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A Kent, Washington, man has filed a federal lawsuit against the U.S. Department of Education and Education Secretary Linda McMahon, alleging the agency wrongly held him responsible for a student loan he never took out.
Kenneth Snyder filed the complaint on Monday with the U.S. District Court for the Western District of Washington against McMahon and Richard Lucas, the chief operating officer of Federal Student Aid.
The case comes shortly after House lawmakers passed a bill aimed at stopping “ghost student” fraud, where criminals use stolen identities to obtain federal financial aid.
Why It Matters
Snyder’s case reflects a growing vulnerability in the federal student aid system, where identity theft can often translate into real financial harm for victims. Beyond credit damage and potential collections, victims often deal with debt appearing on their credit reports. This can lead to difficulty securing housing or loans and lengthy disputes with federal agencies later on.
What Snyder’s Lawsuit Says
The lawsuit alleges that someone used Snyder’s name, Social Security number and date of birth to enroll at a New Jersey college in March 2024.
The impersonator took out a federal student loan of about $5,500 and received a $7,000 Pell Grant, even as Snyder says he has never been to New Jersey.
He discovered the account months later after it appeared on his credit report, according to the complaint. He says he has since filed identity theft reports with multiple agencies.
Despite those steps, the lawsuit alleges that the federal government continued to hold him responsible for the debt.
“In this situation, an individual’s identity was stolen in order to receive a student loan. When the person committing the fraud ‘dropped out,’ they were refunded the loan amount,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek.
“What’s worrisome is scams like this appear to be growing more frequent, and individuals affected don’t find out until the loan either shows up on their credit report or comes due,” he continued.
What Is ‘Dropout Fraud’?
The complaint describes the scheme as a form of “dropout fraud,” in which a person enrolls in college using stolen identity information, secures financial aid and then drops out, keeping the funds.
According to local station K5, authorities in New Jersey told Snyder that the case involves multiple victims, suggesting the fraud may be part of a broader operation.
The lawsuit also alleges that the college involved had been aware of similar fraud incidents since 2022.
“Schools and the Department of Education should have stronger identity verification before loans are approved or funds are disbursed,” Kevin Thompson, the CEO of 9i Capital Group and host of the 9innings podcast, told Newsweek.
“Once the money enters the financial system, however, tracing it becomes much more difficult,” he said, “especially as digital payment networks and off-platform transactions make funds easier to move and harder to recover.”
Lawmakers Crack Down on ‘Ghost Students’
Snyder’s lawsuit comes as lawmakers are moving to address what they call “ghost student” fraud, which happens when criminals use stolen or fake identities to collect student aid and disappear.
Earlier this month, the House passed the No Aid for Ghost Students Act of 2026, which seeks to strengthen identity verification in the federal student aid system.
The bill would require the Department of Education to screen all FAFSAs, the Free Application for Federal Student Aid, for identity fraud and flag suspicious applications for additional verification before aid is disbursed.
“Since Day One, the Trump Administration has been committed to restoring existing fraud detection capabilities while building the most comprehensive fraud-detection system in the Department’s history,” McMahon said when the House passed the bill.
Even when identity theft is reported, individuals may still face difficulty getting fraudulent loans removed from federal systems.
“These loans often go unpaid, leaving unsuspecting victims to deal with the financial and legal consequences or forcing them to spend countless hours correcting a problem they never created,” Thompson said. “In many cases, the money is gone long before anyone realizes fraud occurred.”
What Happens Next
The lawsuit now proceeds in federal court, where Snyder is seeking relief from the loan obligation and damages.
Meanwhile, the No Aid for Ghost Students Act must still pass the Senate and be signed by the president to become law.
If enacted, it would mark one of the most significant federal efforts in years to combat student aid fraud.
“We’ve already started to see more identity verification in the loan application process, and I would expect that will only grow with time,” Beene said.
He continued, “The amount of fraud in student loans alone is estimated to be in the billions, and with so many security options now available, more will have to be utilized to ensure situations like this unfortunate one don’t occur again.”
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