That ‘Scholarship’ Offer Sound Suspicious? You Get a Gold Star

Janet Seydel thought her problems were solved the day she got a postcard from a college scholarship service.

Seydel, the mother of a bright high school theater student named Jason M. Coffield in Grants Pass, Ore., was searching for aid so that Jason could attend Western Oregon State this fall.

The postcard said Jason qualified for corporate-sponsored scholarships. Seydel was instructed to call an 800 number for more information. When she called, the service assured her that Jason could get more than $1,000 in scholarship money. There was just one catch: Janet needed to pay a $179 “processing fee” upfront.

Still, the company promised, if Jason didn’t get five times as much in scholarships as he paid in fees, the processing fee would be refunded. Seydel thought it was a no-lose proposition, so she sent in the $179 and waited for the scholarships to roll in.

Four months later, instead of a check, Jason was sent a list of largely outdated information on private-sector scholarships. By then, he’d missed the deadlines for applying for a host of legitimate scholarship offers. Now he’s working two jobs to help swing the tuition.

“These guys came along and I thought that everything was going to be taken care of,” Jason says.

Unfortunately, Janet and Jason’s story is all too common today, says Bonnie Jansen, spokeswoman for the Federal Trade Commission in Washington. The latest trend in national consumer rip-offs is the “scholar scam,” she says. Parents and students beware.

The scholar scam is actually a variation of the old prize-promotion con. Parents are contacted either by mail or phone. Typically, they’re greeted with “Congratulations,” followed by phrases such as “your student has qualified for” or is “eligible for” a college grant or scholarship program. The “program” turns out to be a scholarship search service that supposedly is able to ferret out corporate college money that would otherwise go unused.

The “scholarship company” is likely to say one of two things: That it has access to scholarships not otherwise readily available, or that it can “do the work for you,” researching and applying for scholarships on your child’s behalf. Such claims may be bogus, the FTC says.

Although there are legitimate companies in the field, plenty of con artists have hooked thousands of parents. Naturally, the claims sound good. College costs have been rising far faster than personal incomes, putting many parents in a financial bind.

Tuition at four-year public colleges and universities rose 234% between 1980 and 1994, nearly three times the 82% increase in median household income during the same time period, according to a study by the General Accounting Office, the investigative arm of Congress.

And, in truth, some corporate-sponsored scholarships do go unused because parents aren’t aware of them or because the scholarship qualifications are so narrowly defined that there may be years in which no one will qualify.

Daniel J. Cassidy, president of the National Scholarship Research Service and author of “The Scholarship Book,” estimates that about 3.5% of private sector scholarships don’t get tapped. No one knows precisely how much money that amounts to, but everyone seems to agree that these untapped funds add up to at least several million dollars.

A legitimate scholarship research firm can search a computer database to find private scholarships you might not be aware of, but an enterprising student can do the same--for free--by simply hitting the books in the library, Cassidy says.

“Go to the library, look up ‘scholarship’ in the card catalog and you’ll find a half dozen books that can give you a lot of the same information that you’d buy from a scholarship research service,” he says. Cassidy adds that students should make sure the book is current--that is, published in the last year or two. That’s because due dates and other scholarship specifics can change.

The FTC’s concern, though, is with the dozens of fly-by-night companies making fraudulent promises.

“If a scholarship service guarantees anything--a scholarship, a refund, a savings bond, even a fountain pen--walk away,” Cassidy says.

If the company says “you can’t get this information anywhere else,” if it approaches you saying “you have been selected by a national foundation” to receive a scholarship you never applied for, or if it wants a credit card number or a bank account number “to hold” your scholarship money, you’re almost certainly talking to a con artist, the FTC’s Jansen says.

If the company tells you that it will “do all the work,” it’s lying, Jansen says. A service cannot apply for scholarships on your behalf. You have to do it yourself.

If you are thinking about hiring a scholarship research service just because you want to save library time, ask for references--satisfied students that you can call about what’s provided, Cassidy suggests. If the service balks or tries to persuade you to sign up before checking it out, it’s a warning sign.

“Don’t fall into the same trap that we did,” Seydel says. “If they want you to pay them money to guarantee you money, don’t do it. It’s a scam.”

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Online research

Here are sources suggested by the Federal Trade Commission for students looking for tips on scholarships:

* The FTC’s Internet World Wide Web site (https://www.ftc.gov) has information on scholarship scams and how to avoid them.

* The Student Loan Marketing Assn., a student loan company, offers much of the same, in addition to much student loan information, at its Web site (https://www.salliemae.com).

* The Financial Aid Information Page (https://www.finaid.org) has information on a wide array of grants and scholarships. It can hyperlink to the FTC site.

* The National Assn. of Student Financial Aid Administrators (https://www.nasfaa.org) posts consumer scholarship tips.

* There also are software products on the market that list scholarships. Notable among these is Scholarships 101 from Pinnacle Peak Solutions ([800] 762-7101) and Scholarship Select by Bullseye Systems ([408] 266-9226).

* There are books too, such as “The Scholarship Book” by Daniel J. Cassidy (1996, Prentice Hall).

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Kathy M. Kristof welcomes your comments and suggestions for columns but regrets that she cannot respond individually to letters and phone calls. Write to Personal Finance, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or message Kathy.Kristof@latimes.com on the Internet.