Not So FAFSA: How to Avoid a Student Aid Scam

As July melts into August, many college-age students are once again turning their thoughts (if they haven’t done so already) to that beast of complexity, the FAFSA form – which students must fill out if they want to receive financial aid. While there are many reputable companies that help prepare FAFSA forms, there are a number of parasites out there as well.

Filling out the FAFSA is about as much fun as Thanksgiving dinner table talk when it turns to the topic of college applications. That’s when the money questions are asked, debt horror stories are shared and guests make groaning asides about the 1% who don’t have to apply for financial aid.

First things first: In the form’s acronym lies the secret to avoiding the money pitfalls—FAFSA is short for “FREE Application for Federal Student Aid.” Yeah, I know, filling it out is time-consuming, but it’s doable. It’s also complex and requires information that you’re going to have to bird-dog, but it is free.

However, the complexity is no reason to rush out and hire help. You’re going to be on the phone with parents (and step-parents) regarding questions you can’t possibly answer, like whether or not they have untaxed portions of a pension distribution and if they are regularly contributing to a Keogh. You’re also going to have to ask them personal questions, like how much they earn from work and other money-related topics.

Because it’s complex, there are those who opt to pay a third party to prepare the form, and that’s where problems can arise. The Consumer Financial Protection Bureau recently filed a complaint against a company that provides this service, seeking $5.2 million for alleged deceptive sales tactics and recurring fees. According to the CFPB, 100,000 customers were billed illegally. Marketwatch reported, “Company representatives allegedly told customers that they could enroll in better payment plans at ‘no cost’ and instead charged them anywhere between $67 and $85 per year. In addition, the CFPB claims that Student Financial Aid Services put customers in recurring billing programs without their knowledge or consent.” In a statement provided to Marketwatch, the company denied any wrongdoing.

If It’s Not Free, You Might Be Wise to Leave It Be

It bears repeating here: There is no fee for the FAFSA — a fact that is embedded in the name of the form. There are a lot of companies and scammers looking to make money off of the free process of applying for federal financial aid.

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The FTC has published some rules of the road for spotting a financial aid or scholarship scam:

The scholarship is “guaranteed or your money back.”
“You can’t get this information anywhere else.”
“I just need your credit card or bank account number to hold this scholarship.”
“We’ll do all the work. You just pay a processing fee.”
“The scholarship will cost some money.”
“You’ve been selected” by a “national foundation” to receive a scholarship – or “You’re a finalist” in a contest you never entered.

At the end of the day, common sense is your best guide. Don’t simply rush into the arms of the first organization that offers you a life raft. If someone asks for personally identifying information in the conversation-starter phase of the process—the FAFSA requires a lot of it—that is, prior to actually working on your application, be on guard. Giving out your sensitive data to a company without knowing who you’re dealing with is one of the easiest ways to become an identity theft victim.

You can’t prevent identity theft – it’s now the third certainty in life – but you can take steps to protect yourself. If you think you may have given information to a scammer, keep an eye on your credit reports (you can get free annual credit reports at AnnualCreditReport.com) and your credit scores. You can get your credit scores for free every month on Credit.com. Any big, unexpected changes could signal identity theft and you’ll want to pull your full credit reports to confirm. You may also want to report any potential scams to the FTC.

Search Engines Can Be Your Best Friends — If Used Properly

When it comes to avoiding scams and expensive dead-ends, do your homework. It’s important to read up on any service you’re thinking about using and don’t just look at the first two pages of results on whatever search engine you are using. The negative feedback may be on page 4 or 5, so dig a little.

Another reason to do your homework is that you will find helpful tips to increase the amount of money you may have coming to you. Knowledge of the way this 10-page maze of a form works and what points matter most to maximize eligibility can be a game changer. For instance, with just a little poking around you might land on this article that, among other things, relays the fact that retirement accounts and primary residence do not count as reportable investments on FAFSA questions 42,43,91, and 92—something many people do not realize—drastically reducing the amount of money allotted to them.

Other Tips

Use your head. If you see success stories, there’s a marketing machine behind them – that doesn’t necessarily mean the offer is a scam, but you should be wary and make sure you understand what it is you’re buying. The same goes for guarantees. If you decide to use a third party, read the fine print, ask about their refund policy. Look for references. Ask for references you can call. Slow and steady wins the race here.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.