Scam Busters: Shady Scholarships


College-bound high school seniors and their families who are wondering about how to pay for school should beware of what appears to be easy money.

Specifically, beware of any unsolicited notice in your mailbox that says you've been awarded a scholarship. (And any notice that asks for money before providing a list of scholarships should be scrutinized, too.)

According to the government, scholarship scams are on the rise. For that reason you’ll want to make sure the money is actually available and that it is coming from a legitimate organization.

In 2000, Congress passed the College Scholarship Fraud Prevention Act to help federal agencies crack down on scams targeting new students. But despite the best efforts of authorities, the scams continue, and experts say the slumping economy is leaving students and parents more vulnerable scholarship scammers.

“With so many people out of work, there’s a greater anxiety about how to meet the cost of college,” says Jim Boyle, president of the College Parents of America. “Parents are looking for ways to get money and there’s a certain desperation in the air.”

How the Scams Work
According to the Federal Trade Commission, scholarship scams come in two forms: a request for money in order to “claim” an award, or a request for payment in order to access a scholarship list or book.

In the first case, students are told they've been selected as a finalist for a scholarship. But first they’re asked for their bank account information to "confirm eligibility for the award” and to hold the prize. The phony company then uses the information to make unauthorized transactions or to set up a withdrawal.

The FTC says the other way student lose money usually involves companies that advertise scholarships that “you won’t find anywhere else.” For, say, $200, they will send you a list. And they say you can only receive the prizes through them. All other information is promised once you purchase the kit.

But the Better Business Bureau says legitimate scholarship services will always tell students and families upfront what will be provided. What's more, the so-called “secret” lists of scholarships are available online, through your guidance counselor or at the local library, for free.

As for the $200 you paid? Consider it gone. The companies often sell your name and information to other third-party sites, placing you on a mailing to receive spam and junk mail.

Warning Signs
If you’ve been notified of the scholarship through an unsolicited email or an envelope stamped as “bulk” or “advertising,” chances are you’re dealing with a scam. Also be wary of foreign addresses or anything coming from a post office box.

Be sure to look into the company that’s offering you this supposed scholarship. If you’ve never heard of the organization, do a quick Google search (Stock Quote: GOOG) and see what comes up. The Better Business Bureau also keeps a list of suspect companies, so you can compare your experience with others.

If you’ve been forwarded to a website, make sure to click past the home page and read through the site. “It’s a clear indicator that’s it's a scam if the website has no content to speak of, but is asking you for personal information,” says Boyle.

Any organization asking for money upfront is also suspicious. “A legitimate scholarship does not charge an application fee or a processing fee,” says Rod Bugarin, a financial aid advisor at independent school counseling firm IvyWise.

And no organization can guarantee money: “A scholarship committee has different criteria as to how recipients are determined and it’s based on all these contingencies,” says Bugarin, “It’s like saying you guarantee a tax return. Everyone’s case is different and there’s no way you can guarantee a set amount.”

Of course most scams can be avoided simply by using your common sense. How can you be a finalist in a contest you never entered?

Lesson Learned
Experts say the vast majority of scholarships come through the financial aid office of the school the student has chosen to attend. Boyle says to look for scholarships labeled as “institutional aid.” That means the money is provided directly by the school.

In the end do your research before accepting any scholarship offers. “Any offer that sounds fishy should be approached with caution,” says Bugarin. And remember that “free money” should be exactly that: free.



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