Scholarship Fraud Prevention Act of 2000
On Wednesday, October 6, 1999, the Senate Judiciary Committee held a hearing entitled Solving the Problem of Scholarship Scams to discuss The College Scholarship Fraud Prevention Act of 2000 (S1455, P.L. 106-420).
The bill was subsequently passed by both the House and the Senate and signed into law by the President as Public Law 106-420.
Four witnesses testified at the hearing in support of the legislation, including Mark Kantrowitz, publisher of FinAid; Sheila F. Anthony, Commissioner, Federal Trade Commission; Susan O'Flaherty, Western Michigan University; and Sanjeev Bery, U.S. Public Interest Research Group.
Mr. Chairman, I thank you for convening this hearing on the College Scholarship Fraud Prevention Act of 1999, and for inviting me to testify before the Senate Judiciary Committee this afternoon. My name is Mark Kantrowitz, and I am the publisher of the FinAid and eduPASS web sites, free resources that exist to aid students in navigating the sea of financial aid and to combat the type of fraud the Abraham-Feingold legislation addresses. The FinAid site had more than 2 million visitors last year. I am pleased to have the opportunity to share my experiences with the Committee today.
Every year, several hundred thousand students and parents are defrauded by scholarship scams. The victims of these scams lose more than 100 million dollars annually.
The most common types of scholarship scams include scholarships for profit and guaranteed scholarship search services. The first type charges an application fee for scholarships that never materialize or are less than advertised, or disburses less money in scholarships than is received from application fees. The second type charges a fee to match student information against a database of scholarships and guarantees that the student will actually receive money.
Scholarship scams succeed by giving families an unreasonable expectation of success in using their services to obtain financial aid. Several of the most common misrepresentations include:
I support the College Scholarship Fraud Prevention Act because it addresses the problem through a combination of law enforcement and consumer education.
I would like to suggest a few ways in which the legislation could be enhanced:
An additional idea for improving the legislation concerns "scholarships for profit" or organizations that offer scholarships with an application fee. Students apply for these awards, thinking that the organization is involved in philanthropy, when in reality the organization is enriching itself through the application fees.
Philanthropy should be about giving money, not getting money. I recommend making it illegal to misrepresent what amounts to little more than a raffle as a scholarship by making it illegal to charge students fees to apply for scholarships. If they want to call it a scholarship or fellowship, they must not be allowed to charge students any fees.
Alternately, I would recommend requiring any organization that charges students an application fee for scholarships to disclose certain information on the application form and to the general public, including the number of applicants, the total application fee revenue, and the total amount disbursed in scholarships.
Mr. Chairman, I once again thank you and the committee for taking an interest in the issue of financial assistance fraud, and for inviting me to share my thoughts on the matter. I would be happy to answer any questions you may have.
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