How to Avoid Scholarship Scams

As college costs rise, scholarship scams employed by predatory companies continue to target prospective students and their families. A student searching for scholarships to help pay for college might find lengthy surveys promising a pot of money waiting at the end, an inbox cluttered with spam emails and U.S. Department of Education logos emblazoned across websites asking for an upfront fee to apply.

The latest data from the Federal Trade Commission’s report released in February says it received 725 consumer reports of problems related to scholarships and educational grants in 2018. This is down slightly from the prior two years, in which the FTC received 972 consumer reports of problems with scholarships in 2016 and 770 reports in 2017. These data are based only on consumer reports of issues, and therefore do not reflect the actual number of fraudulent incidents.

But new Better Business Bureau numbers indicate a possible surge in 2019.

“BBB Scam Tracker doesn’t get very many reports of scholarship scams — a few dozen a year — but we’ve seen a big jump recently,” Katherine Hutt, spokeswoman for the Council of Better Business Bureaus Inc., wrote in an email. “So far in 2019, we’ve received 24 reports, which is more than we got in all of 2018 (21).”

Though reported scams can be uncommon, families seeking a legitimate scholarship to help pay for college may still have to weed through suspicious websites, official-sounding emails claiming they won money for scholarships to which they never applied and Facebook ads linking to illegitimate sites, experts say. Reports of student loan scams are historically higher than those of scholarship fraud.

[Read: 11 Private Scholarships to Help You Pay for College.]

“The FTC has identified hundreds of complaints every year about these scholarship or educational grant scams,” says John Breyault, vice president of public policy, telecommunications and fraud at the National Consumers League. “But what’s just as interesting is how many students are complaining to them about fraud related to the student loan industry. So it’s unclear whether those student loan complaints are encompassing offerings that are scam scholarships as well, and those numbers are in the thousands.”

Federal student loan identity theft reports in 2018 were up 119 percent over the previous year, according to the same FTC report, and consumer reports of student loan problems with banks and lenders in 2018 numbered 29,346.

Common Types of Scholarship Scams

A typical student might piece together a combination of family income and savings, student loans and scholarships to pay for college. The 2018 How America Pays for College report released by Sallie Mae shows that scholarships hold a small but significant role. The report says in 2017-2018, families paid for about half the cost of college using income and savings, while relying on scholarships and grants to pay for 28 percent of the cost and using loans for the remaining 24 percent.

[Read: 7 Tips to Fund College With Scholarships.]

Students are prime targets for scholarship scams, experts say. A combination of inexperience, vulnerability and desperation as college costs increase and states cut funding for public institutions create a perfect storm. Students represented 9.4 percent of fraud reports submitted to the BBB Scam Tracker in 2018, and about 24 percent of students reported a loss when exposed to a scam, compared with only about 28 percent of non-students, Hutt says.

Experts say the two most prominent red flags are when students are selected for college scholarships they never applied for, and when students are asked to pay an advance fee to be eligible for a scholarship.

“The biggest red flag is getting selected for a scholarship you never applied for. Often these offers ask for a ‘processing fee’ or require you to ‘pre-pay taxes’ before getting the award. Of course, once you pay the money, the scholarship disappears,” Hutt wrote in an email. “Another variation is a fake check scam, where you deposit what looks like a real check and then are asked to send part of the money back to cover fees. When the check later bounces, you are out the money.”

“There are unfortunately companies out there who prey on students and their parents who are concerned about their ability to pay for college, which seems to be getting more expensive every year,” Breyault says. “What they may do is employ pressure techniques or seminars on financial aid to entice people. They do things like say the scholarship is guaranteed or your money back. They may suggest they have some kind of insider information on financial aid information, when in fact that information is free and available from the federal government.”

Breyault says just like timeshare scams in which companies take individuals on a trip for a free weekend or steak dinner so that they can be subjected to high-pressure sales techniques, the same occurs in the realm of student financial aid.

Companies pressure students and their families with success stories and testimonials, as well as promising large scholarships to students in exchange for fees, while being vague about the amount they charge for these services. The companies hosting financial aid seminars can go by innocuous-sounding names, he says, like the Financial Education Benefits Center or American Financial Student Services.

“These are names selected to not raise alarm bells with consumers,” Breyault says, “so that’s why it’s so important that people who are approached by one of these companies to do your homework and ask questions.” Some consultants have created what Breyault calls a “cottage industry” for financial aid and scholarships, in which they make false guarantees or entirely fraudulent claims.

The U.S. Department of Education also cautions against various forms of financial aid fraud, including falling for commercial services that target families at seminars, via telemarketers or online and specifically guarantee student aid. The Office of the Inspector General similarly warns consumers against for-profit companies charging high rates to connect students with scholarships, but never follow through.

Tips to Avoid Falling for Scholarship Scams

To avoid becoming a victim of these scams, students should generally not provide their Social Security number or bank account information, or pay an upfront application fee for a scholarship. They should research the scholarship provider and look for past winners to demonstrate the award’s history of legitimacy.

Breyault recommends students correspond with any private consultants or companies about scholarships in writing to create a record of any promises made. He says if any consultants or companies are hesitant to correspond in writing, that may be a sign of fraudulent activity.

And while students might be wary about entering their credit card information, they should also think twice before providing any personal information to suspicious sites. Some scams are mining student data and information through surveys and basic contact forms.

[Read: Protect Your Privacy When Applying for Scholarships.]

“The personally identifying information on young adults can be sold over and over to scammers and marketers, so it is entirely possible that some of these sites exist just to collect (personal identifying information) on young consumers,” Hutt wrote.

Scholarship scams can be confusing for parents and students because legitimate scholarships offering money for college that does not have to be repaid do exist. Federal, state and institutional scholarships and grants are available to students fitting a range of profiles, including those that are either need- or merit-based.

To be considered for financial aid, including the federal Pell Grant for undergraduates who demonstrate exceptional financial need, students should complete and submit the Free Application for Federal Student Aid, or FAFSA. Students should rely on resources from the Department of Education for information about federal financial aid, which can help families pay for costs like tuition and room and board, and talk with financial aid officers at their institutions for reliable information.

Another safe bet for help with scholarships could be a student’s high school guidance counselor, says Blaine Blontz, founder and lead consultant of Financial Aid Coach, a consulting company based in Philadelphia.

In addition to federal financial aid options and resources, he recommends families keep their scholarship search local.

“For scholarships, generally the best use of time for families is to maximize what they are applying for through the colleges (most schools consider for scholarships with just admissions and financial aid applications, but some scholarships have one-off forms) and then also their communities,” Blontz wrote in an email. “There are often smaller scholarships available through the student’s high school, places of worship, parent’s employer, or other organizations the family is a part of.”

If students encounter a fraudulent scholarship or feel they have fallen victim to a scholarship scam, experts encourage them to report the website or company to the Federal Trade Commission and the Consumer Financial Protection Bureau.

Trying to fund your education? Get tips and more in the U.S. News Paying for College center.

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