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8 signs a financial aid offer is a scam

Students applying for scholarships and other types of financial aid are being targeted by fraudsters. Here's how to protect yourself.

By MSN Money Partner Jun 6, 2014 12:08PM

This post comes from Allison Martin at partner site Money Talks News.

Money Talks News on MSN MoneyThe fall semester is quickly approaching, and college students have only a few months left to make their final preparations. Unless there is no unmet financial need, one challenge usually remains at the top of the list for both current and new attendees: how to pay for tuition, fees, books, room and board.

While some students pick up a side gig to fill the gap, others apply for various forms of financial aid to soften the blow. For those who do the latter, fraudsters may view them as perfect candidates for financial aid scams.

Graduation cap © Stockdisc/SuperStockFor starters, when you're looking into scholarships, the Federal Trade Commission recommends that you watch out for the following red flags:

  • "The scholarship is guaranteed or your money back."
  • "You can’t get this information anywhere else."
  • "I just need your credit card or bank account number to hold this scholarship."
  • "We'll do all the work. You just pay a processing fee."
  • "The scholarship will cost some money."
  • You've been selected by a foundation to receive a scholarship, or you're a finalist in a contest you didn't know about.

Let's take a closer look at some of the warning signs that indicate you may be dealing with a financial aid scam.

1. Free seminars

Have you received an unsolicited invitation to a free financial aid seminar, only to find out that it's actually a sales pitch for the opportunity to get your hands on tons of valuable scholarship resources? In many instances, "the opportunity is a chance to pay for information you could find yourself for free," says

Or they might be trying to sell you some other product or service that has nothing to do with financial aid.

2. Up-front payments

Has a company guaranteed that you will get a scholarship by using its search service or you'll receive your money back? If a scholarship in fact materializes, it will likely be worth less than what you initially paid. And good luck with the refund request once you discover you’ve been scammed.

Or how about a notice that tells you that everyone who applies will get a scholarship? All you have to do is pay a processing fee to get yours. Rarely will you find a competitive scholarship that is forking over cash to every applicant.

3. Phishing

Beware of emailed notices about scholarships or other financial aid that ask you to click on a link to provide your account information or Social Security number. It's most likely a phishing attempt, pretending to be from a reputable source you trust in order to gather your personal information and subject you to identity theft. Don't click.

4. Fraudulent award notice

What about those award notices that appear in the mail for scholarships you've never applied for? In many instances, they require you to pay a fixed sum of cash immediately to claim the funds. Says the FTC:

(They) tell students they've been selected as "finalists" for awards that require an up-front fee. Sometimes, these companies ask for a student's checking account to "confirm eligibility," then debit the account without the student's consent. Other companies quote only a relatively small "monthly" or "weekly" fee and then ask for authorization to debit your checking account -- for an undetermined length of time.

5. FAFSA alternatives or help with FAFSA

The only way to obtain federal funding is by completing the Free Application for Federal Student Aid or FAFSA to determine your eligibility. Don't be fooled into thinking otherwise.

When companies come knocking, offering to complete FAFSA for you in exchange for payment, simply refuse the offer in order to save money and protect yourself from the possibility of identity theft in case it's a scam.

Besides, you can receive assistance through the FAFSA website, chat with a customer service representative or call (800) 433-3243 for assistance. You can get help for free.

6. Scholarship application fee

Perhaps you've been invited to apply for a particular scholarship that requires a small fee to be entered. Even if they've awarded money in the past, it's important to understand that it is more than likely a for-profit entity that thrives off of money paid by applicants. Says

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.

7. Unrealistic interest rates

The interest rates on federal student loans are set by law, but private loans are another story because the lender usually factors in credit history. So, fraudsters trick students and their parents into believing that they can offer a more competitive product for just a small sum to cover administrative fees. The disbursement day usually comes and goes, with no deposit. According to

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.

8. Undisclosed contact information

Is the entity's contact information anywhere to be found? A post office box isn't necessarily a red flag, but you need to independently confirm that the organization actually exists.

Where can you find reputable information about scholarships? Check sites like FastWeb, and Federal Student Aid.

More from Money Talks News

Got an email from the Royal Prince of Arundi Burundi the other day.  Apparently he'll pay for all of my Master's degree if I just give him my banking credentials.

Oh, and I won the lottery in that country too, or something....Finally my ticket to Easy Street!


Like the old saying goes if it sounds too good to be true, it usually isn't!

Jun 14, 2014 7:31PM
Just an observation: On this column there are about 30 comments. On most financial columns there are maybe 100 to 200 comments. But I just looked at the TV rewind for the week and there were 776 comments. I really don't think that there is any hope for the future of this country. No one has any interest in the important issues, only on what's on the tube.
Jun 14, 2014 5:28PM
If it sounds to good to be true, it's not true.
Jun 14, 2014 8:31AM
9. If Barry Obama's lips are moving and he is promising to restructure your student debt, it's a scam.
Jun 14, 2014 2:45PM

If it is called the ACA-or has anything referring to Obama in its name.

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