Scholarship Scams: REFUGEES AT RISKS IN SOUTH AFRICA
By Emmanuel Nibishaka
Department of political Sciences
University of Pretoria
Every year, several hundred thousand students and parents are defrauded by scholarship scams. The victims of these scams lose more than $100 million annually. Scam operations often imitate legitimate government agencies, grant-giving foundations, education lenders and scholarship matching services, using official-sounding names containing words like "National," "Federal," "Foundation," or "Administration." This days it took further stage among refugee communities in South Africa and other areas of the world as the most fragile and easygoing group to rob due to its misery.
This article provides advice on how to identify such scholarship scams, how to distinguish between legitimate and fraudulent organizations, how to protect yourself from scholarship scams; and what to do if you are scammed.
In general, be wary of scholarships with an application fee, scholarship matching services who guarantee success, advance-fee loan scams and sales pitches disguised as financial aid "seminars".
Common Scholarship Scams
Fraudulent scholarships can take many forms; some of the most common types are presented here. If you receive an offer that uses one of these tactics, be suspicious (see our suggestions for protecting yourself from scholarship scams). If you believe the offer is a scam, report it. Sometimes a scam persists for years before people catch on to it. Even when people realize they've been cheated, few are stubborn enough to try to take advantage of guarantees or to file a complaint.
Scholarships that Never Materialize. Many scams encourage you to send them money up front, but provide little or nothing in exchange. Usually victims write off the expense, thinking that they simply didn't win the scholarship.
Scholarships for Profit. This scam looks just like a real scholarship program, but requires an application fee. The typical scam receives 5,000 to 10,000 applications and charges fees of $5 to $35. These scams can afford to pay out a $1,000 scholarship or two and still pocket a hefty profit, if they happen to award any scholarships at all. Your odds of winning a scholarship from such scams are less than your chances of striking it rich in the lottery.
The Advance-Fee Loan. This scam offers you an unusually low-interest educational loan, with the requirement that you pay a fee before you receive the loan. When you pay the money, the promised loan never materializes. Real educational loans deduct the fees from the disbursement check. They never require an up-front fee when you submit the application. If the loan is not issued by a bank or other recognized lender, it is probably a scam. Show the offer to your local bank manager to get their advice.
The Scholarship Prize. This scam tells you that you've won a college scholarship worth thousands of dollars, but requires that you pay a "disbursement" or "redemption" fee or the taxes before they can release your prize. If someone says you've won a prize and you don't remember entering the contest or submitting an application, be suspicious.
The Guaranteed Scholarship Search Service. Beware of scholarship matching services that guarantee you'll win a scholarship or they'll refund your money. They may simply pocket your money and disappear, or if they do send you a report of matching scholarships, you'll find it extremely difficult to qualify for a refund.
Investment Required for Federal Loans. Insurance companies and brokerage firms sometimes offer free financial aid seminars that are actually sales pitches for insurance, annuity and investment products. When a sales pitch implies that purchasing such a product is a prerequisite to receiving federal student aid, it violates federal regulations and state insurance laws.
Free Seminar. You may receive a letter advertising a free financial aid seminar or "interviews" for financial assistance. Sometimes the seminars do provide some useful information, but often they are cleverly disguised sales pitches for financial aid consulting services (e.g., maximize your eligibility for financial aid), investment products, scholarship matching services and overpriced student loans.
Protecting Yourself from Scholarship Scams
This advice can help you avoid becoming the victim of a scholarship scam.
Rules of Thumb
1. If you must pay money to get money, it might be a scam.
2. If it sounds too good to be true, it probably is.
3. Spend the time, not the money.
4. Never invest more than a postage stamp to get information about scholarships.
5. Nobody can guarantee that you'll win a scholarship.
6. Legitimate scholarship foundations do not charge application fees.
7. If you're suspicious of an offer, it's usually with good reason.
Warning Signs of a Scholarship Scam
Certain telltale signs can help you identify possible scholarship scams. Note that the following signs do not automatically indicate fraud or deception; however, any organization that exhibits several of these signs should be treated with caution.
