(Consumer Safety & Awareness article: Part 40)
When money is needed and people are desperate, scammers move in. Phony scholarships are not common, but high interest and misleading loans for education can ruin a person’s economic future.
Scholarships.com reports, “Scholarship scams are so common that one could easily think they’re a new form of art. Don’t allow yourself to be duped by a scholarship scam artist; you’ll end up spending valuable time and unnecessary amounts of money for absolutely nothing. Luckily, these scams are fairly easy to avoid as long as you recognize the warning signs.”
The U.S. Department of Education suggests, “If you’re searching the Internet for scholarships and visit a site that asks for your credit card or another form of payment before it’ll help you find funding, you might want to keep searching. Similarly, if you or your parents are contacted by an unfamiliar organization that invites you to an “interview” or “seminar” about preparing and paying for college, do your homework. Ask your high school counselor or a college financial aid administrator whether they’ve heard of the organization and know whether it’s legitimate. In many cases, such invitations are a way to get you and your parents to come listen to a sales pitch. The company wants you to pay for advice on scholarships and other funding that you can get free elsewhere.”
FinAid.com, a legitimate financial aid information center, has reports of these types of scams:
1. 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.
2. 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.
3. 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
4. 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.
5. 419 Scam Scholarship. In a variation of other scams we have seen, some prize scholarship schemes can get you into deep trouble. The sponsor sends the student a check for the scholarship, but requires the recipient to send back a check or cash for the taxes or some other fees. Or the sponsor sends a check for more than the scholarship amount and asks the recipient to send back a check or cash for the difference. The scholarship check ultimately bounces, as it is a forgery, but by then the recipient’s funds are long gone.
6. The Guaranteed Scholarship Search Services. 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.
7. 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.
8. Free Seminars. 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.
The College Board reports on a number of different scams:
9. Our scholarship is guaranteed or your money back. No one can guarantee that they'll get your child a grant or a scholarship. Refund guarantees often have conditions or strings attached. Get refund policies in writing—before you or your child pays
10. You can't get this information anywhere else. There are many free lists of scholarships available. You and your child should start researching scholarships at the high school or library before you decide to pay someone to do the work for you.
11. Need Your Financial Information. “I just need your credit card or bank account number to hold this scholarship.” No one should give out a credit card or bank account number on the phone without getting information in writing first. It may be a set-up for an unauthorized withdrawal from your account.
12. We'll do all the work. Don't be fooled. There's no way around it. Your child must apply for scholarships or grants himself.
13. The scholarship will cost money. Don't pay anyone who claims to be "holding" a scholarship or grant for your child. Free money shouldn't cost a thing.
14. You've been selected by a national foundation to receive a scholarship, or - You're a finalist, in a contest you never entered. Before you or your child sends money to apply for a scholarship, check it out. Make sure the foundation or program is legitimate.
Fraudulent scholarships can take many forms; some of the most common types have been presented here. If you receive an offer that uses one of these tactics, be suspicious. 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 file a complaint.
Monday, November 2, 2009
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