Thinking caps on! Avoid scholarship fraud

Candace was about to be a freshman at her state university, and she needed some quick money for her first-semester tuition. She clicked on an ad, “Fast scholarship money now!” in one of her social-media apps, and suddenly her life became even more complicated. “What [the fraudsters] want you to do is click on that link, and the game starts,” says Tom Bartholomy, president and CEO of the Better Business Bureau (BBB). “What they’re going to tell you … is there’s all this scholarship money, financial aid money available, but there’s an application fee — hundreds of dollars.”

In a recent interview with Spectrum News, Bartholomy warns scholarship applicants that an upfront payment is a red flag and to watch out for fraudsters trying to steal their money. “If there’s a price tag up front, that money’s going the wrong way,” he says. “When you make payment, they don’t want it with a credit card. … So, they’re going to ask you to make that payment with Zelle or a Venmo or some other type of cash app” because then the money is untraceable and irretrievable. Fraudsters also now have your valuable personally identifiable information (PII) that they can use for other nefarious purposes. (See “Students tricked into scholarship scam,” by Rachel Loyd, Spectrum News 1, July 18, 2023.)

Candace’s fictitious case is representative of a real fraud plaguing frantic students and their parents.

U.S. College Scholarship Fraud Prevention Act

In November 2000, the U.S. Congress passed the College Scholarship Fraud Prevention Act of 2000 (CSFPA). This act heightened protection against fraud in student financial aid by instituting harsher sentencing guidelines. The CSFPA also stipulated that the Education Department would work with the Federal Trade Commission (FTC) to implement new national awareness activities and incorporate a new scholarship fraud awareness page on the Education Department’s website. [See “OIG Hotline,” U.S. Department of Education and “College Scholarship Fraud Prevention Act of 2000, First Annual Report to Congress,” Department of Justice (DOJ), Department of Education, Federal Trade Commission, May 2002.]

Under the CSFPA, the DOJ can prosecute student financial aid fraudsters for wire fraud, mail fraud, conspiracy, false statement crimes and false identification crimes plus possibly identity theft.

The cost of an undergraduate degree has soared, so students and their families turn to grants and scholarships, but the application processes can be time-consuming and overwhelming. Fraudsters take advantage of desperate students and their families with offers that could cost them thousands of dollars and can sometimes result in identity theft. (See “College Scholarship Fraud Prevention Act of 2000, First Annual Report to Congress.”)

Financial aid schemes

In addition to luring students through social-media ads, scammers may send emails, text messages, or letters, or create fake websites that appear to be from legitimate financial aid agencies or institutions. They say that they need PII like Social Security numbers, bank account details or login credentials to process financial aid applications.

Fraudsters may promise to secure financial aid or loans for upfront fees. They may use official-sounding names for the scholarships or claim they’re affiliated with reputable organizations or institutions. They may also claim to have exclusive access to low-interest loans. However, once students pay the fees, the money and the supposed aid or loan providers disappear without providing any assistance, or they deliver false or useless information.

Fraudsters also may claim to represent government agencies or organizations offering grants and ask for payment or PII in return for access to these grants. Of course, no grants exist, and the scammers disappear with the money or misuse the PII.

Some companies may claim that they can make students eligible for financial aid, and then charge processing fees to handle the paperwork. However, they’re simply completing the Free Application for Federal Student Aid (FAFSA), which anybody can do. They may even use fabricated information to qualify students for additional financial aid and expose them to governmental penalties of fines up to $20,000 and/or jail time. (See “How to Avoid Scholarship and Financial Aid Scams,” by Haley DeLeon, FTC, Feb. 22, 2023.)

Additional scholarship schemes

Fraudulent companies that offer scholarship matching services claim to have databases of exclusive scholarships and promise to link students with suitable opportunities for fees. The fraudsters often provide outdated or publicly available scholarship information that students can access for free.

The for-profit scholarship scam often offers authentic scholarship applications; many actually do reward some money. However, the organizations require applicants to pay application fees to be considered. The scammers, who solicit thousands of applications, make huge profits while paying out small amounts to recipients.