Application fees. Be wary of any "scholarship" which requests an application fee, even an innocuously low one like $2 or $3. Most scams have application fees of $10 to $25, but some have had fees as low as $2 and as high as $5,000. Don't believe claims that the fee is necessary to cover administrative expenses or to ensure that only serious candidates apply, or that applicants who do not receive any money "may" be entitled to a refund. Even if the outfit gives out a token scholarship, the odds of your winning it are less than your chances of winning the lottery. Legitimate scholarship sponsors do not require an application fee.
Loan fees. If you have to pay a fee in advance of obtaining an educational loan, be careful. It might be called an "application fee", "processing fee", "origination fee", "guarantee fee", "default fee" or "insurance fee", but if it must be paid in advance, it's probably a scam. Legitimate educational loans deduct the origination and default fees from the disbursement check. They never require an up-front fee when you submit the application.
Other fees. If you must pay to get information about an award, apply for the award or receive the award, be suspicious. Never spend more than a postage stamp to get information about scholarships and loans.
Guaranteed winnings. No legitimate scholarship sponsor will guarantee you'll win an award. No scholarship matching services can guarantee that you'll win any scholarships either, as they have no control over the decisions made by the scholarship sponsors. Also, when such "guarantees" are made, they often come with hidden conditions that make them hard to redeem or worth less than they seem.
Everybody is eligible. All scholarship sponsors are looking for candidates who best match certain criteria. Certainly there are some scholarships that do not depend on academic merit, some that do not depend on athletic prowess and some that do not depend on minority student status, but some set of restrictions always applies. No scholarship sponsor hands out money to students simply for breathing.
The unclaimed aid myth. You may be told that millions or billions of dollars of scholarships go unused each year because students don't know where to apply. This simply isn't true. Most financial aid programs are highly competitive. No scholarship matching service has ever substantiated this myth with a verifiable list of unclaimed scholarship awards. There are no unclaimed scholarships.
The most common version of this myth, that "$6.6 billion went unclaimed last year", is based on a 1976-77 academic year study by the National Institute of Work and Learning. The study estimated that a total of $7 billion was potentially available from employer tuition assistance programs, but that only about $300 million to $400 million was being used. This is a 20-year-old estimate that has never been substantiated. Furthermore, the money in question is not available to the general public, only to certain employees enrolled in eligible programs of study whose employers offer tuition assistance. This money goes unused because it can't be used. Popular variations on this myth include the figures $2.7 billion, $2 billion, $1 billion and $135 million.
We apply on your behalf. To win a scholarship, you must submit your own applications, write your own essays and solicit your own letters of recommendation. There's no way to avoid this work.
Claims of influence with scholarship sponsors. Scholarship matching services do not have any control over the awarding of scholarships by third parties.
High success rates. Overstated claims of effectiveness are a good tip-off to a scam. For example, less than 1% of users of fee-based scholarship matching services actually win an award. If something sounds too good to be true, it probably is.
Excessive hype. If the brochure or advertisement uses a lot of hyperbole (e.g., "free money", "win your fair share", "guaranteed", "first come, first served" and "everybody is eligible"), be careful. Also be wary of letters and postcards that talk about "recent additions to our file", "immediate confirmation" and "invitation number".
Unusual requests for personal information. If the application asks you to disclose bank account numbers, credit card numbers, calling card numbers or social security numbers, it is probably a scam. If they call and ask you for personal information to "confirm your eligibility", "verify your identity" or as a "sign of good will", hang up immediately. They can use this information, in conjunction with your date of birth and the names of your parents, to commit identity theft and apply for new credit cards in your name. They can also use the numbers on the bottom of your checks (the bank routing number and the account number) to withdraw money from your bank account using a "demand draft". A demand draft works very much like a check, but does not require your signature.
No telephone number. Most legitimate scholarship programs include a telephone number for inquiries with their application materials.
Mail drop for a return address. If the return address is a mail drop (e.g., a box number) or a residential address, it is probably a scam. (To verify whether an address is using a mail drop, use this mail drop search form.)
