Money for college: avoiding scholarship scams

February 2, 12:33 PMCollege Admissions ExaminerLauren Starkey

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With college costs ever on the rise and a recession that has hammered not only personal investments but available aid and credit, families are looking for any and every possible means applying to and attending college. Each Monday, I’ll examine another cost-cutting measure; by December, the dollars saved by using just a handful of these strategies could number in the thousands.

Last week, we looked at the hidden costs of the preferred method of banking for many high school and college students: the debit card. Today, we explore the many scams aimed at scholarship seekers. Get caught by any one of these scams, and you could lose hundreds of dollars.

Cash and run: In this simple scam, a company offers to help you find suitable scholarships, for a fee. They pocket your money, and you never hear from them again.

Nigerian or Scholarship Prize scam: You’ve probably heard about the Nigerian or 491 scams that target businessmen (and reportedly cost US companies about a million dollars a day). The scholarship version begins with a letter (with a check enclosed) notifying you that you’ve won money for college. You’re asked to send a check back for fees, taxes, or overpayment (the letter said you won $1000, but the check is made out for $1500., so you immediately get a second letter asking you to refund the difference). Your check gets cashed, and the one you received is returned for insufficient funds.

Guaranteed money:  Here’s how it works: a company promises to hook you up with some of the millions of dollars in scholarship money that goes unclaimed every year—but it will cost you.  Many of them even offer to complete scholarship applications for you. Although you might receive some information about “available” funds, or even be guaranteed a refund if you’re not satisfied, the information will be worthless and/or securing your refund will be impossible.

Scholarship Lottery: The tricksters who pull off this scam won’t call it a lottery, but that’s essentially what it is. You send in an application with a fee, and they award small cash prizes to a handful of the thousands of students who apply (making off with a huge profit).  

Loans with strings: In this scam, you receive a letter from a company offering education loans with very low interest rates. But to get the money, you need to pay a fee upfront. In another variation, the company requires you to buy a product such as an insurance policy or invest in something before you can qualify for the loan.

All of these scams have one thing in common: they get your money on the promise that later you’ll get something in return. Stacey L. Bradford offers some great advice in an article for SmartMoney on funding a college education legitimately. She outlines free online databases for scholarship searches, and three other great ideas for finding available funds in “Five College Money Scams.”

Mark Kantrowicz’ excellent, award-winning website www.finaid.com , gives some great guidelines for protecting yourself against scholarship scams. He gets the last word: “Trust your instincts. If you feel uneasy about an offer, don't spend any money until you've addressed your concerns. Your initial suspicious reaction to an offer is often correct.”