BBB Sees Rise in Scholarship Scams

Inside Subprime: April 3, 2019

By Lindsay Frankel

The cost of attending college is increasing much faster than wages and available aid, according to insights from College Board. And while prospective students who are desperate to finance their college tuition will find plenty of legitimate scholarship opportunities to apply to, they will also encounter scam artists hoping to make money from an upfront application fee that doesn’t lead to a scholarship, or from stealing prospective students’ private information.

According to a Federal Trade Commission report released in February, there was a slight dip in the number of consumer reports regarding scholarship and educational grant issues in 2018 when compared to previous years. The FTC received 972 consumer reports in 2016 and only 725 reports of scholarship problems in 2018. These figures don’t reflect the actual number of scams that occurred, but instead only reveal how often they were reported.

New data from the Better Business Bureau reveals that the problem may be getting worse this year.

“BBB Scam Tracker doesn’t get very many reports of scholarship scams – a few dozen a year – but we’ve seen a big jump recently,” Katherine Hutt, spokeswoman for the Council of Better Business Bureaus Inc., wrote in an email. “So far in 2019, we’ve received 24 reports, which is more than we got in all of 2018 (21).”

Experts say that even though scholarship scams are not as commonly reported as other types of fraud, such as student loan repayment scams, students searching for opportunities may have to sift through suspicious offers on websites, in emails, and in Facebook ads.

Scholarships play an important role in financing a student’s education, and families used scholarships and grants to cover 28 percent of their children’s college costs in 2017-2018, according to a report released by Sallie Mae.

High school students are particularly vulnerable to scams because of a combination of a lack of experience and desperation. About 24 percent of students who reported a scam to the BBB Scam Tracker experienced a financial loss from exposure to a scholarship scam. Fortunately, there are some red flags to watch out for.

“The biggest red flag is getting selected for a scholarship you never applied for. Often these offers ask for a ‘processing fee’ or require you to ‘pre-pay taxes’ before getting the award. Of course, once you pay the money, the scholarship disappears,” Hutt wrote in an email. “Another variation is a fake check scam, where you deposit what looks like a real check and then are asked to send part of the money back to cover fees. When the check later bounces, you are out the money.”

Some scammers will hold financial seminars to attract victims, sometimes charging a fee for the information they provide, even though the information is available free elsewhere. Families should be especially cautious of guarantees for student aid, according to the U.S. Department of Education. And the Office of the Inspector General cautions consumers against paying advance fees to be connected with scholarship opportunities.

To avoid falling victim to a scholarship scam, you should never provide your social security number, bank account information, or an upfront fee to apply for a scholarship. Before applying, you should also research the organization providing the scholarship. Identifying past recipients of a scholarship is one way to establish legitimacy. Experts also recommend keeping a record of all written correspondence. If the company refuses to respond in writing, it may be a sign of fraud.

For legitimate assistance securing financial aid, students should speak with their high school guidance counselors about opportunities and submit the Free Application for Federal Student Aid. You can also apply for scholarships through most colleges, either with your admissions application or by submitting separate forms.

For more information on scams, predatory lenders and payday loans, see our city and state financial guides including states and cities like California, the District of Columbia, FloridaIllinois, Texas and more.