SCHOLARSHIPS AND FINANCIAL AID SCAMS
Article by PSECU's Loss Prevention & Security Unit
The cost of higher-level education is constantly rising, forcing students and their parents to look for financial help from any source. As a result, some families fall victim to scholarship and financial aid scams. The following is a list of the most popular schemes and details about how they work. Armed with this information, you can guard against unwittingly financing a fraudster’s next Caribbean vacation.
Paying for Scholarship Search Services. The perpetrator says he/she has “insider” connections to little-known scholarships. Or you’re told he or she works directly with the disbursement of scholarship monies. If you pay for the search services, at best you’ll receive only lists of scholarships offered by foundations and universities that are available to you at little or no cost from legitimate avenues.
Pay Up Front – Variations on a Theme. With this family of scams, the applicant is told to send money up front but then receives little or nothing in exchange. Usually victims simply believe they did not win the scholarship and cut their losses. Scholarships-for-profit are variations of this type of scam. When you apply, everything seems to indicate it’s a legitimate scholarship, but it may require application fees of $5 to $35. These scams can afford to pay out one or two scholarships and still make a profit. This type of scam works like a Ponzi scheme.
Another “pay up front” scam is known as the Scholarship Prize in which a solicitation is received via phone or e-mail to tell you that you’ve won a scholarship worth thousands of dollars. The catch? You have to pay a “redemption” fee or taxes before the “prize” can be released.
The last “pay up front” con is the Advance Fee Loan in which you receive an offer for an unusually low interest rate on a student loan. All you have to do is pay a fee before the loan is received. After the fee is paid, of course, the promised loan never materializes. Just remember that legitimate student loans deduct fees from the disbursement check and never require an “up-front” fee when the application is submitted.
The last fraud scenario involves unscrupulous companies that offer free financial aid seminars that are actually sales pitches for insurance and other investment products. When a sales pitch implies that buying investment products is required to receive federal student aid, it violates federal regulation and state insurance law.
There are some precautions that may help protect you from fraud involving scholarships and financial aid. A few helpful tips include:
- If it sounds too good to be true, it probably is.
- If you must pay money to get money, you may be dealing with a scam.
- Spend the time researching scholarships rather than spending money for a scholarship search service.
- Never invest more than the cost of a postage stamp to receive information about a scholarship or financial aid.
- Nobody can guarantee that you will win a scholarship.
- Most legitimate scholarships do not charge application fees.
- Legitimate educational loans do not charge advance fees.
The Smart Student Guide to Financial Aid is located on the Internet at http://www.finaid.org/scholarships/scams.phtml. This Web site is one of many very helpful tools available about different types of scholarship and financial aid scams, protecting yourself from scams, and how to report a scam. In addition to online resources, you could also attend a free PSECU seminar that gives you straight talk on where and how to finance higher education.
If you fall victim or are suspicious about a possible scholarship or financial aid scam, you can file a complaint with the Federal Trade Commission at ftc.gov. You should also contact your local law enforcement for assistance.