CURRENT ISSUE :: MAY 2004:: YOUR MONEY

Promises, Promises

Companies Offer Help With Financial Aid, but Beware of Overblown Claims

By Anne Marie Chaker
Staff Reporter of The Wall Street Journal

The soaring cost of college has created new opportunities for companies that promise to help families cut the bill.

Through direct mail and ads on the Internet, some companies are offering to help families 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 expense. 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 refund $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 and Rep. George Miller, 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.)

Packed Houses

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 helped make it possible for them to afford college. By the end of the one-hour session, many families agree 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 past couple of 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, in fact, 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.)

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 student’s. 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.

Slip-Ups

Michael Alexander, CEO of Student Financial Aid Services, 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.

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 makes several claims in his presentation to the parents. At one point, he says 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.

Do you think paid advice on financial aid is worth the cost? Write to us.