Masquerading as a federal agency. If you receive an offer from an organization with an official-sounding name, check whether there really is a federal agency with that name. Don't trust an organization just because it has an official-looking "governmental" seal as its logo or has a prestigious-seeming Washington, DC return address.
Claims of university, government, Chamber of Commerce or Better Business Bureau approval. Be wary of claims of endorsement and membership, especially if the recommendation is made by an organization with a name similar to that of a well-known private or government group. The federal government, US Department of Education and the US Chamber of Commerce do not endorse or recommend private businesses.
If a financial aid "seminar" is held in a local college classroom or meeting facility, don't assume that it is university sanctioned. Call the school's financial aid office to find out whether it is a university approved or sponsored event.
Suggesting that they are a non-profit, charitable organization when they are not. Don't assume from an organization's name that it has a charitable purpose. Although it is illegal in most states to use a misleading business name, enforcement of the law is lax. For example, an organization with "Fund" or "Foundation" in its name is not necessarily a charitable foundation and may even be a for-profit business.
Unsolicited opportunities. Most scholarship sponsors will only contact you in response to your inquiry. If you've never heard of the organization before, it's probably a scam.
Failure to Substantiate Awards. If the organization can't prove that its scholarships are actually awarded and disbursed, be cautious.
Typing and spelling errors. Application materials that contain typing and spelling errors or lack an overall professional appearance, may be an indication of a scam. Many scams misspell the word "scholarship" as "scholorship".
Time pressure. If you must respond quickly and won't hear about the results for several months, it might be a scam. A scholarship scam might say that grants are handed out on a "first come, first served" basis and urge you to act quickly. Few, if any, legitimate scholarship sponsors make awards on a rolling basis. Take the time you need to carefully consider their offer.
Notification by phone. If you have won a scholarship, you will receive written notification by mail, not by phone.
Disguised advertising. Don't believe everything you read or hear, especially if you see it online. Unless you personally know the person praising a product or service, don't believe the recommendation. One scam set up its own fake BBB and used it as a reference. Another offered a forged certificate of merit from the local BBB. Yet another distributed a paid advertisement as though it were an article written by the newspaper. A Ponzi scheme gave out a few scholarships initially as "sugar money" to help attract victims.
A newly-formed company. Most philanthropic foundations have been established for many years. If a company was formed recently, ask for references.
Gives you a runaround or nonspecific information. Demand concrete answers that directly respond to your questions. If they repeat the same lines again and again, the caller is probably reading a standard pitch from a boilerplate script.
Abusive treatment. If the caller swears at you or becomes abusive when you ask questions, it's probably a scam.
A Florida or California address. A disproportionate number of scams seem to originate from Florida and California addresses.
(For more information, check the FTC's Six Signs That Your Scholarship is Sunk and the FTC Consumer Alert about scholarship scams. For warnings about scholarship matching services, also see Evaluating Scholarship Matching Services and the Looking for Student Aid brochure published by the US Department of Education.)
Practical Tips for Students on Avoiding Scholarship Scams
Be cautious if fees are involved. Even if the organization turns out to be legitimate, it is never in your best interest to respond to an offer with an up-front fee.
Get an independent opinion from a trusted source, such as a financial aid administrator at a local college or university, the local reference librarian or your high school guidance counselor.
Call Directory Assistance to see if the company has a listing. If they don't, they're unlikely to be legit. You can reach Directory Assistance by dialing 1 followed by the area code and 555-1212. (Use 1-800-555-1212 to see if they have a toll free number.) You can also look for a listing online using 555-1212.com, BigBook, Switchboard, WhoWhere, WorldPages, Yahoo People Search and Zip2.
Never give out personal information to strangers. Don't divulge your checking or savings account numbers, social security number or other personal information, no matter how reasonable-sounding the request.
Get it in writing before responding. Get offers, cancellation and refund policies and guarantees in writing before sending money. Then read all the fine print. Don't rely on verbal promises.
Don't respond to unsolicited offers.
