Can you spot a scholarship scam?

Families eager to find scholarships can become easy targets for financial aid con artists. Here's how to be a smart consumer.

Scholarships are an attractive way to help manage college costs. Your child won't have to repay them (like loans) or work to maintain them (like work-study). Since students and parents are so eager to find these funds, it's no wonder that they become easy targets for financial aid con artists.

Scholarship scams

Many scholarship finders promote the adage that "millions of dollars in private scholarship money goes unused every year." The fact is, nearly all available financial aid comes from the federal government or from individual colleges.

Often private scholarships are slated for very specific applicants, such as students with a particular career interest, or members of a certain church or organization. These institutions have created funds for students, so they are eager to give them to qualified individuals. They are not interested in keeping the money a secret.

You and your child can easily find out about these opportunities by checking with your employer and other appropriate institutions. Have your child make the contact with clubs or other organizations to find out what they seek in an applicant. Your child's high school counselor can also provide information on scholarships.

Telltale signs it's a scam

According to the Federal Trade Commission's Scholarship Scams, if you or your child hears these lines from a scholarship service, you may be getting duped:

Fight back

If you or your child suspects a scam, bring a copy of all literature and correspondence to your child's school guidance office or to a financial aid administrator at a local college for advice. You can also contact the Better Business Bureau, your State Bureau of Consumer Protection, your State Attorney General's Office, or report the offer to the National Fraud Information Center.

For more information

Scholarship Scams from FinAid.org provides advice on how to identify scams, how to distinguish between legitimate and fraudulent organizations, how to protect yourself from scholarship scams, and what to do if you are scammed.

Other financial aid scams

Parents who feel intimidated by the financial aid process often turn to financial aid consultants. But beware, some of these services can be shady, and financial aid officers often resent the intervention of outside professionals in the aid package award process.

Do you really need a financial aid consultant?

Financial aid consultants advertise their ability to help families through complicated financial aid forms and provide tricks to getting through the system. But financial aid forms are relatively simple, and a high school counselor will give you advice for free.

Also, there are not really any tricks to the financial aid system. It is the job of financial aid officers to ensure that once your child is accepted you can pay for the college. They are not trying to hoard money, but give it away.

Financial aid officers make funding decisions based on the school's award criteria and funds available. The aid officer is your best ally in this process; no independent service is likely to influence it. Aid officers will also know about state funding and other opportunities to apply for aid.

Financial aid consultants may suggest moving assets around or transacting a major purchase or gift to reduce income and qualify for more aid. This should set off your alarm bells. First, administrators can easily spot this kind of maneuvering. If they suspect they are being deceived, colleges may refuse to consider the financial aid application.

Professionals may also promise to use your child's credentials to bargain for the best deal at various colleges. Colleges usually have strict financial aid award guidelines, and they will not bargain for students with other institutions. If you feel important financial information has been overlooked in your aid award, you and your child should certainly contact the school's financial aid office to contest the award. Financial aid offices are unlikely to be willing to discuss these circumstances with a professional consultant.