Scholarship Scams

The Federal Trade Commission's Six Signs
that a Scholarship Service May Be a Scam

If you're thinking of using a scholarship service—check it out first to make sure you're using a reputable one. According to the Federal Trade Commission, here are six signs that a scholarship service may be a scam:

  1. The scholarship is "guaranteed" or your money back.
  2. The scholarship service will do all the work.
  3. The scholarship will cost some money.
  4. "You can't get this information anywhere else."
  5. You are a "finalist" in a competition you never entered.
  6. The scholarship service needs your credit card or checking account number in advance.

If this sounds like the scholarship service you're thinking of using, here's some advice from the FTC.

Every year, thousands of families fall prey to fraudulent scholarship companies that pose as legitimate foundations, scholarship sponsors, and scholarship search services. The scam artists advertise in campus newspapers, distribute flyers, send direct mail with toll-free phone numbers to students, and post home pages on the World Wide Web that essentially promise "free money for college." These scams target a vulnerable group of consumers: high school and college students and parents worried about paying for a college education. The scam artists "guarantee" students scholarships and grants "that you'll never have to repay." These companies charge advance fees ranging from $10 to $400. In most cases, consumers end up with nothing but a hefty credit card bill or a depleted checking account.

Many fraudulent companies claim that there is $6.6 billion in unclaimed student aid available each year through private funding sources (as opposed to colleges and government) and that they can tap into that "fund" for their customers. According to the scholarship experts, that "unclaimed funds" claim is a myth, based on an estimate of untapped employee tuition benefits that was published in a study over 10 years ago. The funds went unclaimed because they couldn't be used. In fact, less than one percent of the financial aid awarded each year comes from the private sector. Most financial aid comes from the government or from the schools themselves.

Many fraudulent companies "guarantee" that they have scholarships or grants for which the students already have qualified. That is, if the student pays an advance fee, he or she will get a scholarship. In reality, these companies search a database compiled from public information and provide a list of scholarships and grants to which students can apply and for which students may or may not be eligible. If the company offers a "money back guarantee," students usually are required to apply for each of the scholarships or grants listed by the fraudulent company and provide proof that they have been rejected by each one, a contingency not mentioned to students before they pay the fee. As a result, in most cases, the "guarantee" is worthless.

Other fraudulent companies provide nothing for the student's advance fee—not even a list of sources of potential aid. A number of scam operators use official-sounding names, such as "National Scholarship Foundation," or claim to have a Washington, D.C. location to project an aura of legitimacy. Some scam artists tell students they've been selected as "finalists"—but that the student will have to pay a fee for further consideration, or that scholarships are being held for the student. Students are frequently asked to provide their checking account number to "confirm their eligibility for an award." Then, they find out that large sums of money have been debited from their accounts.

If you want more information about whether a scholarship service is legitimate, check with your college financial aid office or call the National Fraud Information Center at 1-800-876-7060.

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Last updated 6 May 98