Loan Scams Ensnare Parents and Students
Students and parents figuring out how to pay for college should add one more item to their list of things to worry about—scams.
While it's hard to estimate the number of victims, because many people never report fraud, college loan scams appear to be on the rise as college becomes more expensive. The Better Business Bureau received 782 complaints against scholarship, loan, and grant services companies in 2006, up 61 percent from 2005. Companies—some of which frequently change their names and locations—send offers of seminars, free grant money, and other enticements in exchange for fees. Once money changes hands, they quickly disappear.
Last year, as Michelle Black struggled to help her daughter, Korrina Sanchez, get into college with a financial aid package, she received a postcard inviting her to a seminar on how to navigate the college loan process. She happily accepted and was impressed with the presentation. Black, a corporate real-estate analyst in Missouri City, Texas, paid $100 upfront and committed to eight more monthly $100 payments in return for a promise of future help.
A week later, when Black tried to call the company, College Money Matters, the number was disconnected. She looked up the company's website and read that it was under construction. "That started setting off red flags," she says. The company had disappeared, along with her $100.
Jane Driggs, president of the Better Business Bureau in Utah, where College Money Matters was based, says loan scams are widespread. "More and more people need financial aid, and [companies] are capitalizing on the fact that people are desperate to get that money," she says.
Seminars, hosted by private counselors or companies, can offer useful advice and often are legitimate. But certain warning signs—including demands for upfront payments—should make consumers think twice before handing over any money, says Driggs. She says people should ask themselves, "If I don't do this today, is the company still going to let me do it tomorrow?" A legitimate company will let you take your time and decide later, she adds.
The Better Business Bureau has also heard complaints from students who have received checks in the mail that are labeled "free grant money." Recipients are told to deposit the check and then wire money to pay for processing fees. The check usually turns out to be counterfeit. One University of Wisconsin student lost $500 after falling victim to such a scam.
Most legitimate forms of grant money are sent directly to universities, not to students or parents, says James Boyle, president of College Parents of America, a group that represents parents of future and current college students. Any check that arrives by mail should be treated with extreme skepticism, he says.
For some parents, who are often overwhelmed by the confusing process and steep cost of paying for college, services that promise to help are appealing. "I thought it would be a good idea, since I am very busy, if I could hook [my nephew] up with an organization that will help him all the way through his education," says Abul Kashem, a doctor in Brooklyn, N.Y. He attended a College Money Matters seminar, was impressed with the speeches and video presentations, and paid $850 for the promise of future assistance.
Kashem hasn't heard from the company since, and its number has been disconnected. (When U.S. News called phone numbers previously associated with College Money Matters, they were either disconnected or no one answered.)
After stopping payments on her account, Black helped her daughter pick a college and financial aid package without any outside guidance. But, she says, she'll always wonder: "Could I have done better?"