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There are a number of scholarship offers out there that charge a small fee, usually $2-$50. I call these scholarships fee-based scholarships or Reverse Scholarships. The fee is called a different name from offer to offer, but common names for this fee include:
While some of the fee-based scholarships ARE legitimate (they pay out a scholarship) most of them also happen to be ILLEGAL - they are violating various contest and sweepstake laws. A large portion of these fee-based scholarship offers are total scams - they never pay out a dime. Be careful and check out any fee-based scholarship offer before you pay out that entry fee! When is a fee-based scholarship a scam?
Guess what: Most fee-based scholarships are actually AGAINST THE LAW. Depending upon the structure of the scholarship, and the state the scholarship is offered in, they may very well be breaking the law EVEN if they DO pay out a scholarship! This gets very complicated, especially since every State in the United States and every country in the world sets their own laws, and the laws vary greatly. It is not my intention here to provide you with legal advice, as I am NOT a lawyer, but more to give you an overview of what MIGHT constitute an illegal scholarship. Depending upon the state or country, scholarships can fall under several "categories" of contests. These categories include, but are not limited to:
A lottery is defined as a contest in which the winner is chosen by chance (a random drawing) and the entrants had to pay a fee (or purchase a product) in order to enter the contest. In EVERY state there are laws AGAINST lotterys offered by anyone except the state and it's Lottery Commission. There are also numerous Federal regulations against illegal lotteries. If the scholarship you are thinking of entering chooses its winner via a random drawing "from eligible entries," it most likely is an illegal lottery, and may be an illegal raffle. Games of Chance and Contests usually fall under the category of "sweepstakes" or the winner is randomly drawn. While there may be some "hoops" that you have to "jump through," a game of chance relies primarily on LUCK. From what I have read, EVERY state in America and most countries PROHIBIT any sort of monetary fee from being charged in order to participate in a game of chance. They also prohibit requiring a purchase. Many academic achievement scholarships fall under the definition of "games of chance." If a scholarship is based on academic achievement AND ALSO charges a fee, it may be considered a "game of chance" because there is a certain amount of "luck" involved in winning. Why is this? Because academic achievement scholarships consider your Grade Point Average, and often times your SAT/ACT scores. They will state in the rules that basically, the student with the highest GPA and/or SAT/ACT scores win. The element of "luck" comes in because (1) your GPA must be the highest of all entries received, and (2) when you enter, you have little to no way of knowing if your GPA is the highest, therefore it is "luck" if you ARE the highest. Since GPAs are generally limited to a "high" of 4.0, there will be a number of entries that ALL have the same GPAs. Let's say that 25 of the applications all have 4.0 GPAs and 1300 SATs and 33 ACTs. These applications are all EQUAL. The winner is chosen then by random, or perhaps by some unknown other quality that was not stated upfront in the rules when you submitted your application (such as entry with the earliest date of application) - that now makes this a Game of Chance, or perhaps even a lottery. Since you were required to pay a fee to enter and you (usually) are not informed in advance how winners are chosen in the event of a tie, this scholarship is now illegal. Most states have laws that require games of chance that charge an entry fee to also offer an "alternative entry method" that does not require a fee or the purchase of a product. If a fee-based scholarship that has an element of "luck" in it and it does NOT offer a "free" way to enter, it is most likely violating the law. Skill Contests, or Contest of Skill are contests or offers where, based upon demonstrating a certain amount and type of skill, a winner is chosen. A large number of scholarships - including ones that do NOT charge a fee - fall under the definition of a skill contest. In particular, scholarships that are judged based upon an ESSAY are skill contests. The legality of skill contests (or "contest of skill") gets very tricky - which is why so very many fee-based scholarships are based on essays, because skill contests that charge a fee OFTEN *ARE* LEGAL. So, when is an essay scholarship contest that charges a fee AND choses the winner based on an essay NOT LEGAL?
My final word on fee-based scholarships: The overwhelming majority of scholarships do NOT charge a fee to apply, why bother paying to apply? Your ODDS of winning a scholarship are not improved enough to make it worth that $1, $2, or $5 "handling" fee. Ask yourself these questions before you send in that check: If you ARE going to enter a fee-based scholarship, be sure to spend a few minutes and do some research on the organization. Of the over 300 fee-based scholarships I've come across over the last two years, only THREE am I positive are completely legit - all others turned out to be a college student running the scholarship which of course he "won," a residential address, not a real foundation or company, and in one case, a long-term (10 years!) borderline legal organization that has yet to pay out over $500 of the more than $50,000 they claim to award.
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