Spending

Watch Out for These 3 Red Flags of Scholarship Scams

It’s one of the oldest cons around. Come up with the cash to pay a small fee up front, and there is a big pot of money just waiting for you.

You might recognize this classic grift from some of its common versions, which often appear out of the blue in your email inbox. Your long-lost uncle has named you in his will! You won an overseas lottery! Or that timeless classic—a Nigerian prince needs your help getting cash out of his country!

The name for these is “advance fee scams,” and unfortunately for college students, there is another variety: The scholarship scam.

The promise goes like this: Send in an application fee, along with all your personal information, and your scholarship is virtually guaranteed!

The reality is less rosy. The fraudster pockets the fee—and maybe even swipes your identity.

“The whole financial aid process is confusing for families, because many of them have never gone through it before,” says Justin Draeger, president of the Washington, D.C.-based National Association of Student Financial Aid Administrators. “And some people look to take advantage of that. There is always a healthy market in the arena of fraud.”

Roughly 350,000 student and parents falling prey to scholarship scams annually, to the tune of $5 million in losses, according to the Better Business Bureau.

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It’s no wonder students and their parents are such ripe targets for scholarship scams. Student loan debt now stands at a whopping $1.5 trillion, held by 44.7 million Americans, according to the Federal Reserve. Families will understandably do whatever they can to avoid an indebted future, including applying to every scholarship they can find.

Indeed, free money—in the form of scholarships and grants—is an important part of any family’s college funding toolbox. A little more than half (57 percent) of students received one or more of them during the 2017-18 academic year, according to the Sallie Mae study “How America Pays for College.” For the average student, scholarships funded $4,393, or 17 percent of college costs.

Spotting a Scam

Study up on these three red flags, so you don’t fall victim to a scholarship scam:

1. Paying money to get money

Is someone offering you a “guaranteed” scholarship through their “exclusive” access—if only you cover the application or processing costs first? That should set off alarm bells.

“One thing to watch out for is when anyone charges you an upfront fee,” says Draeger. “Most legitimate scholarships are out to give students money, not collect money. That is a big red flag.”

2. Pressing for personal details

Does the application ask for intimate details like credit card numbers, Social Security numbers, or bank account information? Then it’s probably not legit.

At the very least, you and your friends or parents might find yourselves on a bunch of marketing lists. “Many companies offer small ‘scholarships’—which are really often just lotteries to get students to enter their personal information for marketing purposes,” says Kim Clark, assistant director of the Education Writers Association.

“Some require the students to enter contact information for their parents, in return for a chance at $500 or $1,000,” she says. “That's a cheap way for companies to get lots of personal information about potential customers. It’s like buying a lottery ticket.”

Then there’s the more dangerous scenario: The scammer is using that collected data to perpetuate fraud or identity theft in your name.

3. Showing up out of the blue

A letter shows up in your mailbox, or an email in your inbox, or a paid advertisement in your social-media feeds. It’s got good news: You have already won a scholarship!

Sorry, but it probably is too good to be true. Scholarships don’t usually just land in your lap like that. You’ll need to do the legwork of finding them and applying. (Read our guide here.)

Finding Real ‘Free Money’

Rather than clicking on sketchy online offers, stick to well-known scholarship search websites. They’re not perfect, but at least you have a measure of assurance that the grants listed are not well-known scams. Fastweb, for instance, lists 1.5 million scholarships worth a total of $3.4 billion. Other popular sites include Cappex.com, BigFuture.CollegeBoard.org, and Peterson’s.

If you come across an award that’s off the beaten path, consider: Who exactly is offering this money? Some basic research should reveal if they are who they say they are. Tax-exempt nonprofits, for instance, are all listed on the IRS website. Search for past scholarship recipients, and ask around at the offices of your high-school counselor or your college financial aid office, who have usually seen and heard it all.

You can also help shield others by reporting suspected frauds when you encounter them. The National Consumers League collects such complaints at Fraud.org, and then shares the details with law enforcement agencies and the Federal Trade Commission.

The bottom line: College is pricey enough as it is. Don’t sign up for another expensive lesson, even before you show up for classes, by getting caught up in a scholarship scam.

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