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Beware the Scholarship Hucksters

By Michelle Singletary
Sunday, January 28, 2007

Where there is complication or confusion you often find a scam.

Such is the case as parents panic in their search for free money for their college-bound children. As a result, many are being victimized by scholarship and financial aid scams.

People are paying hundreds of dollars to companies that make false claims that they can guarantee a child will win a scholarship, or they promise to help with applying for federal financial aid. But in many cases, what people get is useless information while spending money they could have used to help pay for the child's college education.

Scholarship scams usually rev up this time of year when parents and students are filling out the Free Application for Federal Student Aid (FAFSA).

Typically, the companies making these false promises charge fees ranging from $50 to $1,500. You might get a notice in the mail or in your e-mail box inviting you to a hotel meeting room to learn all the secrets of winning scholarships or applying for financial aid.

And what do you get for your money? The same information you can get for free on such Web sites as http://www.finaid.org, http://www.fastweb.monster.com or http://www.nasfaa.org, run by the National Association of Student Financial Aid Administrators (NASFAA). On NASFAA's site, click on the link for "Parents & Students" and search for the "Financial Aid Consultants and Scholarship Search Services Fact Sheet."

"You just hear story after story," said Marcia Weston, director of College Goal Sunday Operations for NASFAA. "There was one grandmother who was on a fixed income getting just Social Security who put out $500 for her granddaughter. And she got nothing."

NASFAA's College Goal Sunday is a free program that helps students and parents complete the FAFSA form. Volunteers, including experienced college financial aid administrators, set up one-day workshops to help families fill out the FAFSA form, Weston said. People can get line-by-line help, if needed.

College Goal Sunday is currently offered in 33 states and the District of Columbia. To find the upcoming workshop nearest you, go to http://www.collegegoalsundayusa.org or call (202) 785-0453, ext. 111. Don't delay, because most of the one-day events are held in January and February.

Despite the free help available, fraud in this area is such a problem that the Federal Trade Commission has an ongoing campaign called Project Scholarscam to prevent and prosecute scholarship and financial aid fraud. In 2000, Congress passed the College Scholarship Fraud Prevention Act. The law imposed stricter sentencing guidelines for criminals involved in financial aid fraud. In addition, the FTC and the Justice and Education departments are required to issue an annual report on this crime.

In the most recent report, the agencies found that scholarship fraud has shifted from promoting guaranteed-scholarship search services to offering financial aid consulting. For example, companies promise to show families little-known (but legal) ways to shift assets to improve their child's chances of getting more need-based aid.

"Many of these organizations that set up scams play on the fact that people believe if you pay for something you have a better shot at getting some money," Weston said.

According to the FTC, here are six warning signs to avoid becoming a scholarship sucker:

· If the pitch says your child is guaranteed a scholarship or you'll get your money back. Of course there are always conditions that make that money-back promise useless.

· If you believe a claim that they'll do all the work. Come on, every scholarship I've ever seen requires the applicant to do some work.

· If you fall for a claim that "you can't get this information anywhere else." Hello, there's this thing called the Internet and because of it, not much is a secret anymore. There are plenty of books that cost less than $50 that will help you and your child search for free money.

· You are being pressured to give your credit card or bank account number to "hold" a scholarship for your child. Talk about a red flag. If a company tries to get you to hand over such information, hang up the telephone or get out of the room. Don't give out the information.

· You're contemplating paying a fee to apply for a scholarship. That's no different from when you're told to send money to claim cash supposedly won in a lottery. Free money shouldn't cost you anything.

· You're excited about an offer that comes in the mail that says your child has received a scholarship for which he or she never applied. The catch: You have to pay a fee to apply for it.

Scholarship or financial aid scams aren't likely to deplete your life savings, but there's no sense in just throwing away money for something you can get for free. Don't let your desperation for dollars to send your child to college cloud your common sense.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online athttp://www.npr.org.

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail:singletarym@washpost.com.

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