eFinancial Portals

As college costs continue to rise annually, students and their parents are constantly looking for ways to help pay for college. In fact, the cost of a 4-year private university can be as much as $25,000 annually, while an Ivy League school can cost as much as $55,000 or more annually. For that reason, obtaining college scholarships can be quite tempting to both students and parents alike. The opportunity to obtain free money for college is often just too good to pass up. Unfortunately, there are many scholarship scam artists out there who know this, and, as a result, target unsuspecting students and parents to rob them of their hard- earned money.

Each year, students and their families lose over $100 million on scholarship scams, according to FinAid. These scams affect hundreds of thousands of students and parents. What’s worse is that many of these scams are perpetrated by what appears to be legitimate organizations, foundations, and even government agencies with official sounding names.

While there are various types of scams out there, each have similar tell-tale signs that should raise a red flag in your mind:

1. You must pay money up front to apply for the scholarship.
2. You are guaranteed a scholarship.
3. You are selected as a finalist in a contest of which you are not aware.
4. You are informed that everyone is eligible for these scholarships.
5. You are told that you can’t find these scholarships anywhere else.
6. You are told about affiliations with universities, government, and other reputable organizations.
7. You must respond quickly or you will ineligible.
8. You must provide your credit card number to “hold” your scholarship.
9. You are given no telephone number or physical address on the website.
10. Scholarship offer sounds too good to be true.

The tell-tale signs above will serve as a good gauge for spotting potential fraud. As a rule of thumb, legitimate scholarship foundations do not charge fees to apply for their scholarship. If you are applying for a scholarship in the first place, you are less likely to have money to pay for fees associated with an application. Legitimate organizations understand this, and, thus, don’t charge an application fee.

Beyond the tell-tale signs above, many scams also claim to save you time. A large part of their lure is that they make the process easy, which essentially equates to your getting something for nothing. However, this defeats the purpose of applying for the scholarship in the first place, as many scholarships require an essay, a detailed student profile, and an application. This process can take days, weeks, or even months.

Common Scholarship Scams

While all scholarship scams are not the same, many of them are quite common. The list below includes some common scams:

• Application Fee - These fees are often disguised as administrative fees and can be as low as a few dollars up to several thousand dollars. This should signal a red flag, as most legitimate scholarship sponsors do not require an application fee. In most cases, you are told that by paying the fee you will be entered into various scholarship contents. If you never hear back, you just assume that you did not get the scholarship, when in fact, they never applied on your behalf.
• Scholarship Matching Service Fees - These fees are associated with finding scholarships that meet your specific background and attributes. Scam artists often mention that millions of dollars go unused each year because the wrong candidates apply. This simply is not true, as most scholarships are highly competitive.
• Advance-Fee Loans - These fees are associated with finding educational loans with very low interest rates. The fees are often called: processing fees, origination fees, guarantee fees, application fees, etc. Most loan companies make the money from interest over the life of the loan and any upfront loan fees are deducted from the disbursement check.
• Financial Aid Seminars - While there are many legitimate financial aid seminars offered by highly creditable organizations, many scam artists disguise their bona fide sales presentations as financial aid “seminars.” During these sales presentations, they pitch insurance, annuities, and other investment products. They tell you that you must purchase one of these financial products in order to be eligible for the scholarship. This is a crime in and of itself, as federal and state laws prohibit the purchase of a product as a prerequisite to receive federal financial aid.
• Scholarship Prize - This scam claims that you have already won a scholarship contest even though you never entered one. To claim your prize, you are advised to send in an administrative fee. In most cases, once you send in the fee, you never hear back from the organization.
• Apply On Your Behalf– This scam claims to apply for numerous scholarships on your behalf. This should be a warning indicator, as most scholarships require that the application, essay and other requirements be completed only by the applicant. Generally, the only thing that can be completed by someone other than the applicant is a letter of recommendation. Other than that, all paperwork must be completed by the student. Further, most applications require quite a bit of personal information that only the applicant would know.

As you can see, there is a long list of scholarship scams out there. Unfortunately, it’s likely that these scams will continue to grow and become more sophisticated. You should keep in mind that if something seems too good to be true, it probably is.

Reduce Your Chances of Becoming a Victim

When all else fails, here are some key steps you can take to further reduce your chances of becoming a victim of a scholarship scam:

1. Get an independent reference from a trusted source, such the Federal Trade Commission, Better Business Bureau or Department of Education.
2. Call directory assistance to determine if the company is really legitimate. Use “411” or the toll free directory assistance “800-555-1212.”
3. Check various directory assistance websites, including: Yellow Pages and Switchboard.
4. Check to see who registered the domain by visiting: WhoIs.net, Network Solutions, or Domain Tools.
5. Never give the numbers of your checking account, savings account, credit card, social security, or other personal information to scholarship search companies.
6. Never respond to unsolicited scholarship offers.
7. Have all scholarship offers sent to you in writing. Be sure to understand the offer completely, along with the cancellation and refund policies.

How to Report a Scam

Should you become a victim of a scholarship scam or you suspect a scholarship program might be a scam, here are some steps you can take to report it:

• Check with your school’s financial aid department or guidance counselor to determine if they know about the scholarship program. If they do not, proceed to the next steps:
• File a report with the Federal Trade Commission (FTC). You can also complete an online Complaint Form, call 1-202-FTC-HELP (1-202-382-4357), or call toll free at: 1-877-FTC-HELP (1-877-382-4357).
• File a complaint with the U.S. Department of Education, Office of the Inspector General. You can also call 1-202-245-6911.
• File a complaint with the Better Business Bureau (BBB). You can also call 1-703-276-0100.
• File a complaint with the National Fraud Information Center (NFIC). You can also call 1-800-876-7060.

Scholarship scams continue to be a pervasive problem in the U.S. To learn more about what the government is doing to help thwart the efforts of scam artists, review the College Scholarship Fraud Prevention Act of 2000. Essentially, this act increases the penalties for people who are convicted of scholarship scams and publishes a list of scam defendants on the Federal Trade Commission website.