Federal Agencies Release Fourth Annual Report to Congress on Scholarship Fraud

Each year, millions of students seek help in financing their college education, and some fall prey to scholarship and financial aid scams that “guarantee” money for college in exchange for a fee. In 2000, Congress passed the College Scholarship Fraud Prevention Act to help federal agencies crack down on these scams. The Federal Trade Commission and the Departments of Justice (DOJ) and Education (ED) have issued their fourth required report to Congress describing their continued efforts to combat scholarship and financial aid fraud.

The College Scholarship Fraud Prevention Act of 2000 established stricter sentencing guidelines for criminal financial aid fraud and charged ED and the FTC with conducting outreach efforts to educate consumers about scholarship scams. The Act also requires the three agencies to submit a yearly report detailing the nature and quantity of scholarship fraud incidents since the Act was enacted. The FTC, DOJ, and ED have implemented all the required provisions and their activities are highlighted below.

In 1996, the FTC implemented “Project Scholarscam,” an ongoing campaign to prevent and prosecute scholarship fraud. To date, the FTC has brought eleven law enforcement cases against alleged scammers and published a variety of consumer education and outreach materials to help consumers avoid these scams.

This year’s report discusses ED’s and the FTC’s continued efforts to educate consumers about scholarship scams. The agencies have created Web sites, booklets, brochures, videoconferences, flyers, posters, and bookmarks and distributed them to the public in English and Spanish. ED’s materials also provide helpful information about federal student aid programs, including the fact that there is no fee to submit the Free Application for Federal Student Aid (FAFSA) – contrary to what many scholarship scammers claim – and that free information about college scholarships is available from libraries, high school guidance counseling offices, and other sources. The report notes that the FTC and ED continue to work together in their outreach efforts, including linking to each other’s materials.

Regarding the amount of reported scholarship fraud in 2004, the report notes that complaints and inquiries to the FTC’s Consumer Sentinel database have increased sizeably to 4,486 from 667 in 2003, but that scholarship fraud complaints and inquiries represent just 1.15 percent of the total fraud complaints and inquiries in the database. The report notes that the increase likely does not indicate an increase in scholarship fraud, instead attributing it to a greater number of law enforcement and consumer protection agencies referring complaints to the Sentinel database and increased consumer awareness of how to report fraud and inquire about a company’s practices. The report states that the nature of the fraudulent activity reported continues to shift from scholarship search services to financial aid consulting services. In addition, the report informs Congress of the FTC’s and DOJ’s continued monitoring of the financial aid industry, citing specific enforcement actions the agencies brought in 2004.

The Commission vote authorizing staff to issue the report to Congress was 5-0.

Copies of the report are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC File No. P994249)