As students increasingly rely on large language models, hallucinations pose a growing threat to learning. To mitigate this, AI literacy must expand beyond prompt engineering to address how students should detect and respond to LLM hallucinations. To support this, we need to understand how students experience hallucinations, how they detect them, and why they believe they occur. To investigate these questions, we asked university students three open-ended questions about their experiences with AI hallucinations, their detection strategies, and their mental models of why hallucinations occur. Sixty-three students responded to the survey. Thematic analysis of their responses revealed that reported hallucination issues primarily relate to incorrect or fabricated citations, false information, overconfident but misleading responses, poor adherence to prompts, persistence in incorrect answers, and sycophancy. To detect hallucinations, students rely either on intuitive judgment or on active verification strategies, such as cross-checking with external sources or re-prompting the model. Students' explanations for why hallucinations occur reflected several mental models, including notable misconceptions. Many described AI as a research engine that fabricates information when it cannot locate an answer in its "database." Others attributed hallucinations to issues with training data, inadequate prompting, or the model's inability to understand or verify information. These findings illuminate vulnerabilities in AI-supported learning and highlight the need for explicit instruction in verification protocols, accurate mental models of generative AI, and awareness of behaviors such as sycophancy and confident delivery that obscure inaccuracy. The study contributes empirical evidence for integrating hallucination awareness and mitigation into AI literacy curricula.