Tips on Avoiding Scholarship Scams

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F raud is a costly problem for any society, and with the Internet being the easiest way to find scholarships, the potential of being scammed is always present. The Scholarship Fraud Prevention Act of 2000 requires that the Federal Trade Commission, the Department of Education and the Department of Justices release annual reports of scams related to financial aid. For the year 2010, they mention that of the 725,087 total fraud complaints given that year, less than 1%, only 718, were related to financial aid. The good news, they report, is that these types of complaints have decreased steadily since 1996.

Some notable financial aid fraud cases mentioned in the report include an employee, David Benton, from Empire Beauty School in Bordentown N.J. who helped twenty students obtain bogus GEDs or high school diplomas so they could apply to receive around $247,694.84 in federal financial aid funds. An advisor for Rep. Danny Davis (D-ILL), Ernest Bernard Moore, plead guilty of using false identities to apply to federal student financial aid from four different colleges. The total cost of this, and other frauds he committed, totaled $821,977.97. Russell Harris, owner of a phony Wisconsin University High School, ran a two-week self-study course that awarded bogus diplomas (which also had a BBB badge, but wasn’t accredited). He used the information given by enrolled students to apply for financial aid to online colleges. He was able to obtain $300,000 in funds from the Department of Education and $100,000 in tuition refunds paid out to him. Actual scholarship scams were not a significant problem according to the report, but that doesn’t mean you can let your guard down.

A few signs to look out for when searching for scholarships include:

• The sales pitch – if you attend a seminar, receive a letter in the mail or an Email urging you to act fast or risk missing out, stand your ground. These scam artists prey on those impulse buyers with attractive scholarship amounts and supposed “deals” on scholarship searching services.
• Pay first, scholarship later – if you’re asked to pay a fee in order to receive a scholarship, it’s better to save your money. There are legitimate organizations out there that ask for membership dues while also providing scholarships, but they also have a ton of other resources available. Be sure to research the site and always trust your instincts before signing up.
• You’ve Won Our Boxers or Briefs Scholarship! – If you receive a message notifying you’ve already won a scholarship you’ve never applied to, exercise caution. They may even ask for your bank account info so they can easily deposit your “funds”. It’s a good idea to keep a track record of all the scholarships you’ve applied to so to avoid this scam.

Sometimes they use the IRS to do their dirty work:

Scam artists can be even more active during economic downturns when money is tight all around. In an effort to help students and parents pay for college, the American Opportunity Tax Credit was established to broaden the range of people – those with higher incomes – to be eligible for the $2,500 tax credit. However, a recent press release from the IRS warned that the elderly were being led into thinking they could receive a refund from the credit if they filed their taxes with certain unscrupulous people. They’ve even gone as far to say that the college credit was available to those who pay taxes on groceries. They post a warning on the site that if you’ve received in illegitimate refund, you’re legally required to pay it back. Apparently the IRS has already halted thousands of these scams that have left their victims, many low-income and elderly, having to suffer financial losses due to high fees from the scam artists. What’s the world coming to?

A less serious (but still annoying) trend comes to those who take out student loans:

Lenders are always willing to stretch the limits of proper business conduct in order to attract borrowers. If you’ve recently taken out a student loan, don’t be alarmed by the red envelopes appearing to be from your lender with alarming messages. Some companies use deceptive advertisements in the form of “important” messages that can be labeled as “final attempt” or have a similar insignia, a circle with a tree in the center, of that of the Department of Education claiming to have time-sensitive material inside. It’s a marketing ploy to ensure that people won’t just throw it in the trash. They know that if you thought it was from your lender or something serious, you’d open it. It’s clever, but sort of distasteful.

If you’re confident in your judgement of phony scholarship programs and financial aid scams, there are still other ways that scammers can prey on college students.

Here are other useful tips of avoiding general scams:

• Social media scams – say you have a friend in another country asking you for money to help them with an issue they’re having. Before you wire-transfer any funds, be sure it’s actually your friend and not a 40-something Nigerian man who’s hacked her Facebook account.
• Hotel scams – when traveling, be wary of late night phone calls seeming to be from hotel personnel. They’ll explain that they’ve experienced a computer crash and need your credit card information again. Unless you’re the type who parties all night, they might catch you off guard and jot down your numbers for personal use.
• Text scams – if you receive a text message from your “bank” notifying you of a problem, don’t start texting any banking info until you’re for sure it’s legit. This, along with the social media and hotel scams, is one of the scams the BBB says to watch out for in 2012.

Useful Links:

Looking for Student Aid without getting scammed

Federal Trade Commission