Consumer Education & Personal Finance
Feature Article

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Scholarship Scams

By: Dr. Bernice Wilson

Many high school graduates seek academic scholarships or some other type of scholarship to finance their college education. Since funding is not in ample supply, students turn to various places to find scholarships. Scholarship seekers have some protection against this type of fraud.

In 2000, Congress passed the College Scholarship Fraud Prevention Act to help federal agencies crack down on scholarship scams. This act charged three federal agencies with the task of establishing guidelines to provide stricter sentencing penalties for criminal financial aid fraud. Nevertheless, students should exercise caution when applying for scholarship funds. Moreover, the Federal Trade Commission, the Department of Justice, and the Department of Education submitted an annual report to Congress about their ongoing efforts to fight scholarship and financial aid fraud. Copies of current reports are available online at http://www.ftc.gov. Additionally, the FTC publishes a collection of materials to help consumers avoid scams.

Students should consider the following when looking for financial aid:

• If it sounds too good to be true, then it probably is.
• If you are asked to pay money in advance to receive money, there is the possibility that it could be a scam.
• Rather than spending money in advance to receive a scholarship, it would be wiser to spend more time researching and checking the reputation of the firm or foundation for legitimacy and integrity. Reputable scholarship foundations do not require application fees. In other words, you should spend no more than the amount it takes to mail a scholarship application.
• Always keep in mind that no one can guarantee you will be awarded a scholarship.
• Lastly, if you have doubts about a scholarship agreement, your intuition might be telling you the agreement is false.

Every year parents and students are tricked out of millions of dollars according to the website FinAID, The Smart Guide to Financial Aid. Students and their families lose more than $100 million annually and many of these scams pretend to be affiliated with and operated by "legitimate government agencies, grant-giving foundations, education lenders and scholarship matching services, using official-sounding names containing words like 'National,' 'Federal,' 'Foundation,' or 'Administration.'"

In the 2007 listing of top telemarketing scams published by the National Consumers League (NCL), grant frauds ranked number eight with an average loss of $3091.22 per victim. This figure indicates a 50 percent increase from $2,036 in 2006.

The NCL's Internet Fraud Watch offers consumers these tips to avoid scholarship scams:

• Find out if the funding organization is legitimate.
• Beware of search services that guarantee you'll receive scholarship money.
• Be cautious about e-mails that offer scholarship assistance.
• Get all the details.
• Make sure you understand the refund policy.
• Conduct your own scholarship search.

FinAid also offers tips to school personnel to help protect students from scholarship fraud:

• Research the funding organization before releasing a student's private information. The Family Educational Rights and Privacy Act could possibly prohibit the release of such information.
• Monitor how lists such as the dean's or honor roll lists are being used. Test how the list is being used by submitting fake information.
• If you are using a "third-party" organization such as an outside publisher, make sure they do not release private student information without written permission.
• Inform parents or guardians if you encounter any problems. They may need to take additional steps to safeguard financial information.

FinAid! (2008). Protecting yourself from scholarship scams. Retrieved October 24, 2008.

FinAid! (2008). Scholarship scams. Retrieved October 24, 2008.

National Consumer League. (February 22, 2008). Con artists prey on consumer vulnerability, lurk online, make deceptive pitch via phone, email. NCL News. Retrieved October 24, 2008.

National Consumer League. (n.d.) Scholarship scams. Internet Fraud Tips from the National Consumer League's Internet Fraud Watch. Retrieved October 24, 2008.