Millions of people in the United States are facing the uphill struggle of paying off student loans. Some are desperate to find ways to lower the monthly payments. Scammers have created phony debt relief schemes for student loans that promise to help students out – but at a steep price, if they help at all.
Some state governments are cracking down on these companies that cannot possibly deliver on their claims, which are clearly too good to believe. Companies have been charged with deceptive marketing for selling services that are actually available for free. In addition, telephone marketers may falsely claim that their company is affiliated with the Department of Education.
Researching the Student Loan Debt Relief Industry
The National Consumer Law Center (NCLC) recently investigated these scam-running companies in the debt relief industry. They found many cases of misrepresentation. Companies make up programs that don’t exit, or describe existing government programs and insinuate that these are their own programs, or that they can access them in some special way.
In their report, the NCLC discovered many problems, including:
- Providing false information about garnishment and consolidation loans
- Failure to disclose fees either online or when requested initially
- Charging debtors for services that they could get for free from actual agencies
These companies are usually selling consolidation loans, and that is the direction in which they steer you. Loan consolidation does work for some, but it isn’t always available and it doesn’t work for everyone.
Mystery shoppers from NCLC found that companies may charge monthly fees of up to $50, in addition to steep upfront payments. It isn’t clear if the customer is buying a service for these fees, or simply lining the companies’ pockets.
In many instances, companies promised to help students or cosigners save thousands of dollars on student debt by claiming – falsely – special expertise with student loan repayment plans.
Some companies fail to deliver any services to the debtor, leaving you even more in debt, with less time to avoid default or financial distress.
What Can You Do to Protect Yourself?
Avoid plans that sound too good to be true. Avoid federal student loan consolidation services.
Watch out for mentions of the “Obama Forgiveness Program”, which does not exist. Scammers may charge you up to $1,200 for filling out paperwork you can do yourself, for free, with programs from the government.
Look for companies that work directly with private student loan refinance lenders. Only partners of private student loan refinance lenders can represent top lenders. These companies will not be mentioning “Obama Forgiveness Programs” at all. And, will have easily accessible contact information.
LendEDU works with a number of private student loan refinance lenders, and does not in any way offer federal student loan consolidation services.
Do your homework.
Start with the free options and view any fee-charging companies with skepticism. Don’t believe it when company representatives tell you they are affiliated with the federal government.
Visit the National Consumer Law Center or Consumer Financial Protection Bureau websites. They will give you accurate information about legitimate assistance sources.
Warning Signs of Student Loan Repayment Scams
Promises that your debt will be cancelled or your loan forgiven immediately
Companies who advertise in debt relief services cannot negotiate with creditors or secure you special deals under student loan programs of the federal government. The payment levels in income-driven repayment plans are set and regulated by federal law. For most student loan borrowers, you can only achieve loan forgiveness if you have had many years of making qualifying payments.
Pressure to Pay High Fees Up-front
Legitimate debt relief companies do not usually charge up-front fees or force the signing of contracts when they contact you. Some disreputable companies even try to get your credit card number from online sites, or on the phone, before even explaining how they will help.
Avoid any companies that ask for payments before services are rendered, particularly if they want bank account or credit card information. Free assistance is available through the servicer of your student loan, and the fraudulent companies actually perform illegally when they take payment from you for debt relief services before they provide you with any assistance.
Asking for your Federal Student Aid PIN
This is your unique ID number issued by the Department of Education, allowing you access to all pertinent information about your student loans from federal lenders. Be very cautious with companies that ask for this PIN. Giving them this PIN is like signing documents personally.
If you give out your PIN, you give the scam artists the ability to perform actions on all your federal student loans. Reputable companies work with you and develop a repayment plan. They will never use your student aid PIN to access information regarding your student loans.
Requests for you to sign third party authorization
If a company demands that a third party authorization is signed, be extremely wary. Also known as a power of attorney, these are agreements give consolidation companies your permission to legally consult with your student loan servicer directly and then make “informed” decisions on your behalf. Some companies even ask you to pay them the entire amount each month, and tell you they will be your servicer for you.
From outright scams to companies who charge you to make arrangements that you can make yourself for free, it pays to make sure of whom you’re dealing with, before you arrange for anyone to help reduce your student loan debt.
Student Loan Refinance Is Not a Scam
Student loan refinance has also become a hot topic in the media. Student loan refinance is not a scam. Instead, student loan refinance is the process of refinancing old student loans with a new private student loan lender. Most lenders allow private and federal student loans to be refinanced with rates as low as 1.92%. Student loan forgiveness scams are run by shady internet marketers. Whereas, student loan refinance is a real business run by many reputable lenders.
In general, student loan refinance lenders do NOT charge any fees for refinancing. That means you will not pay origination or pre-payment fees when refinancing a student loan. Student loan refinance should never be confused with student loan forgiveness. Both paths offer unique benefits, but you should not confuse the two!