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Scholarship Fraud Bill

Excerpted from the NASFAA Newsletter, November 27, 2000.

On November 1, 2000, President Clinton signed into law the College Scholarship Fraud Prevention Act of 2000(Public Law No. 106-420). The bill, first introduced in the Senate in July 1999, aims to increase efforts to protect the public against fraud by unscrupulous companies posing as scholarship search and/or financial aid foundations or services.

The newly signed legislation calls for:
  1. the Attorney General and the Secretary of Education to submit an annual report to Congress assessing all fraud incidents that occurred during the year;
  2. the Secretary of Education, in cooperation with the Federal Trade Commission(FTC), to maintain a scholarship fraud awareness site on the Department of Education's web site. The web site would consist of:

    • information on the Project $cholar$cam campaign (see below for details);
    • a list of companies and individuals who have been convicted of scholarship frauds either on a federal or state level and details about their schemes;
    • a message board for the public to air complaints and share experiences;
    • a link to the Better Business Bureau;
    • contact information for the Federal Student Aid Information Center;
    • links to other relevant Internet Web sites; and,
    • a section where the public can send comments and questions directly to the Department of Education and FTC.

  3. penalties to be applied to those individuals and companies convicted of fraudulent acts. The penalties will be equal to those handed down to people who falsely claim to work for a charitable organization or government agency. Penalties can include 10 to 16 months of jail time and up to $500,000 in fines;
  4. those individuals and companies convicted of scholarship fraud to be barred from declaring bankruptcy in order to avoid paying court-ordered penalties.

One major on-going effort by the FTC is the Project $cholar$cam joint law enforcement and consumer education campaign. Started in 1996, the project's goal is the education of students and their families in identifying scholarship scams and rip-offs.

To accomplish its goals, the FTC has established partnerships with a number of private and public organizations, including NASFAA, Sallie Mae, College parents of America, The College Board, Educational Testing Service, and National Association of Secondary School Principals. The FTC has distributed over 2.5 million pieces of its consumer education materials. The materials were issued posters, bookmarks, flyers, consumer alerts, etc., cautioning students and parents to be aware of six known signs that a scholarship service is a scam rather than the real thing:
  • "This scholarship is guaranteed or your money back." No one can guarantee that they'll get you a grant or scholarship. Refund guarantees often have conditions or strings attached. Get refund policies in writing - before you pay.
  • "You can't get this information anywhere else." There are many free lists of scholarships available. Check with your school or library before you decide to pay someone to do the work for you.
  • "May I have your credit card or bank account number to hold this scholarship?" Don't give out your 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.
  • "We'll do all the work." Don't be fooled. There's no way around it. You must apply for scholarships or grants yourself>
  • "The scholarship will cost some money." Don't pay anyone who claims to be "holding" a scholarship or grant for you. Free money shouldn't cost a thing.
  • "You've been selected by a 'national foundation' to receive a scholarship", or "You're a finalist" in a contest that you never entered. Before you send money to apply for a scholarship, check it out. Make sure the foundation or program is legitimate.
 
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