Ask the organization how it got your name. If they got your name from a reputable source, verify it with the source. The College Board, for example, only releases its mailing lists to colleges, universities and carefully vetted nonprofit tax-exempt foundations. Scams often use carefully written scripts designed to elicit your SAT score or GPA and then feed it back to you later in the conversation to reassure you as to their legitimacy.
Ignore offers that involve time pressure. If the company demands an immediate response, respond by hanging up the phone.
Trust your instincts. If you feel uneasy about an offer, don't spend any money until you've addressed your concerns. Your initial suspicious reaction to an offer is often correct.
Keep good records. Keep photocopies of your correspondence with the company and the company's promotional materials and take notes during any telephone conversations. If it does turn out to be a scam, include these materials with your complaint to law enforcement agencies.
Practical Tips for Schools on Protecting Students from Scholarship Scams
Safeguard student privacy. Carefully investigate any organization before releasing any information about your students to the organization. Remember that the Family Education Rights and Privacy Act (FERPA) may prohibit the release of this information.
Monitor the use of your student lists. If you do release a list of student names and addresses, such as a Dean's List or Honor Roll, include a few fake names and addresses to let you monitor how the list is used.
Prohibit the third-party release of student information. Require any organization that has access to your student list, such as yearbook publishers, to safeguard the privacy of your students. Prohibit them from releasing the list to any third party without your prior written permission in each case.
Promptly notify parents of any problems. If you find that the list is being abused, promptly notify the students and their parents of the problem
Evaluating Scholarship Matching Services
Do not waste your money on fee-based scholarship matching services. The largest and highest quality scholarship databases are all available for free on the World Wide Web. The best are featured in our scholarship section. It takes only 5 to 10 minutes to search any of these databases; we recommend that you search at least two. Most students will get around 15 to 25 good matches with the free services.
If you pay money to a fee-based service, thinking that you'll get more matches, you will be disappointed. Search several of the free services and you'll see that all the databases overlap to a significant degree. Don't be fooled into thinking that the fee-based services have any better coverage than the free services.
The fee-based scholarship matching services are often home-based businesses run by individuals who know nothing about financial aid and who do not compile their own database. The databases are smaller, updated less frequently and contain many awards with obsolete information or deadlines that have passed. It usually takes them several weeks to respond with a list of matching awards. Why pay money for inferior service, when you can search some of the best databases for free on the World Wide Web?
Scholarship matching services do not award scholarships and do not apply for scholarships on your behalf. All they do is provide a list of the names and addresses of scholarships that superficially match your profile. It is then up to the student to contact the scholarship sponsor for current information and application materials. The scholarship matching service does not complete the applications for the student, nor do they select the winning students.
Because the fee-based scholarship matching services want you to pay them money, they often engage in false and misleading marketing tactics designed to give you an unreasonable expectation of success in using their service and to convince you that their service is entirely without risk. Some of the more common fraudulent claims include:
The unclaimed aid myth. You may be told that millions or billions of dollars of scholarships go unused each year because students don't know where to apply, but this simply isn't true. Most financial aid programs are highly competitive. No scholarship matching service has ever substantiated this myth with a verifiable list of unclaimed scholarship awards. Statements such as "$6.6 billion went unclaimed last year" are based on a 20-year-old estimate of potentially available but unused employer tuition benefits. Such money goes unused because it can't be used and is not available to the general public. There is no pool of unclaimed money just waiting for you to "claim your fair share".
Guaranteed Winnings. Be wary of services that guarantee you'll receive a minimum amount of financial aid. There's no way they can guarantee you'll receive funding, because they have no control over the decisions made by scholarship sponsors. By making such a guarantee they are engaged in fraud, even if they were to issue a full refund to every customer who complains.
Also, such "guarantees" often come with hidden conditions that make them hard to redeem or worth less than they seem, if the company honors its guarantee at all. They might require you to submit rejection letters from the scholarship sponsors (most sponsors only notify the winners), deduct a large refund or cancellation fee or provide the refund in the form of a US Savings Bond (which has an immediate redemption value equal to half of the face value). Some companies will not refund your money, but instead will offer to rerun the search some number of times at no charge. Some companies use the word "receive" in a very loose sense, meaning that you will receive information about scholarships, not the scholarships themselves. Others count government aid as part of the total, yielding a meaningless guarantee.
