FTC Warns of Scholarship Scam

Bogus scholarship search services bilk students and their families of millions of dollars every year, the Federal Trade Commission said Thursday in launching a crackdown on such fraud.

Late last month, the FTC filed charges in federal court against five companies that the government claims stole nearly $10 million from college-bound students and their families looking for money to pay rising tuition and fees.

An estimated 300,000 students and parents fall victim every year to 100 to 200 fraudulent scholarship search services, according to Mark Kantrowitz, who has written a guide to scholarships. These companies charge a fee to find--and often guarantee--scholarships or grants for students, but never do.

Kantrowitz, of Pittsburgh, has developed an Internet page on financial aid sponsored by the National Assn. of Student Financial Aid Administrators and maintains a database of complaints about scholarship scam artists that he shares with the FTC and National Fraud Information Center.

“A good rule of thumb is if you have to pay money to get money, it might be a scam,” Kantrowitz said. “Ninety-nine percent of all legitimate scholarship foundations do not charge applications fees. I know of only three that do.”

The FTC cautions students to be wary of companies that claim:

* “The scholarship is guaranteed, or your money back.”

* “I just need your credit card or bank account number to hold this scholarship.”

* “We’ll do all the work.”

Peter Narbonne, outside scholarships coordinator for Massachusetts Institute of Technology, said the rising cost of higher education has students in a desperate search for money. Fraudulent companies obtain university phone books and send direct-mail flyers to prospective clients, he said.

These operations typically prey on lower-income students who are the first in their families to go to college--the same families who are likely to be offered the largest grants and scholarships from colleges and universities, said David Warren, president of the National Assn. of Independent Colleges and Universities.

Information on available scholarships and grants can be readily obtained from high school counselors, college financial aid officers, the Internet and public libraries, said Dallas Martin, president of the National Assn. of Student Financial Aid Administrators.

In each of the five cases, the FTC has obtained a temporary restraining order prohibiting the company from engaging in activities the agency has challenged. In addition, the companies’ assets have been frozen, said Jodie Bernstein, director of the FTC’s bureau of consumer protection. The FTC plans to seek permanent injunctions against the companies and restitution for consumers.

Suits were filed against: Career Assistance Planning Inc., Atlanta; Christopher Ebere Nwaigwe, who lists various addresses in Washington, D.C., and Maryland; Student Aid Inc. of New York; College Assistance Services Inc. of Sunrise, Fla.; and Student Assistance Services Inc. of Fort Lauderdale, Fla.

“It’s unbelievable that the federal government could come in here and do this. They’ve frozen all the assets and basically closed down the business,” said James Lewis, an attorney for two defendants in the case involving Student Assistance Services.

He said the company complied with the Florida state attorney general’s request to change wording on postcards the company sent to prospective clients. Clients paid a $179 fee, but it was refunded if the customer was not satisfied, he said.

“The allegations that the FTC is making are not true,” Lewis said. “My clients can’t even go to a restaurant because the government has frozen all their assets.”

Alan Jay Braverman, an attorney for College Assistance Services, denied the FTC’s allegations against his client, saying the company refunded its customers’ fees if they did not succeed in getting at least $1,000 in aid.

Efforts to reach the three other companies were unsuccessful.