Beware of Scholarship Scams
Scholarships can be a great way for you to pay for college. But unfortunately, there are also many scholarship scams out there that target unsuspecting students. These scams can take different forms, from promising guaranteed scholarships for an upfront fee to asking for personal and financial information under the guise of helping to apply for a scholarship.
In this article, we share what you need to know to avoid falling victim to these scams. We tell you what to look for and how to know if a scholarship is a scam. Then we share how you can report this sort of activity if you happen to experience it. With this insight, you can protect yourself and your financial information.
What is a Scholarship Scam or Fake Scholarship?
A scholarship scam is a fraudulent scheme that targets students and families planning for college expenses. In a scholarship scam, the scammer typically promises to help you find and obtain a scholarship but will instead take your money. The scammer may ask for an upfront fee to cover "application costs" or ask you to provide personal and financial information under the guise of helping you apply for a scholarship. But instead of using this information to help, they use it to steal your identity or harm you in another way.
Other types of financial aid scams include offers to refinance a student loan, change repayment plans, postpone loan payments, or qualify for loan forgiveness.
Signs of a Scholarship Scam
These are some of the most common characteristics of scholarship scams:
- Charging a fee. Most scholarship scams charge some kind of fee. The fee may be small and reasonable, such as an application fee, processing fee, or taxes. But legitimate scholarships do not charge any fees.
- Requesting unusual information. Beware of scholarships that ask for your credit card number or Social Security Number. Scholarships do not need these things to verify your identity or hold the scholarship. Scholarship providers are not required to report scholarships to the IRS unless the scholarship is a fee for services.
- Asking for your bank account number. Sounds innocuous, but a scam artist can empty your bank account with just your bank account number and the routing number. They can issue a demand draft to withdraw money from your account without your signature.
- Telling you that you won a scholarship, but you never applied. One scholarship scam deceives students by sending them a letter congratulating them on winning a scholarship but then asks you for an application fee.
- Claiming to be a foundation or tax-exempt charity. Check whether the organization really is a foundation using the Exempt Organizations Select Check tool, formerly known as IRS Publication 78.
- Sends you a scholarship check. Do not send anyone a check for the excess if it seems that they "overpaid" you. The scholarship check may look real, but it is a forgery and will bounce after you deposit it. To add insult to injury, your bank will probably charge you for the bounced check.
- Offering a guarantee. Nobody can guarantee that you’ll win a scholarship!
- Claiming exclusive access to scholarships. Some paid scholarship matching services claim that you can’t get this information anywhere else. But if you think about it, that's crazy. Why would a scholarship provider try to keep their scholarships secret?
- Advertising a high success rate. Paid scholarship matching services sometimes say that many of their clients win scholarships. But only about 1 in 8 students win private scholarships, and the average amount received is less than $4,000.
- Saying that millions or billions of dollars of scholarships went unclaimed last year. The unclaimed aid myth has been around for decades, but it is just as bogus now as it was 40 years ago. Most scholarships have more applicants than money. The few unclaimed scholarships cannot be claimed as they have very restrictive criteria.
- Creating a false sense of urgency. Although scholarships do have deadlines, they aren’t awarded on a first-come, first-served basis.
- Saying they are approved by a reputable organization. Some scams will falsely claim to be affiliated with the U.S. Department of Education or another government agency. But the federal government is prohibited from endorsing private businesses!
- Offering a free seminar or interview. Free seminars or one-on-one interviews are nothing more than high-pressure sales pitches for a product or service.
- Looks fake or unprofessional. Scholarship scam offers often contain spelling and grammar errors. They often do not have telephone numbers and may have a mailing address that is a P.O. Box or a mail drop.
How to Avoid Scholarship Scams
If a scholarship charges a fee, ignore it. Real scholarships don’t charge any fees! You should also look for scholarships through trusted sources, like the Cappex database. Cappex uses a rigorous screening process to review scholarships before adding them to our scholarship database.
All in all, trust your instincts. If a scholarship sounds too good to be true, ask your school counselor or college financial aid administrator about it.
How to Report a Scholarship Scam
If you encounter a scholarship scam, report it to the following law enforcement authorities. By reporting a scholarship scam promptly, you may help save other students from becoming victims too.
- Report the scam to the National Fraud Information Center (NFIC) at 1-800-654-7060 or visit www.fraud.org. The NFIC shares information with the Federal Trade Commission (FTC) and the state attorney general.
- You can also report the scam directly to the FTC by filing a complaint form or calling 1-877-FTC-HELP (1-877-382-4357).
- The U.S. Postal Inspection Service investigates mail fraud, which includes scams sent by postal mail. Report such scams using the online complaint form. Or you can call 1-877-876-2455 (say “fraud”) or 1-800-654-8896.
- To report fraud involving federal student aid funds, such as FAFSA fraud rings, contact the Office of the Inspector General at the U.S. Department of Education by calling 1-800-MIS-USED (1-800-647-8733) or filing a report using the OIG Hotline.
The College Scholarship Fraud Prevention Act of 2000 (P.L. 106-420) created enhanced penalties for scholarship fraud to encourage law enforcement to prosecute scholarship scams.
Looking for Trustworthy Scholarships?
Now you know how to spot and avoid a scholarship scam. So it makes sense that you'd want to go to a trusted source for scholarships. Create a free Cappex account, and you'll have access to our extensive and up-to-date database of scholarships, all pre-screened for you to ensure your safety.