Be Prepared for Student Aid Scams

The total amount of financial aid that college students received in 2022-23 from Federal grants, loans, education tax benefits, and the work-study program was $240 billion. To this huge pile of money, colleges added $17 billion more in student aid.

It’s obvious that every scammer in the country is attracted to a sum of money this big. What makes it even more attractive is the fact that this money moves around. Money that sits idle for long periods doesn’t interest scammers. It’s when money moves that it’s most vulnerable.

Paper-based systems have weaknesses. Electronic funds transfer systems are faster, more accurate and more secure. However, they too have weaknesses. Students who fail to recognize them may be jeopardizing their college education.

The Role of The U.S. Education Department

The organization within the ED that is responsible for financial aid programs is the Federal Student Aid (FSA) agency. Like all Federal agencies, the FSA does its utmost to safeguard the privacy of personal information. The agency does their best to protect data, but colleges and students must also do their part.

The main reason for the establishment of the U.S. Education Department (ED) in 1979 was to use U.S. funds to assist students in paying for college. The ED uses the Internet as the primary channel through which it communicates and conducts business with its consumers; students and colleges. Although they are far more secure than paper-based systems, there is risk involved in online transactions. Students must avoid mistakes that may expose them to unrecoverable losses.

Common Scams Directed at College Students

College students are generally new and inexperienced regarding the banking system. This makes them more vulnerable than other groups. Students are attractive victims because they don’t have much of a transaction history, making it harder for banks or credit card companies to pinpoint unusual activity.

Scammers are counting on students to act quickly before they’ve thought through all the details of an offer or request. The following scams are common now, but new ones are constantly evolving:

1. Fake listings: There are fake ads for apartments, used books, movers,  and furniture sought by students, especially at the beginning of a semester when students need things quickly. Students should not send payments because nothing is ever delivered.
2. Student loan debt relief: Fake debt relief firms that contact students with promises to reduce or eliminate their student debt for a fee are scams. They will use pressure tactics such as limited-time offers. However, firms that consolidate a student’s loans and extend the repayment term in order to reduce the student’s monthly payments may be legitimate. If interested in this service, a student should check it out.
3. Employment offers: An online or print ad may describe a well-paid job that is a great fit for a student’s schedule. When the student contacts the “employer,” they are asked to pay a fee or to provide personal financial information to complete the job application process. Any “job offer” that requires payment or credit card information upfront is fraudulent.
4. Unsolicited scholarships and grants: A student may receive a call or email from a source that they don’t know. The caller will tell them that they’ve won a scholarship and ask them to supply credit card information to confirm that they are the correct recipient.
5. Social media: Social media platforms are often filled with details about where students live, who they know, and what groups they’ve joined. Scammers can collect this information and reach out to students, pretending to be people with similar backgrounds and interests. Once they’ve established trust, they ask for credit information.

Students often come across assertions like those below at seminars, over the phone, by email, or on a podcast or website:

• “Buy now or miss this opportunity.” Students should consider this type of pressure suspiciously and shouldn’t yield to it. It is likely to be fraudulent.
• “We guarantee you’ll get aid.” Students should never trust a guarantee of aid and never pay a fee upfront. Either they will get nothing at all or the scammer might claim it fulfilled its guarantee if the student is offered a loan or a $200 grant, though the scammer may have charged a $1,000 fee.
• “I’ve got aid for you but I need your credit card information.” A student should never divulge credit information unless they know who the caller is and are sure that the requested payment is legitimate. This is true even if the caller states that they represent their college financial aid office.

Be Wary of Some Providers of “Legitimate” Services

Like everyone else with a mobile phone, credit card, and email address, students need to be wary of attempts at identity theft. There are some very sophisticated cons out there that target students exclusively.

Scammers trick students into providing personal financial information by pretending that they are from a legitimate business. They use a variety of techniques that become known as phishing.

Students should be especially wary of scammers who lure students seeking financial aid by pretending to be affiliated with the ED. There are no private firms that can represent themselves as being affiliated with the ED except those ED-affiliated loan account processors that the ED uses to perform account processing services. Every student borrower will be assigned to only one of these ED-affiliated loan account processors when their loan is initiated.

