Scholarship fraud costs students $100 million annually, group says

by Latasha Webb

While trying to compensate for the fall semester’s 13.8 percent tuition increase, students can find the search for scholarships to be both a windfall and a pitfall.

Often overlooked, scholarships can be a way to combat the cost of higher education.

According to a National Center for Education Statistics report, in the 1995-96 school year, half of middle-income dependent undergraduates with financial need received loans, accounting for 42 percent of their aid.

As tuition costs rise faster than paychecks increase, students can become more dependent on loans, take fewer credits and work more, or find other means to cover the price of knowledge.

For many, scholarships are some of the best alternatives to loans, but students might fall victim to a scholarship scam if they don’t see the warning signs.

Scholarship scams are a bigger problem than unclaimed scholarship money, said Beth Stevens, associate director of scholarships at the University, referring to the mythical billions of scholarship dollars going unused every year.

Each year, tens of thousands of students and their families become victims of scholarship scams, spending more than $100 million annually on fraudulent scholarships, according to the Minnesota Association of Financial Aid Administrators.

“People do need to be made aware that there are legitimate services and fraudulent services,” said Nancy Sinsabaugh, director of student finance at the University.

“Since I’ve been here (two years), no one has complained about being scammed,” she added.

But several Minnesota students and families are still waiting for justice after allegedly being scammed last year by a company called College Resource Management, Inc. or College Financial Aid Services of America.

On behalf of the families involved in the scam, Minnesota Attorney General Mike Hatch filed a suit in September 2000 which alleged the company was deceptive and misleading about its financial aid services.

The company told students they were specially selected, and that for $595, it would find a $2,500 guaranteed scholarship for them.

The scholarships never materialized. In some instances, families were offered loans that would require repayment.

Parents were pressured to pay the initial fee by company counselors who told them the offer was no good if they left the office to think it over.

The company also claimed to negotiate with school financial aid offices. What they really did was send schools a “poorly written letter” with information about the student, said officials in Hatch’s office

“Families make hard sacrifices to send a child to college,” Hatch said last September. “It is unfortunate for a company to use high-pressure tactics and misleading gimmicks to sell so-called services for $600 that are widely available elsewhere for free.”

The case against College Financial Aid Services of America is still pending.

Students can avoid victimization by watching for common warning signs.

Only scamming companies require payment of an application fee. No matter how small the fee is, check the legitimacy of the scholarship. Never give out credit card or account numbers. Real scholarships give money, and applicants usually are not required to pay anything to get it.

Some scams target students by advertising that every student is eligible or everyone wins something. These scholarships are rarely legitimate.

Scholarships promising guaranteed money often have small print that excludes most students from receiving anything.

Legitimate scholarship programs usually receive more applicants than they have funding for. According to the Financial Aid Information Page, the least selective scholarships award money to only one in ten applicants.

If a program claims to have connections to major sponsors or offers either to help write an essay or to apply on behalf of a student, beware. Real scholarship programs require a student-written essay and do not accept applications from companies.

Scamming companies will boast high success rates. These companies will report connecting a high percentage of students with scholarships through their programs.

In reality, these companies “find” widely available scholarships at no cost to themselves, and their success rate ignores how many of the students actually received any money. Always check success rates and beware of over-boasting companies.

If the scholarship program has no phone number or business address, it probably is not legitimate.

Students should hesitate if a scholarship program offers them money for no apparent reason and seeks excessive or personal information.

“You have been selected” and “you are a finalist” are words to look out for, according to the Federal Trade Commission and the U.S. Department of Education.

If the progam brochure has typing or spelling errors and contains advertisements or pressure to apply, students should use caution.

Some scholarship scams don’t involve companies or programs but rather consultants. Financial aid consultants are hired to find scholarships and fill out financial aid forms, among other things.

Students should exercise caution when using consultants, according to, a Web site that collects students’ financial aid information on the Internet.

If consultants charge more than $100, said, they are charging too much. If they encourage students and parents to under-report their income on financial aid forms, they are encouraging them to break the law and are not reliable.

Scams imitate legitimate foundations by using respectable-sounding names, enticing sales pitches and seemingly legitimate employees and offices.

Knowing the warning signs can save every student much needed money and a load of stress.


Latasha Webb welcomes comments at [email protected]