How to Avoid These Common Student Loan Consolidation Scams

Have you recently been contacted by a company that says it would like to help you consolidate your student loans? At first, that may sound like a pretty good idea.

But be careful. Federal student loan consolidation scams are common. And they’re likely only to become more prevalent as student debt totals continue to rise.

Many companies running scams will say that they’re affiliated with the Department of Education when they’re not. StudentAid.gov has issued warnings about student loan consolidation company scams. And the Federal Trade Commission has even blacklisted many so-called “debt relief” companies that are not what they claim to be.

How can you tell the difference between a legitimate company and a student loan consolidation scam? In this guide, we’ll show you what to look out for so that you are not victimized.

4 common student loan consolidation scams

If you want to consolidate your federal student loans, you can do it yourself for free. We’ll tell you the specific steps to take later in this article. But note that just because a company charges for a service you can do for free doesn’t necessarily make them a scam.

Instead, scam companies are businesses that entice customers through lies or false promises. Here are four of the most common student consolidation scams that you need to be aware of.

Student loan consolidation scam No. 1: “You have a limited time to act.”

According to StudentAid.gov, student loan scammers often try to rush people into paying for their services by creating a sense of urgency. They may say things like, “The government is discontinuing the federal student loan consolidation program. You must act immediately!”

But, rest assured, the student loan consolidation program is not going away. If you’d like to consolidate your federal student loans, you can do it according to your own schedule.

If a company tells you that your student loan consolidation window is about to close, hang up the phone. They’re just trying to use scare tactics to get into your wallet.

Student loan consolidation scam No. 2: “Pay us, and we’ll pay your loan servicer.”

With credit card debt, it’s not uncommon for debt relief companies to assume the responsibility of paying your credit card issuers. You may pay one monthly payment to your debt relief company, which, in turn, divides that payment out among your various creditors.

Federal student loans don’t work that way. The Department of Education only accepts payments from its approved federal loan servicers. And federal loan servicers only accept payment from you.

In July 2019, the FTC shut down Mission Hills Federal and Federal Direct Group because they stole more than $23 million from borrowers by promising to pay their student loans for them.

Stay away from any company that encourages you to make your monthly payments to them instead of directly to your federal loan servicer. You could just end up racking up a bunch of late fees while a scammer spends your hard-earned cash.

Student loan consolidation scam No. 3: “We can lower your monthly payments.”

Be careful to avoid student loan consolidation scams involving income repayment plan services. Many companies are able to collect high upfront fees by making false promises about Income-Driven Repayment (IDR) plans.

For example, the Consumer Financial Protection Bureau (CFPB), filed a complaint against Premier Student Loan Center in October 2019. In the complaint, the CFPB alleged that Premier Student Loan Center collected over $71 million in illegal fees.

In addition to telling lies about student loan forgiveness, Premier Student Loan Center would prematurely tell borrowers they were approved for IDR. Or the company would tell borrowers that their lower payments would be a permanent change.

In reality, some IDR plans cannot be joined unless your payments would be lower than what you’d pay on the 10-Year Standard repayment plan. And, even if you are accepted to an IDR plan, you’ll need to recertify your income, family size and marital status on an annual basis.

Student loan consolidation scam No. 4: “To help you, we’ll need your sensitive information.”

The Department of Education wants you to know that it will never ask you for your FSA ID and password. Your FSA ID can be used to sign legally binding documents.

So, if anyone besides you gets ahold of it, they could make changes to your account.

In the FTC’s crackdown on Mission Hills Federal and Federal Direct Group, it was revealed that the company had used borrowers’ FSA IDs to change their information on the U.S. Department of Education’s site. This change made it difficult for their servicers to contact borrowers and caused some borrowers to go years before realizing that there were issues with their accounts.

Don’t ever share your FSA ID and password with third parties. And avoid sharing other sensitive data as well, like your Social Security number or credit card information.

How to properly consolidate federal student loans

You can consolidate your federal student loans for free by applying for a Direct Consolidation Loan. Simply top lenders for refinancing. We break down the pros and cons of each lender. And you can earn a $100 to $750 cash bonus by using one of our direct links.

When to consult legitimate student loan advisors

If you’re struggling with massive student debt, you can find legitimate help. At Student Loan Planner®, all of our student loan advisors are CFP, CFA or CSLP-certified. And they have a deep understanding of the ins and outs of the complicated student loan industry.

Our student loan advisors will listen to your situation and give you unbiased advice. From consolidation to refinancing to changing payment plans, they’ll look at all your options to help you make the best choice.

We’ve found that 90% of Student Loan Planner® clients save an average of $50,000 over the life of their loans. If you owe from $20,000 to $1 million, you’d probably benefit from a professional student loan plan. Book a consultation today.