Scholarship Fraud Prevention Act Carries Stiff Penalties for Scholarship Fraud

Scholarship scams are so widespread that in 2000, the Scholarship Fraud Prevention Act was passed into law for the purpose of protecting consumers against financial aid fraud. This law stiffened penalties against those convicted of scholarship fraud.

Before this law was passed, those convicted of scholarship fraud were put out of business and ordered to pay restitution to people they defrauded. Now, thanks to the Scholarship Fraud Prevention Act, offenders face both jail time and fines of up to half a million dollars. Additionally, this law removed a loophole from the bankruptcy laws to ensure that offenders cannot keep income gained through scholarship scams.

Further, this law mandates that the U.S. Department of Education and Federal Trade Commission publish information about scholarship scams on their website.

Beware of This Real Life Scholarship Scam

If you get a telephone call from someone claiming to represent the United States Department of Education offering to replace your existing student loans with grant money, and then requesting your bank account number for the processing fee, you are being contacted by someone attempting to commit financial aid fraud. Calls like this are actually being made, and people have been defrauded as a result of providing banking information.

There are several warning signs that this is a fraudulent request. First, there is no U.S. Department of Education program that involves replacing student loans with grants. Remember that is an offer seems to good to be true, it usually isn’t true! Second, the U.S. Department of Education does not charge any type of processing fee for grants. Third, no matter who is on the other end of the phone, you should never give out banking information over the phone to anyone who calls you.

If you have given out banking information under such circumstances, notify your bank immediately and request that your account be monitored very closely. To protect yourself against theft, do not ever give out financial information over the phone unless you are the one who initiates the call and it is to a trusted source.

This scam is fraudulent on many levels. Impersonating a federal officer, which is what anyone who falsely claims to represent the U.S. Department of Education is doing, is a crime. Therefore, you should notify the police if you receive such a call. Since this particular scam references federal education dollars, the fraudulent activity should be reported to the Department of Education at 800-MIS-USED . Additionally, the attempted fraud should be reported to the Federal Trade Commission online or by calling 877-FTC-HELP.

Many Scholarship Scams Sound Legitimate

If you received a scholarship application from the International Federation of Ripping Off Students, it would be pretty obvious that someone was attempting to dupe you into participating one of the many scholarship scams. However, college financial aid scams don’t appear to be fraudulent at first glance. Unfortunately, successful scam artists are skilled at disguising their so-called scholarships as legitimate student assistance.

Many scholarship scams have official sounding names. They often have titles that are very close to those used by legitimate foundations, scholarship search services, organizations that sponsor scholarships, and even banking institutions. Keep in mind that just because an organization has official-looking letterhead or has words like national, foundation, or federation, in its title does not mean that it is legitimate.

If scholarship scams weren’t well-disguised, 350,000 Americans wouldn’t fall victim to them each year. The business of operating scholarship scams is big business, to the tune of about $5 million dollars per year. Keep in mind that no matter how legitimate an organization may seem, if it is a legitimate scholarship resource, you will not be asked to pay any type of fee or provide banking or credit card information.

Separating Legitimate Scholarship Search Services From Fraudulent Ones

Don’t assume that all scholarship search services are just scholarship scams. There are legitimate search services, some of which charge a fee. Services that portray themselves accurately may be very beneficial to families and students seeking college funding resources. Legitimate services will make it clear that they can provide students with lists of scholarships for which they are eligible to apply.

Any scholarship search service who claims to offer access to scholarship funding beyond simply providing lists of scholarships is likely to be misrepresenting itself. One of the most common recruiting techniques for fraudulent scholarship search services is to host a free financial seminar or consultation, which is really just a high pressure sales presentation, in which promises that cannot be kept are often made.

Legitimate scholarship search services will not do any of the following:

• Guarantee that you will get a scholarship
• Claim that you can’t get the information they will provide from any other source
• Assert that they will do all the work for you
• The scholarship will cost you some money

If you are considering enlisting the services of a scholarship search service, check with the Better Business Bureau, the Federal Trade Commission, your state’s consumer protection agency, or the Attorney General’s office to verify that the company isn’t being investigated for fraud.

The Big Lie Started With Scholarship Scams

You have heard the big lie before. Here it is: “Millions and millions of scholarship dollars go unused every single year.” The myth of the mysterious existence of fortune in scholarship money floating around waiting to be claimed has been perpetuated for 20 years, even though there is no factual evidence to back up the assertion.

While it is true that some private scholarships are not awarded in some years, it is usually because their requirements are very specific and there were no eligible individuals at that particular point in time.

The idea that there is a significant amount of scholarship money not being used is simply not true. This myth is believed to have originated with unscrupulous individuals and companies seeking to convince people to buy into their scholarship scams with false promises of guaranteed money.

Scholarship Scams

It is an unfortunate truth that with so many people looking for financial assistance, there are those who will try to take advantage of people and scam them. It is estimated that people are cheated out of approximately $5 million each year in scholarship scams. Here are some good rules of thumb when searching and applying for scholarships:

• If it looks too good to be true, it usually is.
• Nobody can guarantee that there is a scholarship you will win.
• Be careful of scholarship programs that charge an application fee. This could be the sign of a scholarship scam, or it could just be a way for scholarship providers to cover their processing expenses. Remember, you should check the company background before sending in your cash if you are unsure of a scholarship's legitimacy.

Always trust your instincts. If something feels off, it probably is.

Warning Signs of Scholarship Scams

Weeding out the valid scholarships from the scams can be a tiring process. Here are some things to look for that can tip off a scam:

• Companies that have shady contact information (no number or email address available or a post office box address).
• Companies that offer flashy brochures promising "free money" and "guaranteed winnings."
• Extreme time limits and pressure.
• Claims of "influence" with scholarships sponsors or to be in touch with "Millions of unclaimed aid."
• Scholarships that claim "everyone is eligible."

Remember, just because a company has one of these, does not mean it is a scam, but may mean that you need to research the company and scholarship more carefully.

Legitimate Scholarship Programs Do Not Have Application Fees

So-called scholarship programs that require application or processing fees in order to be considered for an award are examples of scholarship scams. Legitimate scholarship programs do not charge fees.

Some such scholarship scams will try to explain their reasons for charging fees, sometimes calling them application processing fees, reading fees, or fees to cover administrative expenses. Some fraudulent programs claim that there is not application fee, but charge a fee to provide prospective applicants with instructions regarding how to apply. Other programs will claim that charging fees is necessary to prevent candidates who aren’t serious from applying for awards.

To avoid falling for these types of scholarship scams, never pay a fee to apply for a scholarship or to get application instructions for a particular scholarship program. Keep in mind that organizations, companies, and foundations who sponsor scholarship programs do so for the purpose of giving money away to qualified applicants, not charging applicants fees to review their applications.