Student Aid Scams

by Lisa Sousa

Getting a college education is very expensive for the average student. With tuition and various other fees, one year alone can equal the same amount as an average person's yearly salary. Due to increasing costs of college expenses, parents and students alike are looking to financial aid for assistance. Unfortunately, in their search, many fall victim to student aid scams that promise scholarships, but debit their bank accounts instead.

What Are The Types Of Scholarship Scams To Look For?

Some of the most common types of scholarship scams are:

The Guaranteed Scholarship Search Service: Often requiring a fee, these types of services often say that they will guarantee that the student will win a scholarship or the student will get their money back. Unfortunately, students and parents who fall to this scam would never see the list of matching scholarships or the money they put up front. The company would either pocket the money for themselves and disappear, or the victims would find it very difficult to get a refund if a list of "matching scholarships" is received.
Investment Required for Federal Loans: Some brokerage firms and insurance companies will hold sales pitches for insurance, annuity or investment products and cleverly disguise them as free financial aid seminars. It is a violation of both state insurance laws and federal regulations for such companies to hold sales pitches that imply purchasing such a product is a prerequisite to receiving federal student aid.
The Scholarship Prize: This scam notifies the student that they have won a scholarship worth thousands of dollars, but in order to receive that money, they have to pay the taxes, "disbursement fee" or other fees.
The Advance-Fee Loan: An unusually low interest loan is offered to the student or parent with a requirement to pay a fee before the loan is received. When the student or parent pays the loan, the loan that is promised never materializes. Real loan fees are deducted from the disbersement check.
Scholarships that Never Materialize: These scams encourage their victims to pay them money up front with little or nothing in exchange. Leading the victims to think that they simply did not win the scholarship.
Scholarships for Profit: These scams looks legitimate, but require application fees of $5 to $35 each. With 5,000 to 10,000 applications, these scams can afford to pay $1000 scholarships if they pay any at all and still make a very good profit. Which leaves little to no chance of winning any scholarships.

What Are Some Of The Tell Tale Signs Of A Student Aid Scam?

Here are some of the "red flags" to look for when searching for student aid:

Notification by phone: You will receive notification through the mail if you have won a scholarship. Notifications are not done by phone.
Typing and spelling errors: Errors in typing and spelling as well as overall unprofessional look of an application is a good indicator that it might be a scam.
A runaround or nonspecific information: If you do not receive clear and direct answers to your questions and/or they repeat the same lines over and over, it is likely that they are reading from a script and that the offer is a scam.
If you receive abusive treatment: It is probably a scam when you ask questions and the caller swears or becomes abusive.
A company that is newly-formed: Ask for references if a newer company contacts you. Many foundations that contribute aid money have been established for many years.
Unsolicited opportunities: Many scholarship programs will contact you after you have made an inquiry to them. If it is an organization that you have never heard of before, more likely it is a scam.
No telephone number: Most of the legitimate scholarship programs offer a phone number with their application materials so they can be reached if you have questions.
A Florida or California Address: Unfortunately, a very large number of scams come from Florida or California.
Failure to Substantiate Awards: It is probably a scam if the company cannot prove that its scholarships are actually awarded and disbursed.
"Everybody is eligible": You must fit a certain criteria in order to get a scholarship. Some award academic merit while others award musical, athletic and other merits or criteria. With all scholarships, certain restrictions do apply.
If you receive notice that you are a finalist in a contest that you have never entered or have been "selected by a 'national foundation' to receive a scholarship"
When they ask for personal information such as a bank account, credit card, calling card or social security number, it is probably a scam. These numbers are tools to use for identity theft.
When they say they will do all the work for you: You must submit your own paperwork and submit your own letters of recommendation in order to win a scholarship.
When they claim that the "scholarship will cost some money.": Legitimate scholarship sponsors never require an application fee or a fee to receive information about a scholarship. As for loans, legitimate loans deduct the origination and guarantee fees from the disbursement check.
When the scam masquerades itself as a federal agency: If an offer is received by an organization with an official sounding name, be sure to check whether there really is a federal agency with that name.
Excessive hype: When a brochure uses excess hype and/or overstates claims of effectiveness, be wary. If it sounds too good to be true, it probably is.
Time pressure: If they pressure you to respond quickly but they would not give the results for a few months, it is also a scam. Legitimate scholarship sponsors make awards on a rolling basis.
Scholarship matching services do not have any control over the awarding of scholarships by third parties. So beware of those who claim to have influence with scholarship sponsors.
The US Chamber of Commerce, US Department of Education and the federal government do not recommend or endorse private businesses. If they claim to have university, government, Chamber of Commerce or Better Business Bureau approval, be wary.

What Are Some Tips For Me To Avoid Such Scams?

Here are some practical tips that will help you avoid being a victim of scholarship or aid scam:

Do not respond to unsolicited offers no matter how good they sound.
Address any concerns you have and do not spend any money if you feel uneasy about an offer. Trust your instincts because your first suspicious reaction to an offer is often correct.
Never rely on verbal promises and get any offers, cancellation and refund policies and guarantees in writing before sending money if a fee is required. Be sure to read all the fine print.
Never give out personal information to strangers such as checking account, credit card or social security numbers no matter how reasonable-sounding the request.
Ignore offers that put time pressures on you. If the company demands an immediate response, just hang up on them.
If an organization approaches you, ask them where they got your name. If they got your name from a reputable source, go and verify it with that source.
Research the company to see if it has a listing by contacting Directory Assistance by dialing 1 then the area code, then 555-1212 (or toll free at 1-800-555-1212). You can also search online by going to Yahoo People Search, WhoWhere, Zip2, WorldPages, Switchboard, BigBook or 555-1212.com
Keep good records of the interaction with the company by taking notes during phone conversations and photocopying the promotional materials and correspondences. If you find yourself a victim of a scam with this company, include the materials with your complaint to law enforcement agencies.
Be wary of any fees involved even if it is a legitimate organization. Responding to an offer with an up-front fee is never in your best interest.
Get an opinion from a trusted source such as a guidance counselor, local reference librarian, or a financial aid administrator at a local college or university.

Scholarship and aid fraud has costs its victims millions of dollars and delivered many broken promises and dreams. It has become common enough that the College Scholarship Fraud Prevention Act was passed. This Act states that more people should be aware of scholarship scams and asks ED and the Federal Trade Commission (FTC) to step up awareness efforts. With these efforts, students can avoid these scams and receive the financial aid they deserve for their education.