Scholarship Scams Part II: Web scams, the FTC, and how you can

Scholarship Scams Part II: Web scams, the FTC, and how you can help

Scott Hicks, Editor


In our first installment ( of Scholarship Scams we showed you the warning signs to look for when searching for and researching scholarship information. Scholarship Scams Part II focuses on the proliferation of fraudulent scholarship sites on the Internet, how to recognize a scam on the Internet, what the Federal Trade Commission (FTC) is doing to stop Web scams, the impact of the FTC's Project Scholarship Scam campaign, and how you can help the FTC by reporting possible scams.


The Internet is a terrific tool for researching scholarships. But, like any other media, there are people who benefit at the cost of others. "They prey on parents' fears," says Federal Trade Commission staff attorney Gregory Ashe. These "scammers" create scholarship search sites to make money off of concerned parents and their children who are busy finding ways to finance a college education. The FTC considers Web scams a big problem — so big that it is conducting ongoing investigations and has sent warnings letters to nearly 40 companies.


Many of the same warning signs we discussed in our first installment, "Scholarship Scams Part I," apply to the Web, but there are a few other things you should know about.


Because the Web is so widely used, relied upon, easy to access, and full of information, it’s no wonder that there are plenty of phonies out there. And it's only natural that some people fall for bogus schemes.


Fine line between puffery and fraudulent guarantees


There is a gray area between simple advertising "puffery" and fraudulent claims. An Internet scholarship service can boast that it has the largest scholarship database or get the best results — much the same way a car dealer can claim to have the best selection of recreation vehicles. Puffery is sneaky, but it is not necessarily fraudulent. The difference is when a company guarantees outrageous results, such as claiming that its applicants receive thousands of dollars in scholarships.


The FTC is wary of guarantees. The guarantee you read on the Web site might not be the entire guarantee. The guarantee may state that you’ll get your $50 back if you receive no scholarship money, but there may be hidden restrictions in the guarantees that they don’t tell you about until after you have applied and sent in your fee. These restrictions often make it impossible to get your money back.


Isn’t it worth it to do the paper work yourself and send it directly to the real scholarship organization so there is a real chance that you will get something in return? And, aside from the supplies and stamps, it is free.


Josey Vierra, president of the Scholarship Resource Network ( declares, "The only guarantee an organization can offer is that its research information is current and that its search results are accurate."


Poor workmanship


Sometimes, you can judge a book by its cover. An amateurish Web design (with cheesy graphics) that looks like it was slapped together in a damp basement is a warning sign. Basically, poor workmanship means…well, poor workmanship (and service). The FTC's Ashe comments, "It’s funny — not 'funny ha ha', but funny — that a lot of scam sites seem very unprofessional and very unsophisticated."


Another danger sign is misspelled words and poor grammar. If a Web company can’t even spell correctly, do you think that it will deliver a scholarship? "It should make you pause and wonder," muses Ashe.


Prefabricated letters and e-mails


When a Web site says it will send a personalized letter to your scholarship contacts, that usually means that it has an automated mail merge program that spews out generic letters with your name on them and sends them out. You can do a better job of writing your own letters that actually reflect your interests and abilities.


Beware of e-mail from a company you have never had contact with, especially if it say that you are already a scholarship winner.


Don’t fall into the sweepstakes trap of sending in your credit card number or a personal check.


Vierra observes, "In my experience, I have seen many new so-called 'scholarship search services' come and go. Most of these services that provide only ‘scholarship search services’ are only doing so as a ‘get rich quick’ scheme. Many charge $179 and higher and offer false guarantees."


A lack of sound scholarship advice or information about the company should raise your eyebrows.


Taking advantage of Web security fears


Some sites play on people’s fears about online security. They claim that Web sites that offer free scholarship searches and information are security risks. They tell you not to trust the other sites, and then deliver a diatribe on why you should pay them $100 to find information that you can get for free elsewhere. In any case, make sure the company clearly states that it will not sell any of your personal information to anyone.


Before you send personal information to a scholarship Web service, check its privacy policy. (If it does not have one, move on.) Make sure the service offers an opportunity to "opt out" of providing data that you feel is inappropriate.


Off-the-wall scholarship sites


Though not necessarily fraudulent, there are other questionable scholarship sales tactics on the Internet. In our research, found a couple of sites that merely list links to fee-based scholarship services.


There are even scholarship matching services that hire sales "representatives" to work from home. The sales rep is encouraged to sell the service to parents, students, and guidance counselors. The scheme works like this: The rep pays the company $25 per search. Then the rep charges whatever he or she wants at a hefty profit. Businesses like this hire others to do their work for them. It is legal, but shady.


FTC combats Web-based scams


The FTC has sent 37 warning letters to scholarship companies on the Web since January 2000 and continues to search for more. In the letters, the FTC cites the infractions, such as false guarantees, and instructs the company to clean up its act. The results have been that some companies have lifted their guarantees from sites or shut down altogether.


The FTC is currently re-evaluating the sites for infractions. If they are still not satisfied, the next step is to send another warning. If violations persist, the FTC will begin a formal investigation of the company and either file a legal case or negotiate. The severity of the FTC’s actions varies from case to case. It depends on how egregious the violations are or even how successful the site appears to be. Ashe explains, "It can depend on how big the site is. If it is getting one hit a month, there may be no action. If there are lots of hits, then we have a problem that requires further action." Another factor is the degree of the deception. "If a site guarantees a $5,000 award or your money back, that’s a bad sign."


Scammers fought the law and the law won


The FTC has had a good deal of success with "Project Scholarship Scam." The campaign, which began in 1996, has targeted mail, telemarketing, seminar, and other scams. Most cases are settled out of court with the company agreeing to get out of the industry. The companies who fought the FTC in court probably wish they had settled instead. The FTC has brought eight lawsuits against eleven companies and 30 individuals and won every time.


One company, Career Assistance Planning, was ordered to pay over $6 million in consumer compensation and to post a $6 million performance bond before engaging in any telemarketing activity in the future. "They fought it all the way, rolled the dice, and lost. There was overwhelming evidence against them," adds Ashe.


Of the eight cases, the FTC estimates that 175,000 customers were bilked out of $22 million. That is an average of $125 per customer. "We’ve made a sizeable dent. We see less mail and telemarketing activity. Now we’re monitoring the Web."


How you can help


The best help the FTC gets in combating scholarship scams is from consumers. "There are only so many of us at the FTC in

Washington. Most scams are identified by consumers. We target those companies that consumers tell us about," says Ashe.


You can help. If you are suspicious of a scholarship service, call 1-877-FTC-HELP, toll free, or fill out a complaint form on the FTC's Web site at


Sage Scholarship Advice


Perhaps the best and most encouraging advice comes from SRN's Vierra. It is so simple it may surprise you:


     "You don’t need to pay for anything on the Web when there are many good sites that cater to assisting students applying for financial aid. All information regarding the financial aid process is available free of charge. If you choose to pay for a      professional service, either college financial planning or a scholarship matching service, make certain to check them out first."


The Web is a great tool. Use it wisely.


Related Links


FTC homepage:


Sample FTC case:


Scholarship Resource Network: