Ahead of her appearance in a Boston court on Wednesday, a source close to Loughlin tells ET that the scandal has hit her and husband Mossimo Giannulli "harder than she could have ever imagined."
Loughlin and Giannulli allegedly paid bribes totaling $500,000 to have their two daughters, Isabella, 20, and Olivia, 19, designated as recruits to the University of Southern California crew team, despite not actually participating in the sport.
"When Lori was informed that she and her husband had been caught, she didn't realize the ramifications," the source says. "She's has been doing her very best to hold her head high, but inside she is devastated and frightened."
"Despite this entire ordeal, she and her husband have remained close throughout," the source adds.
The source also claims that Loughlin "is scared to death of the outcome of the case, but even more frightened regarding the broken trust with her children."
While Isabella has, according to the source, "stuck by her mother," Olivia "has actually claimed she never wants to speak to her again."
"Olivia claims she didn't know about the deals her parents made. The embarrassment she has felt in front of peers and followers has been a lot," the source says. "While Olivia has distanced herself and is staying with her boyfriend, her friends feel she is just processing this situation and working to get some distance until things calm down."
"Olivia and her mother have always been close and her friends feel they will for sure get through this," the source continues. "Olivia hasn't made a plan for the next step. She hopes one day she can start over with a clean slate but now isn't the time."
Despite the alleged tension between Loughlin and her daughters, the source says that "anyone close to their family knows Lori wants only the best for her kids. Her first priority in the world is her children and family."
"Lori wants to focus on rebuilding her family and healing, but with the case and everything that has transpired, she realizes she has a long road ahead," the source adds. "She knows she needs to regain her daughters' trust again."