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Beware of Scholarship Scams

on June 20, 2017

Scholarship scams are a form of fraud where the scam promises to provide college scholarships. Most scholarship scams seek to get students and their families to pay money to the scammer, but some scams involve identity theft.

 

If you have to pay money to get money, it is probably a scam. Never invest more than a postage stamp to get information about scholarships or to apply for a scholarship.

 

Signs of a Scholarship Scam

 

These are some of the most common characteristics of scholarship scams.

  • Charges a fee. Most scholarship scams charge some kind of a fee. The fee may be small and sound reasonable, such as an application fee, processing fee or taxes, but legitimate scholarships do not charge any fees.
     
  • Requests unusual information. Beware of scholarships that ask for your credit card number or Social Security Number. Scholarships do not need your credit card number 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.
     
  • Asks for your bank account number. Sounds innocuous, but a scam artist can empty your bank account with just your bank account number and the bank routing number. They can issue a demand draft to withdraw money from your bank account. They do not need your signature.
     
  • Tells you that you won a scholarship, but you never applied for that scholarship. One scholarship scam deceived many students by sending them a letter that congratulated them about winning a scholarship but asked them to pay the application fee.
     
  • Falsely claims 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 for too much money. Do not send them a check for the excess. The scholarship check may look real, but it is a forgery and will bounce after you deposit it.

Scholarship scams often contain many spelling and grammar errors. They may have a mailing address that is a P.O. Box or a mail drop. They often do not have telephone numbers.

 

There are several additional signs of fraudulent scholarship matching services.

  • Offers a guarantee. Nobody can guarantee that you’ll win a scholarship.
     
  • Claims exclusive access to scholarships. Some paid scholarship matching services claim that you can’t get this information anywhere else. Why would a scholarship provider try to keep their scholarships secret? In fact, the free scholarship matching services have better and more up-to-date scholarship information than the paid services.
     
  • Advertises a high success rate. Paid scholarship matching services sometimes say that a very high percentage of their clients win scholarships. Nationally, only about 1 in 8 college students has won private scholarships and the average amount received is less than $4,000.
     
  • Says that millions or billions of dollars of scholarships went unclaimed last year. The unclaimed aid myth has been around for four decades, and is just as bogus now as it was 40 years ago. Most scholarships have more applicants than money. The few scholarships that go unclaimed cannot be claimed, as they have very restrictive selection criteria.
     
  • Creates a false sense of urgency. Although scholarships do have deadlines, they aren’t awarded on a first-come, first-served basis.
     
  • Suggests that 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. The federal government is prohibited from endorsing private businesses.

Also watch out for scams that offer a free seminar or a one-on-one interview that are nothing more than a high-pressure sales pitch for a product or service.

 

Other types of financial aid scams include the advance-fee loan scam, where you are charged an up-front fee to obtain a student loan, refinance a student loan, change repayment plans, postpone loan payments or qualify for loan forgiveness.

 

How to Avoid Scholarship Scams

 

If a scholarship charges a fee, ignore it. Real scholarships don’t charge any fees.

Use a free scholarship matching service, like Cappex Scholarships, which does not include any scholarships that charge application fees or other types of fees. Cappex uses a rigorous screening process to review scholarships before adding them to our scholarship database.

 

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 in a timely manner, you may help save other students from becoming victims of scholarship scams.

 

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 state attorneys 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 FTC publishes an article about scholarship and financial aid scams, as well as an annual report to Congress about scholarship scams.

 

The U.S. Postal Inspection Service investigates mail fraud, which includes scams sent by postal mail. Report such scams using the Postal Crime Hotline online complaint form or by calling 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.

 

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