In the scholarship prize scheme fraudulent companies inform victims they’ve “won” scholarships, but they must pay taxes, redemption fees or processing charges to receive their funds. (See “How to Avoid College Scholarships and Grants Scams,” by Haley DeLeon, University of South Florida, Admit-A-Bull Official Admissions Blog, Feb. 22, 2023.)

Seminar schemes

Scammers may host workshops or seminars that promise to reveal “secret” scholarships, financial aid or insider information for fees. Some fraudsters may even “guarantee” attendees will be offered scholarships after attending their seminars. Some of these seminars may be legitimate but pressure attendees into paying upfront fees so they don’t miss out on special opportunities to apply for scholarships.

Some of these seminars claim to have exclusive lists or databases that scholarship hunters can only access if they pay to attend their seminars. Valid scholarships, of course, are free or they wouldn’t be scholarships. Fraudsters may use these seminars to collect PII, such as birthdates, Social Security numbers, banking data and other financial details, which they sell or use for identity theft. (See “How to Avoid Scholarship and Financial Aid Scams.”)

Best practices to avoid scams

• Be skeptical: Be cautious of unsolicited scholarship offers and claims that, as always, sound too good to be true.
• Verify legitimacy: Research providers offering scholarships. Check their websites, and contact information, and search for reviews or complaints.
• Don’t pay for scholarships: Legitimate scholarships don’t require payment to accompany applications or charges for access to information.
• Protect PII: Never share sensitive information like Social Security numbers, bank account details or passwords.
• Use official channels: Apply for scholarships through legitimate school departments, reputable scholarship websites or well-established scholarship search engines.
• Check with your school: Consult your school’s financial aid office or counseling department to verify the legitimacy of scholarships.
• Do your due diligence before attending scholarship/financial aid seminars.
• Don’t trust any of the “success stories” posted on scholarship service websites or advertisements. Seek out real people who’ve used the organizations.
• Don’t do business or send money to organizations that can’t or won’t share information and/or details about what they are and the services they provide. (See “How to Avoid Scholarship and Financial Aid Scams.”)

Report potential scholarship fraud or suspected fraudulent activity to your school’s financial aid office, the FTC and your local consumer protection agency. Awareness and vigilance are essential in preventing scholarship fraud and protecting yourself from financial scams. (See “How to Avoid College Scholarships and Grants Scams.”)

What to do if you’re scammed

• The FTC, at reportfraud.ftc.gov, collects and shares information on schemes with over 2,800 U.S. law enforcers. The FTC also provides tips on protection against further losses.
• File a complaint with your state’s attorney general. (See “National Attorneys General Training & Research Institute,” Consumer Protection.) U.S. attorneys general are an important consumer protection strength. Most have the principal responsibility within their specific states or territories for administering consumer protection rulings.
• The BBB has been setting ethical standards for business practices since 1912. Its website, bbb.org, offers guidance in filing complaints against businesses and organizations. You might not get your money refunded, but your report can provide warnings for future targets.
• At the website of the Department of Education Office of the Inspector General, report a fraud scheme, read its latest reports, and find free materials and training, among many other helpful features.

Use your fraud examiner skills to protect yourself and your offspring

Whether you’re the parent of a daughter or son who’s considering higher education, or you’re that prospective student, you already know the major commitment you might be making. Don’t complicate the financial-aid process by losing your money, PII and your identity. Slow down, don’t panic and methodically complete your due diligence as you’d do in any fraud examination.

Cindy Greenman, Ph.D., CFE, is an associate professor of accounting at Utah Tech University in St. George, Utah. She has over 15 years of experience in the accounting field. In 2012, KPMG honored Greenman with its Outstanding Dissertation Award. In 2019, the ACFE presented her with the Educator of the Year Award. Greenman is the chair of the ACFE Scholarship Committee and the former chair of the ACFE Higher Education Committee. Contact her at cindy.greenman@utahtech.edu.