Google and Yahoo have recently announced that they’re implementing new email authentication requirements for all email senders in February 2024 to improve deliverability and reduce spam. These changes are being made in an effort to protect users against phishing attempts. They will prevent any emails sent from an unauthenticated email address from reaching the recipient’s inbox. This should reduce the number of students victimized by phishing scams.

Firms are illegitimate if:

1. The student doesn’t know the party contacting them.
2. They charge a fee for assisting students with the FAFSA form.
3. They require payment upfront for their assistance.
4. They promise immediate loan forgiveness or cancellation.
5. They ask for a student’s FSA ID username and password.
6. They ask for third-party authorization or power of attorney.
7. They claim that their offer is limited and the student must act now.
8. Their emails appear sloppy or have spelling or grammatical errors.
9. The caller offers the student something “too good to be true” such as an unclaimed inheritance or a prize in a competition.

Students should also check to see if the “Sent From” address on an email is legitimate. This can be determined by the domain name to the right of the “@” symbol. It is fake if it is anything other than the name of a legitimate sender such as finaid.gov or umich.edu. A domain name can be spoofed in a variety of ways, but the correct domain name and suffix are usable only by its legitimate owner.

Colleges Can be Part of the Problem

Despite preparing and taking all necessary precautions, students can still become victims of cybercrime or identity theft through no fault of their own. Many colleges fail to properly secure private and personal data. One study found about 120,000 student accounts in Missouri and Arkansas for sale on the dark web. Government Technology reported that “International hackers slipped into the computer systems of at least four Florida colleges in the hopes of stealing the personal data of hundreds of thousands of students.”

Students should do an online search of all colleges to which they are considering applying to see if there is any indication of a security problem in the recent past. They should contact the school to see if the problem has been remedied.

Free Financial Aid-Related Services

Students can obtain free help by contacting the loan servicer that has been assigned by the ED to perform loan account processing services. The FSA also provides free  assistance in accomplishing such tasks as:

• Terminate an FSA account that may be accessed illegitimately.
• Create a new FSA account and password.
• Review an offer to lower monthly payments or extend the term.
• Change the repayment plan.
• Consolidate multiple Federal student loans.
• Postpone repayments while a student resumes their education.
• Postpone repayments while the student is unemployed.
• Verify that a student qualifies for an ED loan forgiveness program.
• Assist in getting a student’s loan out of default.

Steps Recommended for Victims of Scams

Students victimized by scammers should take quick action as described below.

1. Report Identity Theft Immediately

Like anyone who loses their identification documents, a student should assume the worst — that the information is in the possession of a criminal who can illegally obtain credit cards, set up mobile phone accounts, take out loans, and make purchases.

Any student who knows or suspects that their identity is at risk should take action immediately by informing the police. The public agencies and credit bureaus listed below can help determine what steps should be taken based on the circumstances:

1. The appropriate local law enforcement agency.
2. The student’s loan processor.
3. The student’s bank if account information has been divulged or if money has been sent to a suspected scammer.
4. The ED’s Office of Inspector General Fraud Hotline
5. Federal Trade Commission
6. Social Security Administration
7. Equifax Credit Bureau
8. Experian Information Solutions
9. TransUnion Credit Bureau

2. If Federal Student Aid Information is Compromised

If a student suspects that an unauthorized person has their FSA password. they should promptly change it. The student can log in and go to “Account Information” in settings. The account holder will be prompted to enter the current password and then choose a new one.

If a student can’t log in because they’ve forgotten their username, he or she will need to satisfy security procedures to recover it. FSA will send a six-digit code to the student’s mobile phone or email address. If a student no longer has access to the mobile phone number or email address on record, they should contact the Federal Student Aid Information Center at 1-800-433-3243. An agent will walk them through the steps necessary to recover the account and set a new password. The student may need to undergo the full FSA ID Account Recovery process by resubmitting copies of identification documents.

3. Report Fraudulent Activity by a College

Students should contact the ED’s Office of Inspector General Fraud Hotline to make a confidential report of a college’s suspected engagement in fraud, waste, or abuse involving Federal student aid programs. They can contact the FSA’s Federal Student Aid Feedback Center if they believe that their college’s administration of student aid programs may violate Federal regulations or if they misrepresented any aspect of educational programs, prices, or facilities available to students. The whistleblower student’s name will not be revealed to the college.