Scholarship fraud: Welcome to the School of Hard Knocks

More than 175,000 known victims of scholarship fraud exist in the U.S. -- and the Federal Trade Commission wants to stop students today before they fall victim, too. Since 1996, there have been eight federally recognized scholarship scam cases in the U.S., totaling a whopping $22 million. Considering that many of these student victims need financial help desperately only adds extra insult to this type of fraud.

Knowing that need, many organizations mislead and prey on students and their families. Usually, it's through claims stating millions or billions of dollars in scholarship funds go unclaimed each year and a student should benefit from these funds. The organization uses "testimonials" from past scholarship recipients or claims that it has been approved by a government agency, Better Business Bureau or local chamber of commerce, according to to the May 2009 College Scholarship Fraud Prevention Act of 2000 Annual Report to Congress.
As students prepare to apply for scholarships there are resources to protect them from potential fraud. Project Scholarscam is a program created by the Federal Trade Commission as a resource to educate students, parents and financial aid administrators. Through the project, the FTC named the following defendants in a public service message:
  • Career Assistance Planning, Inc.
  • College Assistance Services, Inc.
  • Deco Consulting Services, Inc.
  • National Grant Foundation, Inc.
  • National Scholarship Foundation, Inc.
  • Christopher Ebere Nwalgwe and Udoka Maduka (who did business as Higher Education Scholarship Program; National Health Scholarship Program, Division of Nursing; National Scholarship Program; National Management Scholarship Program; and National Science Program, Division of Biological Sciences)
  • Student Assistance Services, Inc., formerly known as Student Financial Services, Inc.
  • Student Aid Incorporated.
These are not the only groups that put students into financial danger.


When Mark Kantrowitz entered a Pennsylvania seminar on how to pay for college, he immediately knew it was a scam by one question: "What color is your child's hair?" He attended the seminar before having children and only a red cat. When he was asked what color his child's hair was, he lied and said red. The speaker told him about scholarships for red-headed students.

Kantrowitz wasn't convinced.

He tracks scholarship fraud and helps college students and their families search for financial aid options through his website, Finaid.org and Fastweb, a free scholarship search database. Kantrowitz distinguishes these scams through common patterns and reoccurring promises, such as scholarships that never materialize, scholarships for profit, advance-fee loans, scholarship prizes, guaranteed scholarship search service, investment required for federal loans and free seminars.

The seminar was set up by an outfit posing to be a franchise system that sent out letters to many parents and college students publicizing a free financial aid seminar. These are common and often held on college campuses or in private residences, Kantrowitz said.

"Parents show up and it turns out it's not a seminar on how to afford college, but it's a sales pitch," he said.

Kantrowitz is no longer invited to these seminars because many of the organizations recognize him and remove him from the list, he said. Families throughout the U.S. contact Kantrowitz about potential scholarship scams and seek his advice about whether offers are legitimate.

"Anytime you have a really big expense and people are concerned about how they're going to pay for it, that opens the door for scam artists to open the door and say, 'We can help you out with it,' and poof, you've got a scam," he said.

In other situations, he's encountered much worse damage for families when it comes to funding college. "I've seen many cases where people use consultants to file a Free Application for Federal Student Aid (FAFSA) and the consultant delays the deadline and the family misses the deadline," Kantrowitz said.

In these cases, consultants allow families to overestimate or take steps to facilitate a higher income in the Estimated Family Income portion of the FAFSA, he said. As a result, the family is notified with the financial award letter and the amount is based on too high of an income, the family panics because they can't afford to make the difference and call the consultant who says he or she will get more aid and corrects the mistake.

Kantrowitz recommends students call 1-800-4-FEDAID or visit College Goal Sunday, a website with free information on financial aid. in addition, he has simple rules to follow.

"Trust your instincts," Kantrowitz said. "People have good intuition. If you have to pay money to get money it's probably a scam. There's a type of scam called an advance fee scam. No federal loans or student loans charge fees. They're trying to get you to give your money, that's how they make their money. The benefit they're claiming is not going to materialize. If you're going to invest, don't invest in more than a stamp."

The Federal Trade Commission's annual report on scholarship scams can also prepare college students for misleading or phony college fund offers.

The FTC warns students of the tell tale lines associated with scholarship scams, such as:
  • "The scholarship is guaranteed or your money back."
  • "You can't get this information anywhere else."
  • "I just need your credit car or bank account number to hold this scholarship."
  • "We'll do all the work."
  • "The scholarship will cost some money."
  • "You've been selected by a 'national foundation' to receive a scholarship."
  • "You're a finalist" in a contest that the student has never entered.
In addition, U.S. Department of Education press officer Jane Glickman encourages students to learn more about scams at the FAFSA website. The Department of Education urges students not to pay a fee for the FAFSA, Federal Application for Federal Student Aid, from several websites that are not connected to the government agency. At no point will the government's form ask for a credit card and it always includes .gov in the website.

To file a complaint against a suspicious or fraudulent scholarship organization, visit ftc.gov.

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