability everywhere.

To experience our high-fidelity IP intelligence in action, sign up for a free trial or contact us for pricing today.