Student loan scams are fraudulent schemes that purport to offer help with repaying student loans, but instead, end up costing borrowers money or personal information. Some common examples of student loan scams include:
- Offering to lower or eliminate student loan debt in exchange for an upfront fee
- Claiming to be able to secure a loan forgiveness program in exchange for a fee
- Asking for personal information, such as a Social Security number, to “process” a loan forgiveness application and then using that information to commit identity theft
- Offering to help with consolidation of student loans in exchange for a fee, but then doing nothing to actually help the borrower
Currently, there is more than $1.7 trillion in student loan debt. With billions of dollars being provided to students each year, it is not surprising that there are scammers trying to take advantage of people by offering services that they do not fulfill or have no real understanding of.
The Consumer Finance Protection Bureau (CFPB) has even issued multiple warnings about what to be aware of when seeking help with student loans.
If you are considering paying for help with your student loans, be sure to do your research and only use reputable companies. If you are unsure whether a company is legitimate, you can check with the Consumer Financial Protection Bureau (CFPB) or your state attorney general’s office to see if there have been any complaints filed against them. It is also a good idea to avoid giving out personal information, such as your Social Security number, to anyone you do not know or trust.
You Should Know About Student Loan Debt Help
There are many companies that advertise that they can assist with your student loans. You may come across these advertisements on social media platforms, Google, or even in physical mail. These companies may promise to help with your student loan debt or advertise certain services that may seem appealing to you.
Before taking any action with these companies, keep in mind that you do not have to pay for assistance with Federal student loans if you do not want to. While help is available, it is up to you to decide if you want to handle things on your own or hire a professional organization to assist you.
Enrollment in repayment programs for Federal student loans is free and can be done at StudentAid.gov. Debt relief companies are not able to negotiate with your Federal student loan creditors to get you a better deal. Payment amounts, qualifications, and requirements for repayment programs such as IBR and PAYE are determined by Federal law.
It is important to note that while these programs are free, some people may find the enrollment process confusing or have complex situations that they want help with. Just as some people choose to do their own taxes while others hire a CPA, the same applies to help with student loan debt. If you decide to pay someone to help you, it is crucial to ensure that the company is reputable and you are not at risk of being scammed.
Warning Signs to help you Avoid Student Loan Debt relief Scams
Advanced Fee Scam:
This scam involves a student loan company claiming that they can offer the “best” interest rates and loan terms, but you must pay a “small” fee upfront for their services. The fee can be a percentage of the loan amount, typically ranging from 1-5%, or a flat fee such as $1000.
If you encounter this offer, be cautious. It is not normal to have to pay money to obtain a loan. Legitimate student loans, even from private lenders, do not require any upfront fees. If there are any fees, they are usually deducted from the disbursement check or are included in the repayment amount and spread out over the repayment period.
Federal student loans charge a 1% default fee, but do not charge origination fees. Most private loans charge disbursement fees or origination fees, but these fees are often negotiable and can vary significantly among lenders.
If you are working with a third-party company to help with your student loan debt, they may charge a fee upfront. However, this fee should be placed in an escrow account and the company should only be paid once they have successfully helped you enroll in a program. Look for language such as “we only get paid once you have made your first payment on your new repayment program.” This can be a sign that the company is legitimate and not attempting to scam you.
Loan Consolidation Scam:
After graduation, consolidating your student loans may be a good option. However, this area is prone to scams. A common student loan consolidation scam involves a company charging a consolidation fee but not actually providing any services. This fee may be referred to as a processing fee, administrative fee, or consolidation fee.
If you have Federal student loans, there are no fees for student loan debt consolidation. You can consolidate your loans for free at StudentAid.gov.
If you have private student loans, there are several lenders that will refinance your private loans, Federal loans, or both. Refinancing involves taking out a new loan with a new lender to pay off your existing loans, rather than simply combining all your loans into one. Credible is a comparison tool that allows you to receive personalized offers from multiple lenders by filling out a single form. Using any lender on the Credible platform is not a scam.
Additionally, College Investor readers can receive a $1,000 gift card bonus when they refinance through Credible.
Before consolidating your loans, be sure to read a guide on the right way to consolidate your student loans to ensure that you are not being scammed.
Law Firm Lawsuit Student Loan Scam:
This scam involves a law firm claiming that they can settle your student loan debt. It often begins when a “student aid company” refers you to the law firm and promises that they can settle your student loan debt for a significantly lower amount than what you owe.
The law firm may ask you to make full student loan payments to them while they negotiate a settlement with your lender. However, the law firm may not make any payments during this time, causing you to default on your student loans. They may then claim that you are unable to pay your bills and attempt to negotiate a settlement based on this.
As a result of this scam, your credit score may be damaged and you may have made thousands of dollars in payments to the law firm. There is no guarantee that you will be able to settle your loans, and even if you do, the process may take years and you will still need to deal with the settlement.
If you are considering speaking to a lawyer about your student loan debt, it is important to understand what a lawyer can and cannot do to help with your student loans.
Student Loan Debt Elimination Scam:
It is important to remember that student loan debt must always be repaid unless you have a federally recognized reason such as death, permanent disability, school closure, falsification of documents, or identity theft. If you come across a company promising to eliminate your student loan debt, it is likely a scam.
These types of scams are often associated with closed for-profit colleges and universities. Companies may advertise that because you attended a particular school, you can have your student loans eliminated. This is usually not true.
There are several potential student loan forgiveness programs that you can learn about. If your school has closed or is facing lawsuits, you may be able to apply for Borrower Defense to Repayment. However, if you are paying a company for assistance, be sure to ask them specifically what they will do for you.
Student Loan Relief Red Flags
Here are some red flags to watch out for when seeking help with student loan debt:
- Upfront fees: Be wary of companies that ask for money upfront in exchange for help with your student loans. Federal student loan programs do not charge fees, and reputable companies should not charge fees until they have actually provided a service.
- Guaranteed results: If a company promises guaranteed results or claims to be able to eliminate your student loan debt, it is likely a scam. Student loan debt cannot be eliminated unless you have a federally recognized reason such as death, permanent disability, school closure, falsification of documents, or identity theft.
- Requiring access to your accounts: A legitimate company should not require access to your bank accounts or login information for student loan servicer portals.
- High-pressure sales tactics: Companies that use high-pressure sales tactics or try to rush you into making a decision may not have your best interests in mind.
- Lack of transparency: Be wary of companies that are not upfront about their fees or services. Reputable companies should be transparent about what they are offering and how much it will cost.
- Companies claiming to have a relationship with the Department of Education: Third-party companies do not have any relationship with the Department of Education.
- Companies promising a specific payment or forgiveness: Reputable companies cannot promise forgiveness or guarantee an income-based repayment, as both will change based on your income.
- Offers of immediate loan forgiveness or cancellation: Be wary of any company that promises immediate loan forgiveness or cancellation.
- Companies claiming to have buyers who will purchase and settle your loan for a set amount: This is likely a scam.
- Companies promising forgiveness due to your school closing or facing lawsuits: While it is possible to apply for Borrower Defense to Repayment if your school has closed or is facing lawsuits, be cautious of companies that make this promise.
- Telemarketers claiming to have a “student loan forgiveness program” and mentioning a president’s name: Be wary of telemarketers making this claim, as it is likely a scam.
If you are considering seeking help with your student loan debt, be sure to do your research and only work with reputable companies. If you are unsure whether a company is legitimate, you can check with the Consumer Financial Protection Bureau (CFPB) or your state attorney general’s office to see if there have been any complaints filed against them.