A college education can be expensive. With many parents and students looking at a total annual bill of anywhere from $25,000 to even $100,000 for some Ivy League schools, it's no wonder that many families are desperate to find a way to finance their children's education without breaking the bank. Unfortunately, there are many scams out there that prey on these unsuspecting families, and the crooks in charge are skilled at using these scams to wipe out hard-earned savings. In this article, we'll uncover how to spot these scams and make sure that your tuition dollars make their way into the right hands.

Scholarship or Scam?
FinAid.org, an organization dedicated to the public service of helping parents and students unravel the complexities of financial aid, estimated that more than 350,000 students and parents fall for scholarship scams, costing these families more than $5 million.

Scams are generally initiated through unsolicited email, phone calls or paper mail by a vendor acting as an "official" representative of a government or state facility or posing as an independent company representative. The scammers provide educational services in the form of either finding or providing financial aid through grants and/or scholarships. More often than not, these individuals will ask for an initial fee or some form of remuneration in advance for providing their services. (To learn more, check out Stop Scams In Their Tracks.)

In 2000, Congress passed the College Scholarship Fraud Prevention Act, which helped establish strict guidelines against criminal financial aid fraud. This act requires the Federal Trade Commission, and the departments of Justice and Education to educate consumers about these scams and to report yearly incidents of fraudulent acts.

According to the data the above groups have collected, one of the most common scams is called the "Department of Ed Scam". In this scam, a person who claims to be a representative of the U.S. Department of Education calls students and offers them grants to replace any existing loans. The caller asks for bank information in order to charge a processing fee for the transaction. Typically, in this scenario, the fee is collected but victims never receive a grant. According to the Department of Education, they never call students to offer grants in replacement of loans. The fraudsters misrepresent the department's name and services.

How to Sniff Out a Scam
There are several ways to tell if an offer is a scam. Getting unsolicited email or phone calls is one of the first ways you can spot a scam. According to the Federal Trade Commission, when you see an ad for a guaranteed scholarship, this is a sure way to tell that it's a fraudulent offer. Scholarships are never guaranteed, because they are awarded based on students' academic or athletic abilities, not on how much you pay for the scholarship up front. Another giveaway is when vendors present a form to you without a telephone number. Illegitimate vendors will not post a contact number, so you won't be able to track them down. (For further reading, check out Credit Scams To Watch Out For.)

In addition, 99.9% of scholarship sponsors do not require an application fee; any program that requires redemption, handling or origination fees is more than likely a fraud. Other common clues include ads that state, "You can't get this information anywhere else" or "We'll do all the work". These are lines given by the people trying to make students and parents believe that the information they will get is confidential or difficult to come by.

Do Your Own Research
Researching college scholarships and grants on your own may take time, but the information is readily available from trusted and free sources such as the Federal Trade Commission, the U.S. Department of Education, the Federal Student Aid Information Center, state education agencies, high school counselors and college financial aid offices. Also, many companies participate in education assistance programs for the children of employees. Finding out what resources these companies provide in terms of financial aid and scholarships might turn out to be a worthwhile effort. (For some background info, see Five Ways To Fund Your College Education.)

If you plan on using a scholarship search or a financial aid advice service, find out about its reputation through your local Better Business Bureau. If you decide to go with one of these services, pay with a credit card so that it will be easier to place a hold on the payment if you suspect the company you are dealing with is not genuine. The credit card company will be able to initiate an investigation of the vendor you dealt with. When dealing with counseling services provided outside of the school environment, also check their background with the Better Business Bureau and if you suspect a scam, take the information you have to a school counselor. (For related reading, see Credit Card Perks You Never Knew You Had.)

A good way to approach financial aid research is with an open mind, patience and a positive outlook. Many scammers try to work on their victims' emotions by giving the impression that the scholarship being offered is only for a limited time. This is just a pressure tactic they use to get people to sign up with them. Scholarships and applications do have deadlines, but they will be clearly posted well in advance through legitimate scholarship providers listed by sponsoring companies, organizations and federal student aid. Do not give money in advance of receiving scholarship funds; this is usually one of the ways the thieves make their money. Once the advance is given and you go back to request the scholarship, the person who promised the money will be long gone. (To learn more, read Pay For College Without Selling A Kidney.)

If you suspect you've already fallen for a scam, inform the Federal Trade Commission, alert your bank if you provided any bank information (or if you provided your credit card information, let the credit card company know) and report the scam to the three credit agencies (Equifax, Transunion, Experian) so they can be on alert should any suspicious activity appear on your credit report. The key is to always be attentive when signing on the dotted line and to be aware that there are many scammers out there who are always coming up with ways to steal your hard-earned money.

Related Articles
  1. Economics

    Invest In Yourself With A College Education

    Spending a few thousand dollars on school could help you earn millions more.
  2. Budgeting

    Last-Minute Strategies To Help Pay For College

    Find out what to do when your kid is ready for higher education, but you aren't.
  3. Budgeting

    4 Tips For Cutting Your College Costs

    Find out how to get the life you want on the paycheck you have now.
  4. Options & Futures

    Should Parents Pay For College?

    When federal student loan resources are exhausted, parents and students face tough decisions on how to pay.
  5. Budgeting

    Pay For A College Education With Retirement Funds

    These savings vehicles may be better than college saving funds for some families.
  6. Credit & Loans

    College Loans: Private vs. Federal

    Not all student loans are the same. Know what you're getting into before signing on the dotted line.
  7. Credit & Loans

    Student Loan Debt: Is Consolidation The Answer?

    Consolidating student loans entails taking out a new loan to pay off existing loans. It sounds simple, but there are a few things to keep in mind.
  8. Professionals

    Top 5 Post-Grad Degrees That Lead To High Pay

    Although completing a post-grad degree is tough, the payoff is usually worth it. These five jobs typically pay well over $100,000 a year.
  9. Professionals

    Increase Your Odds of Getting a Job After College

    Economists still say college is the best path to a high-paying job. Nowadays, it just requires a little more thought before heading off to the university.
  10. Professionals

    What To Expect On The CFA Level III Exam

    The Chartered Financial Analyst Level III exam, which is only offered in June, is the last in the series of three tests that CFA candidates must pass.
  1. Is it possible to get a free credit report from Equifax?

    It is possible to get a free credit report from Equifax, as well as the other two major credit bureaus, Experian and TransUnion. ... Read Full Answer >>
  2. What’s the difference between the two federal student loan programs (FFEL and Direct)?

    The short answer is that one loan program still exists (Federal Direct Loans) and one was ended by the Health Care and Education ... Read Full Answer >>
  3. Student loans, federal and private: what's the difference?

    The cost of a college education now rivals many home prices, making student loans a huge debt that many young people face ... Read Full Answer >>
  4. Does consumer protection cover my debts?

    The most impactful consumer protection laws and regulations in the United States are overseen by the Federal Trade Commission ... Read Full Answer >>
  5. Can I use my IRA to pay for my college loans?

    If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>
  6. Can I use my 401(k) to pay for my college loans?

    If you are over 59.5, or separate from your plan-sponsoring employer after age 55, you are free to use your 401(k) to pay ... Read Full Answer >>
Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center