February 27, 2004

Use caution with scholarship services

By Anne Marie Chaker, The Wall Street Journal Online

The soaring cost of college is providing a growing business opportunity: companies that promise to help families cut the bill.

Through direct-mail and ads on the Internet, some companies are offering to help parents search for scholarships or fill out federal forms, while others are promoting financial-aid seminars. The underlying promise in each case -- sometimes spoken, other times not -- is that parents gain an edge in the fierce competition for college aid.

Trouble is, high-school counselors and government officials say, families rarely get any payoff for what can often be a sizable investment. The number of complaints about financial-aid outfits that overpromise rose 50% in 2002, to 482, from a year earlier, according to the Federal Trade Commission. That was despite a law passed in 2000 increasing penalties for misleading claims by such companies. In one case, National Student Financial Aid, a company that runs seminars in hotels, agreed last August to repay $115,000 to customers for promising that they were likely to receive more financial aid than they could get on their own. The company was subsequently barred from doing business in Florida. A lawyer for the company says it is now "in compliance with all federal standards."

Meantime, two federal lawmakers, Sen. Edward Kennedy (D., Mass.) and Rep. George Miller (D., Calif.), are calling for an investigation of a Web site called Fafsa.com. The site charges first-time applicants $79.99 to complete the government's Free Application for Federal Student Aid, known as Fafsa. Some students have mistakenly gone to the site believing it to be the right place to download the free form. (The address for the government site is www.fafsa.ed.gov).

Plenty of the financial-aid counselors are considered perfectly legitimate. While they charge a fee, they clearly lay out what they can't do and what they can -- which is mostly hand-holding and answering questions about how the process works, rather than unlocking secrets for landing aid.

Some financial-aid seminars are attracting big audiences. In a packed conference room at the Doubletree Hotel in Fort Lauderdale, Fla., recently, the parents of some 50 students from nearby high schools listen attentively to a lecture about paying for college. "Financial aid does not go to us people who need it the most," says Anne Mahoney, a pitchwoman for a consulting service called Edifi. "It goes to us people with the most knowledge."

The presentation is followed by a video featuring student testimonials about how Edifi, run by a financial-aid services company called CFAS LLC in Albany, N.Y., helped make it possible for them to afford college. By the end of the one-hour session, many families agreed to sign up for additional services from Edifi that can end up costing hundreds of dollars.

High-school guidance counselors say they've noticed more solicitations from these kinds of companies hitting student mailboxes. Glenda Rose, a counselor at North Miami Senior High School, says the number of mass mailings and visits to town by such services has greatly increased in the last couple years. "Every other day these kids are coming in with letters," says Ms. Rose, who has handed out leaflets outside the seminars and cautioned families against attending. "We just can't keep up with it."

Indeed, some financial-aid experts question the wisdom of hiring any counselor, however professional, given the wealth of free resources available online, from extensive scholarship listings to information about various loan programs. "Never invest more than a postage stamp to get information or to apply for a scholarship," says Mark Kantrowitz, publisher of FinAid.org, a free Web site for financial-aid information.

Paying a professional could, ironically, even reduce a family's chances of securing aid. That's because colleges may give greater scrutiny to financial-aid applications that have had input from a professional counselor, says Mr. Kantrowitz. (The school can easily spot those applications because the counselors are required to sign them.)

Warning Signs

If you're planning to hire professional counseling to help with your financial-aid application, here are several red flags:

• When a company guarantees to find you a bigger pot of financial aid

• When a service promises to turn up scholarships that you can't find elsewhere

• When you're invited to a 'free' seminar -- and it turns into a high-pressure sales push

Free Help

Most school counselors can help families fill out forms for no charge, and many colleges, high schools and libraries run free financial-aid workshops. The Education Department operates a free hotline (1-800-4-FED-AID) for questions involving federal student aid. FinAid.org has a helpful section titled "Maximizing Your Aid Eligibility" that offers strategies for getting need-based aid, such as saving money in a parent's name rather than the child's.

It can also be a warning sign when scholarship-search companies promise information you can't find elsewhere. Free scholarship search engines -- such as FastWeb (fastweb.monster.com) or the College Board's Scholarship Search service (collegeboard.com) -- can match student profiles to scholarship opportunities.

Yet services that offer to coach parents through the financial-aid process abound. Michael Alexander, CEO of Student Financial Aid Services LLC, Davis, Calif., which runs fafsa.com, says his service is no different from that of accountants who help families file their tax returns. He adds that the site provides a disclaimer on the home page stating that his operation is not affiliated with the Education Department.

A Scholarship Study Guide

Some Web sites with free help navigating the financial-aid process:

• FinAid.org: A comprehensive site that has information on loans, scholarships and saving plans. Even includes interactive calculators to help project what your child's college costs will be and how much you should be stashing away.

• Fastweb.monster.com: Matches student profiles to a database containing over 600,000 scholarships. Also alerts students to application deadlines or when new scholarships are added.

• Collegeboard.com Scholarship Search: Connects student profiles to a database containing over 2,300 scholarships, internships and loans.

• Srnexpress.com: Contains over 150,000 resources, including scholarships, fellowships, internships and loan-forgiveness programs.

• www.fafsa.ed.gov: Any student applying for financial aid from the government needs to fill out the Free Application for Federal Student Aid, known as the Fafsa. The online form offers some benefits to the paper version, such as ensuring that no information is missing or conflicting before the applicant submits the form.

'Unsatisfactory' Rating

It's hardly surprising that more families are opening their wallets for these services. With the combination of a weak economy and big increases in tuition, the number of students requiring financial aid has increased -- along with the amount they require. Currently, more than half of undergraduates get some form of aid. And with the average student-to-counselor ratio in public schools about 500 to 1, many families are more than willing to pay for extra help.

In the case of Edifi, the Better Business Bureau has an "unsatisfactory" rating on the company in part because of the high volume of complaints alleging misleading sales practices. "The problem is people are thinking they are getting something that they are not," which is more financial aid, says David Polino, president of the Upstate New York Better Business Bureau in Buffalo.

At the Doubletree Hotel event, the company seems to be offering some potentially useful services, such as help filling out forms and access to test preparation. But a sales representative made several claims in his presentation to the parents. At one point, he said government aid is distributed on a first-come, first-served basis. (For the vast majority of federal aid, that's not true, according to the Education Department.) Toward the end of the presentation, a student in the audience is told that his first-choice school, Florida International University in Miami, costs $18,000 a year. (In fact, total fees for an in-state student are $3,000.)

Edifi chairman William Davidson says that "anyone who attends the seminar and listens to the presentation leaves understanding the process better than when they came," adding that any errors in the program were unintentional. He believes the BBB rating stems largely from experiences customers had with a company he acquired about two years ago called College Financial Aid Services Inc.

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