The postcard from the National Grant Foundation was emblazoned with the statement, "Urgent Scholarship Notice." It exhorted parents of high school and college students to call a toll-free number to get their share of scholarship money: "Last year, a total of $40 billion in financial aid was awarded to families of all income levels." When parents called, they were told that for a fee of $179, the company would find scholarships that matched the qualifications of their children. Students would get at least $1,000, the company guaranteed, or the fee would be refunded..

Last year, the Federal Trade Commission sued the National Grant Foundation for making misleading claims. The FTC found that the company provided families with lists of funding sources that were not tailored to the students, were nonexistent, or were not sources of free scholarship money but rather were contests, loans, or work-study options. In May, a principal of the company agreed to settle the case without admitting guilt.

Each year, thousands of students and parents fall prey to fraudulent scholarship search services, which commonly trumpet that millions of dollars in private scholarship funds are going unclaimed, either because students don't know how to apply or don't realize the money is available. "That's simply not true," says Dana Lesemann, an attorney with the FTC, which has been prosecuting bogus services as part of its "Project $cholar$cam."

Scams operate in other ways, as well. Some imply, falsely, that you're getting information that can't be found anywhere else. "If [parents] don't know how scholarship money is given away, it might make sense that there is some central place to give money out," says Lesemann. A red flag should go up when a postcard announces that you're a finalist in a contest you never entered or have been selected to receive a scholarship--but that you can't collect until you pay a processing fee. Most legitimate scholarship grantors do not charge an application fee. If you have to pay money to get money, it's probably a scam.

A "guarantee" of a scholarship is also a sure sign that something is amiss, since no one can promise you will win. And any assurance that you'll get your money back usually has many strings attached. Lynne Anderson of Waltham, Mass., paid $45 to a search firm and received the addresses of six scholarship programs for which she was not eligible. She was told she had to supply a rejection letter from each organization to get a refund. But it was pointless to apply, she says; one of the scholarships, for example, was open only to relatives of deceased members of fire, police, and corrections departments, which she is not.