Everybody is Eligible. All scholarship sponsors are looking for candidates who best match certain criteria. Scholarships are awarded according to a variety of merits and needs, but some set of restrictions always apply. No scholarship sponsor is going to give you money simply for breathing.
A 96% Success Rate. According to the National Center for Education Statistics at the US Department of Education, only 4% of undergraduate, graduate and professional students receive private sector scholarships, and the average amount received by those students is about $1,600. Anecdotal evidence suggests that the success rate for fee-based scholarship matching services is even less, about 1%, because they deliberately water down their application pools to maximize the number of people paying them money. When they refer to a 96% success rate, they are describing their success in matching students against the database, not the number of students who receive money.
Our Database is Unique. If a scholarship matching service claims that you can't get the information anywhere else, do not believe them. Most scholarship databases overlap to a significant degree because they use similar methods to compile their databases.
You Must Use Our Service to Qualify for Aid. Scholarship matching services match you to a list of awards, but it is not necessary to use their service to prequalify for an award. Scholarship matching services do not control who wins an award.
Awards are Given on a First Come, First Served Basis. Time is Limited. Apply Now! Although most programs have deadlines, very few give out scholarships on a rolling basis. Scholarship matching services that use this claim are trying to rush you into using their service without thinking.
We Represent Big-Name Companies Who Need A Tax Write-off. If a company claims to represent big companies "who give away scholarships for tax purposes", be suspicious. The firms that do manage scholarship programs for big-name companies -- Scholarship America, ACT Recognition Program Services and the Oregon Student Assistance Commission -- never charge an application fee. They get their operating revenue from the scholarship sponsor, who pays them a fixed administrative fee. Moreover, the name of the company that manages the scholarship program is always invisible and is never presented as a "representative" or "agent" of the scholarship sponsor.
Our Scholarship Database is the Largest. Many scholarship matching services will claim to have the largest database, consisting of hundreds of thousands of available awards. These numbers are misleading, because individual sponsors may offer hundreds of different scholarships. When comparing scholarship databases, it's more useful to find out how many sponsors, not awards, are listed in their databases and whether the database counts college-controlled awards and employer tuition assistance programs as part of the total.
We Compile Our Own Database. Many of the scholarship matching services will claim that they compile their own database, when they actually use the database of an independent company. They might also rely upon testimonials from the database company, instead of testimonials gathered by the scholarship matching service itself.
How to Report Scams
Many of the most common scholarship scams violate laws against fraud and false advertising.
If you suspect that a scholarship program might be a scam, get a second opinion. Bring a copy of all literature and correspondence concerning the scholarship to your guidance counselor or your school's financial aid office. They can provide you with accurate and current information and verify whether a foundation is legitimate.
To report a suspicious offer, write a letter summarizing your experience with the company to any of the anti-fraud organizations listed here. Be sure to include the details of your complaint, the steps you took to try to obtain satisfaction and the company's response to your efforts. Provide as much information as possible, including names, addresses, phone numbers, fax numbers and copies of advertisements, letters and postcards.
It is also helpful to include a copy of any notes you took during a telephone conversation with the company. It is best if the notes are taken during or immediately after the conversation. Write the date and time of the conversation on the notes, as well as the name of the person with whom you spoke and any important statements they made. Try to be as thorough as possible.
Where to Report a Scam
The following organizations can help you determine whether an offer is legitimate. They will tell you whether they have received any complaints about the company, or whether it's currently under investigation:
University financial aid bureau
Some non government organization
National fraud information center (ask)
In some case, Department of Education
N.B. Please note that I posted this article due to the degree of robbery to against young refugees who are willing to study.Once they get in touch with those who need to rob them with various promises, they find that they get their future.This has been happening since 2004 here in South Africa, and the UNHCR, Government agencies, SAPS are aware of such cases.However, advices and investigations have been always absent.Please Burundians, Rwandans, Congolese and many communities who have been victimised, be careful and stand to your rights.