BBB Tip: Beware Scholarship Scams When Searching For Financial Aid

Many students are still searching and applying for grants and scholarships to fund their college education. With an average tuition of approximately $25,000 at 4-year institutions, according to the National Center for Education Statistics, paying for a college degree is a challenging obstacle for prospective students. A challenge that is made more difficult by scammers looking to take advantage of students and parents searching for financial aid opportunities.

The Better Business Bureau receives numerous reports of scholarship scams every year. Multiple reports were submitted to BBB Scam Tracker in 2022, detailing consumer interactions with unethical businesses claiming to provide students with financial guidance.

For students struggling to pay tuition, a sudden offer of a grant or scholarship can look like a dream come true. But it could be bait for a scam. This con hooks victims with the promise of money, but upfront “fees” never actually materialize into those much-needed funds. In a recent twist, these scammers claim to help with student loan forgiveness.

Better Business Bureau (BBB) recommends caution when dealing with companies that offer assistance in finding financial aid opportunities. Students and their families should be wary of websites, seminars, or other schemes that promise to find scholarships, grants, or financial aid packages for a fee.

How the scams work:

Scammers typically claim to represent the government, a university, or a nonprofit organization. The details vary, but the con is the same. The scammer will pose as a financial aid representative using words like “National” and “Federal” to sound more official. They claim you have won a scholarship or a grant (without ever applying) and ask for payment of a one-time “processing fee.” In another version, the scammer pressures you into applying for a “guaranteed” scholarship or grant. However, there is a fee to apply. Time goes by once the fee is paid, and the money is never sent. When attempting to contact a representative, it is quickly discovered that the company has set so many conditions that it is almost impossible to receive a refund.

In another variation, a check arrives for the scholarship, and instructions are included to send back payment for taxes or fees. The check turns out to be a fake, and you’re out whatever money was sent.

A consumer reported this version recently: “The business claims to have been around for 14 years, but the website has been up for two… The financial aid workshops are pitch meetings where they try to get you to pay $2,000 for help with college admissions, but it turns out that help is limited to exchanging text messages with an unknown person. The contract’s fine print states that the person you are texting is not a professional and has no expertise in college admissions or financial aid.”

Due to the sensitive personal and financial information provided for scholarship and grant applications, it is important to be cautious when choosing one to apply for. Of the 2.47 million full-time students enrolled in post-secondary institutions during the 2018-19 school year, 84% were awarded financial aid through student loans or federal, state, local, or institutional grants. On average, students were awarded slightly over $5,000 from federal grants, such as FAFSA, and more than $11,000 from institutional grants. While the amount awarded varies depending on the institution (public versus private or two-year versus four-year), applying for grants and scholarships is a great way to help ease the financial burden of attending college.

Legitimate companies are helping students find aid with some results. However, students and parents can usually find the same awards and others on their own by searching online. Prospective college financial aid offices can also help, especially if it is a college the student is seriously considering attending.

It is generally free to apply for scholarships. Information is available online at studentaid.gov for the different financial aid options. If you don’t think you qualify for financial aid, review the Federal Student Aid website options, as many colleges and universities use it for non-need-based awards.

To protect students and parents searching for financial aid opportunities from falling victim to scholarship scams, the Better Business Bureau recommends following these guidelines:

• Beware of unsolicited offers. Typically, winning a scholarship or grant that wasn’t applied for is impossible. Ask how the organization got your name and contact information, and then verify it with the source outside of the email, phone number, or website they used to contact you.
• Take your time. Avoid being rushed or pushed into paying for help at a seminar. Use caution if a representative urges you to buy now to avoid losing an opportunity.
• Ask lots of questions. Be cautious if a company is reluctant to answer questions about the service or the process. If the company or seminar representative is evasive, walk away.
• Ask your guidance counselor or a college financial aid office whether they have experience with the company.
• Be skeptical of glowing success stories touted on websites or at seminars. Ask instead for the names of families in your community who have used the service in the last year. Talk to them and find out about their experience with the firm.
• Ask about fees associated with a professional financial aid search and determine if the company provides refunds. Get the information in writing but realize that dishonest companies may refuse to give refunds despite stated policies.
• Be aware that a check can bounce even after the bank allows cash withdrawal from the deposit. Check processing is a confusing business, as is the terminology. Even if a bank representative says that a check has “cleared,” it is not sure that it won’t be detected as a fake weeks later. One thing the account holder can be sure of is that they will be responsible for any funds drawn against the amount.

For more information and to learn how to protect yourself, Google “BBB 10 Steps to Avoid Scams”.  If you spot a scam, whether you have lost money or not, report it to BBB’s Scam Tracker at BBB.org/ScamTracker and the FTC at ReportFraud.ftc.gov. Your story can help protect consumers from similar scams.