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 one percent 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.
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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. The complaint states, “The Company characterized the Gold and Combo services as an upgrade from its 'standard' service level at 'no additional cost.' But in fact, there were additional costs: future annual fees of $67 to $85 attached to the Gold and Combo Services, which were charged automatically to the consumer’s card or bank account on file for up to four years.” In a statement provided to Marketwatch, the company denied any wrongdoing and said the CFPB “provided no evidence” to support its claims against the firm. The company also told MarketWatch it “received overwhelmingly positive feedback" and pointed to efforts to help low-income students apply for financial aid on a pro-bono basis.
The company told MarketWatch it "settled these unsubstantiated allegations to avoid protracted litigation."
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. And the Federal Trade Commission says there are many legitimate companies that, for an advance fee, can provide lists of scholarships or identify potential awards for which a particular student might qualify. But the FTC also cautions that there are a lot of unscrupulous companies looking to make money off of false promises of scholarships, grants or financial aid packages.
The FTC has published some rules of the road for spotting a financial aid or scholarship scam:
- 1. The scholarship is “guaranteed or your money back."
- 2. "You can't get this information anywhere else."
- 3. "I just need your credit card or bank account number to hold this scholarship."
- 4. "We'll do all the work. You just pay a processing fee."
- 5. "The scholarship will cost some money."
- 6. "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. That said, the FAFSA requires personally identifying information, and as we’ve learned from the recent breach of the Office of Personnel Management, government databases are not immune from the data breach plague.
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 and your credit scores. 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.
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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 FAFSA 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.
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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.
Any opinions expressed in this column are solely those of the author.
Adam Levin is chairman and co-founder of Credit.com and IDT911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit. His new book, "SWIPED: How to Protect Yourself in a World Full of Scammers, Phishers, and Identity Thieves" will be released this fall.