Every year, thousands of students and parents are defrauded by scholarship scams. The victims of these scams lose more than $100 million annually. Scam operations often imitate legitimate government agencies, grant-giving foundations, education lenders and scholarship matching services. They often use official-sounding names containing words like “Federal,” "National, or " “Foundation.”
Fraudulent scholarships can take many forms. In general, be wary of scholarships with an application fee, scholarship matching services who guarantee success, advance-fee loan scams and sales pitches disguised as financial aid “seminars”.
If you receive an offer that uses one of these tactics, be suspicious.
Certain signs can help you identify possible scams. The following signs do not automatically indicate fraud or deception. Look out for any organization that exhibits several of these signs and treat them with caution.
There are some steps you can take to avoid scholarship scams:
Many scholarship scams violate federal and state laws against fraud and false advertising. If you suspect that a scholarship program might be a scam, get a second opinion. Bring a copy of all literature and correspondence concerning the scholarship to your guidance counselor or your school’s financial aid office. They can provide you with accurate and current information and may be able to verify whether a foundation is legitimate.
To report a suspicious offer, write a letter summarizing your experience with the company to any of the anti-fraud organizations listed here. Be sure to include the details of your complaint, the steps you took to try to obtain satisfaction, and the company’s response. Provide as much information as possible. Include names, addresses, phone numbers, and copies of advertisements, letters and postcards. Include a copy of any notes you took during any telephone conversations with the company. Write down the date and time of the conversation, the name of the person with whom you spoke, and any important statements they made. Try to be as thorough as possible.
The following organizations can help you determine whether an offer is legitimate. They will tell you whether they have received any complaints about the company and whether it’s currently under investigation. They can also provide you with additional information or assistance.
The Scholarship Fraud Prevention Act of 2000 enhances protections against fraud in the offering of financial assistance for college education. It does so in three ways:
It increases the penalties for people who perpetrate scholarship scams.
It eliminates a loophole in the bankruptcy laws that allowed the scam artists to retain their profits by exploiting the homestead exemption.
It requires the US Department of Education , in cooperation with the Federal Trade Commission, to publish information about scholarship scams on its web site.
The penalties for people convicted of scholarship fraud include jail time and fines of up to $500,000.