Scholarship Scams

If you have to pay money to get money, it’s probably a scam. Scholarships are about giving money to students, not getting money from students. So, never pay any kind of a fee for a scholarship, even if the fee sounds reasonable. Never invest more than a postage stamp to get information about scholarships or to apply for a scholarship.

How to Identify a Scholarship Scam

If a scholarship offer sounds too good to be true, it probably is. Show suspicious offers to a high school guidance counselor or college financial aid administrator. If a scholarship program claims to be a foundation, non-profit organization or 501(c)(3) tax exempt charity, verify that the sponsor is listed in IRS Publication 78.

Scholarship scams have many sneaky ways of tricking students into sending them money. Some charge a fee for the scholarship, calling it an application fee, disbursement fee, prepayment of taxes, processing fee or redemption fee. Some may send a check for more than the scholarship amount and ask the student to send back the difference. By the time the student discovers that the scholarship check is a forgery, the scholarship scam has already pocketed the student’s money. Even if a scholarship scam awards a scholarship, the fee revenue will significantly exceed the amount awarded.

Other common warning signs of a scholarship scam include:

  • Scholarship scams often have very broad eligibility criteria, so that everybody is eligible.
  • The scholarship provider or scholarship matching service guarantees that the student will win a scholarship. Such scholarships are on their face fraudulent, because nobody can guarantee that a student will win a scholarship. Scholarship scams may falsely claim to have special influence with scholarship sponsors or to be affiliated with or endorsed by a government agency.
  • The scholarship provider claims that millions or billions of dollars go unclaimed each year are a variation on the unclaimed aid myth.
  • The student gets a letter or phone call about winning a scholarship, but the student never applied for this scholarship.
  • The scholarship search service claims a high success rate. On average, only about 1 in 8 students wins any scholarships. Some individual scholarships have raw odds of winning of about 1 in 400. So if a scholarship program claims a 95% success rate, the success rate must be measuring something other than winning scholarships.
  • Scholarship scams often have spelling and grammatical errors.
  • Scholarship scams often use a mail drop or a p.o. box as a return address and may not include a telephone number. Scholarship scams are also more likely to have return addresses in Florida or California.
  • Scholarship scams may apply time pressure, such as “first come, first served.”
  • Be wary of a free financial aid seminar or one-on-one interview. These are usually little more than a high-pressure sales pitch.

Special Warning about Identity Theft

Some scholarship scams don’t directly ask for money. Instead, they involve a form of identity theft, where the scholarship scam uses the student’s information to apply for credit cards. Beware of unusual requests for personal information, such as the student’s Social Security number (SSN) or date of birth. No legitimate scholarship needs the Social Security numbers of all applicants.

Some scams may ask for the student’s credit card or bank account number to confirm eligibility or reserve the scholarship. All a scam needs is the student’s bank account number and bank routing number to withdraw money from the student’s bank account. This is called a demand draft and does not require the student’s signature.

How to Report Scholarship Scams

There are several government agencies involved in the prosecution of scholarship scams:

The National Fraud Information Center (NFIC) forwards complaints to appropriate government agencies and can be reached through its web site, fraud.org, or by calling 1-800-876-7060.

Scholarship scams can also be reported to the Better Business Bureau (BBB).

The College Scholarship Fraud Prevention Act of 2000 (P.L. 106-420) established stricter penalties for scholarship scams.