Every year an estimated 350,000 students and parents fall prey to scholarship scams at an annual cost of more than $5 million. The lure of "Free Money" fools even skeptical people.

Don't Be Fooled
There are dozens of scams based on limitations of legitimate foundations, scholarship sponsors, lenders, and scholarship search services. They may even have official-sounding names, using such words as "National", "Federal", "Federation", "Division", "Foundation", and "Administration". Or a governmental-looking seal to fool you into thinking that they are federal agencies or grant-giving foundations.

Warning Signs of a Possible Scam
If a scholarship program requires an application, redemption or handling fee, even an innocuously low one like $5 or $10, don't waste your money. More than 99.9 percent of legitimate scholarship sponsors do not require an application fee.

Likewise, be wary of loan programs that require the up-front payment of origination, guarantee or other fees. All federal, state and private education loan programs deduct loan fees from the disbursement check. No legit program requires the fees in advance.

No sponsor will guarantee that you will win the award, and scholarship search services cannot guarantee that you will win an award. Loose eligibility restrictions and high success rates are another warning sign; scholarship sponsors do not handout awards to students just for breathing. Less than four percent of all students win private scholarships. More than 75 percent of all student financial aid comes from the federal and state governments.

Many scholarship scams use a mail drop for a return address (sometimes disguised as a "Suite"), and many do not include a telephone number for inquiries. If no telephone number is listed, call directory assistance to see if they have a listing. A Washington, DC, address does not mean that the organization is a federal agency. Many scams also seem to originate from Florida or California.

Be careful if the announcement has a deadline in only a few weeks and encourages you to respond quickly because the awards are given on a "first-come, first served basis." Other watchwords include "free money," "billions in unclaimed aid" and "win your fair share."

Protecting Yourself from Scholarship Scams
Two rules of thumb will help safeguard you from most scholarship scams:
  • If you have to give money to get money, it might be a scam.
  • If it sounds too good to be true, it probably is.
Don't give out your bank account numbers, credit card numbers, calling card numbers or social security number over the phone, especially to an unsolicited offer that needs the information for "verification purposes."

What to Do If You Suspect a Scam
If you suspect a scam, bring a copy of all literature and correspondence to your school's financial aid office. If you're still in high school, ask your guidance counselor or the financial aid administrator at a local college for advice.

Call your local Better Business Bureau (BBB), State Bureau of Consumer Protection and the State Attorney General's Office. Report the offer to the National Fraud Information Center at 1-800-876-7060 and send e-mail to scams@finaid.org.