Desperation, however, may leave students vulnerable to a variety of scholarship scams. And those who are the most vulnerable are low-income, first-generation, and minorities, according to Mark Kantrowitz, publisher and vice president of research at savingforcollege.com and the founder of finaid.org.

In recent years, the number of individuals reporting scams has remained relatively flat. Yet each year, scam artists cost Americans about $100 million. Kantrowitz says scam artists don’t discriminate. “They’ll take anybody’s money,” he says.

Don’t Pay To Play

The most prevalent scholarship scams are those that trick students into paying a fee just to apply for a scholarship, which seems counterintuitive. By its nature, a scholarship is a gift. So, when a foundation or organization asks students to part with their cash, they should think twice before opening their wallets. “The hallmark of scholarship scams is that your education will be paid for if you pay a fee. If you have to pay money to get money, it’s probably a scam,” says Kantrowitz. “If you have to invest more than a postage stamp to get information about a scholarship or to apply for a scholarship, it’s not in your best interest.”

Some scam artists charge students a fee to search a scholarship database. There are a dozen or more websites that allow students to search for free, like Fastweb.com and the College Board. Students don’t need to pay a third party.

Separating Students From Their Money

Making incredible pronouncements is a tactic scam artists frequently use to bait their victims. Some boldly state that everyone is guaranteed a scholarship. In reality a student’s odds of winning a scholarship are relatively low. Only one in eight students pursuing a bachelor’s degree wins a scholarship. With such poor odds organizations can’t make such guarantees. “It’s fraudulent. They can’t guarantee something that’s not under their control. The only guarantee they can legitimately make is satisfaction guaranteed or your money back,” says Kantrowitz.

Some scam artists operate in the open while others lurk in the shadows, coaxing personal information from unsuspecting students. No matter their strategy, their goal is to separate students from their money. A bank account number and a routing number is all they need to perform a demand draft to withdraw money from an account without a signature. Scammers try to “get you to pay with a credit card or get you to give them your bank account number,” says Kantrowitz.

Originally emanating from Nigeria and named after its country of origin, the Nigeria scam is one in which the so-called scholarship sponsor sends the victim a bogus scholarship check. Then the scammer contacts the student indicating that the check amount is greater than the scholarship and instructs her to send a check remitting the difference. Since the scholarship check is a forgery, if the student complies, she’s out that money.

In a similar scam a student receives a congratulation letter indicating he’s won a scholarship, but that he still owes the application fee. “Many students fall prey…even though they’ve never applied for the scholarship,” says Kantrowitz.

To make their phony operations seem more legit, scam artists give their fraudulent foundations generic names, like USA Scholarship or National Biology Scholarship. Their return addresses are nothing more than mail drops in and around Washington, D.C., which makes them seem legitimate. Their logos, which are knock-offs of those used by legitimate foundations and government agencies, look prestigious. “Like the Tree of Knowledge type logo the U.S. Department of Education uses, convincing students (they) must be legit,” says Kantrowitz.   

Identity Theft

Less common but just as insidious are those scams designed to steal a student’s identity. Using a bogus scholarship search website, scam artists surreptitiously obtain a student’s name, date of birth and social security number. “The most critical piece of information that they might not have as a scam artist is your social security number,” says Kantrowiz.

Since scholarship providers are not required to report scholarships to the IRS, if a foundation asks for a social security number, that’s a red flag. “There is no legitimate reason why a scholarship search site needs your social security number,” says Kantrowitz. Once they have a name, date of birth and social security number, they can open a credit card in the student’s name and use it as the victim to rack up debt. “You want to give information to a scholarship search and even (type or write it on) a scholarship application. But there is a risk of identity theft if you give too much information,” says Kantrowitz.

Kantrowitz encourages students to visit the IRS’s online database of tax-exempt organizations. There they can search for those foundations and organizations from which they’ve received scholarship offers to determine if they’re legit. “If they are claiming to be a foundation and they are not on that list, then it’s bogus,” says Kantrowitz.

Seeking Help

Most scam artists and their bogus organizations are fly-by-night. They stay one step ahead of the authorities by frequently changing their names and locations. Fortunately, students have a host of resources to help them steer clear of the scammers. Guidance counselors and college financial aid officers can be helpful. There’s also the Internet. “Just Google the name of the organization and the word ‘scam,’ and you’ll find reports,” says Kantrowitz. Another great resource is the Better Business Bureau. Kantrowitz warns students to even be weary of those organizations that boast an A plus rating and urges them to check for unresolved complaints.

Although it may seem trite the old adage still applies. “If it sounds too good to be true, then in probably is,” says Kantrowitz. Students who have doubts about a scholarship offer should trust their initial instinct. “Your first impression that it’s not legit may be the accurate one,” says Kantrowitz.

“If you are the victim of a scholarship scam, report it to fraud.org,” says Kantrowitz. These complaints funnel into the FTC’s sentinel system and the FTC relies on this data to crack down on scams, especially if they identify a pattern. Victims can also go directly to the FTC or state attorney general. “If you encounter a scholarship scam, report it and be careful,” says Kantrowitz.