Student loan forgiveness scams have been on the rise in recent years and aren’t going away; in fact, it’s become such a problem that in 2017, the Federal Trade Commision launched an initiative called “Operation Game of Loans” to combat scammers in the United States.
According to the FTC, “this nationwide crackdown encompasses 36 actions by the FTC and state attorneys general against scammers alleged to have used deception and false promises of relief to take more than $95 million in illegal upfront fees from American consumers over a number of years.”
$95 million in illegal fees?! That’s an absolutely insane number to wrap your mind around. But considering that over 42 million Americans have student loan debt, people are looking for quick relief from their mounting debt.
It’s likely that scammers will continue targeting student loan borrowers as student loan debt in America grew to over $1.5 trillion in 2018.
Why do student loan scams exist?
Paying off student loan debt is a major concern for most college graduates, no matter how much debt they have after finishing school.
Like any other pain point consumers have, there are legitimate businesses created to provide relief; in turn, illegitimate companies and operations sprout up who look to take advantage of borrowers looking for a solution. There is little regulation when it comes to student loan debt, which opens the door for scammers to get in front of unaware borrowers.
Help for student loan relief is free
You may have seen ads making outrageous claims of providing immediate relief from student loan debt– generally, they offer help with consolidating loans and other basic student loan services.
However, these services are actually things you can do for yourself (and for free) through the Department of Education and your federal loan servicer, including:
- Consolidating your federal student loans
- Lowering your monthly student loan payments
- Apply for student loan forgiveness programs
- Get your loans out of default
Although you can do many of these tasks yourself, some people aren’t aware of this or think it’s more difficult than it is. Forms can be confusing to fill out and there are so many options to consider which is why it’s easy to confuse real student loan repayment strategies with scams.
5 student loan scams to avoid
With little regulation, new companies pop up all the time offering student loan relief that seems too good to be true which likely means it is too good to be true. Student loan scams come in many forms, making different claims for service that sound attractive.
Here are some of the more common scams we’ve come across.
1. Student Loan consolidation scam
There are times when it makes sense to consolidate your student loans. However, if you have federal loans, you can consolidate your loans for free on the Federal Student Aid website. There are also loan consolidation options if you have private student loans or a mix of private and federal loans.
Many scammers offer consolidating services for a fee which is often referred to as a processing fee. It might also be referred to as an administrative fee or consolidation fee as well. Don’t pay those fees.
Be aware of how consolidation affects your plans for student loan repayment– a legitimate company will ensure you understand what you’re getting into. For example, for those pursuing student loan forgiveness, it’s especially important to know that student loan consolidation could reset your qualifying payments.
2. Student Loan Debt elimination scam
If you come across any company offering quick debt elimination you should run the other way. Debt elimination is a myth.
Scammers might make a claim that because you attended a certain college that closed, you can get your debt completely wiped out at a cost. While there are times when this is possible, you should not pay a company to try and get your debt eliminated.
For instance, the federal government may permit student loan debt discharge for special circumstances, such as disability, death, and if your school closed. According to the Federal Student Aid website, “If you’re no longer required to make payments on your loans due to other circumstances, such as a total and permanent disability or the closure of the school where you received your loans, this is generally called discharge.”
For more details on student loan discharge and which loans are eligible, check out the Department of Education’s chart on student loan forgiveness, cancellation, or discharge criteria.
3. Advance fees scam
As we mentioned, the federal government offers multiple student loan services for free. But scammers make claims about being able to negotiate lower interest rates or better loan terms if you’re willing to charge a small fee upfront (spoiler: most likely, the fee isn’t actually small).
It’s important for us to note that there are fees sometimes associated with student loans, both with federal loans and private loans. The issue isn’t that there is a fee. It’s that they are charging you a fee upfront before providing any service.
That’s not how student loan repayment is supposed to work. Federal loans have origination fees, for example, but they’re added to the total amount of the loan, not a separate charge in advance. Additionally, you’d also face a fee for defaulting on your loan.
Private loans also usually have an origination fee or a disbursement fee, but again, this fee is added to the total of the loan itself. In general, be careful anytime anyone wants to charge you upfront for a service related to your student loan debt.
4. Lawsuit scam
With this scam, a law firm makes a claim that they can settle your whole student loan debt. They will ask for money to take care of this for you, claiming to save you thousands of dollars in the process. They might even ask you to make student loan payments to them, and then they’ll negotiate a settlement with your loan provider.
What normally happens here is that the law firm never actually pays your loan servicer, putting your loans in default. Once your loan is in default, the law firm argues that you can’t make your payments and then works to negotiate a settlement with your lender based on that lie.
It’s unfortunate that law firms practice this, but people are so desperate to get out from under student loan debt that they want to believe these quick fixes are real. Trying to settle your loan debt this way could cost you thousands of dollars in lawyer fees and waste time you could have used paying off your loans the smart way.
5. Student Loan Forgiveness scams
Student loan forgiveness is the hottest topic in the student loan industry. It makes sense that scammers will try to make money off of unsuspecting borrowers by offering quick and easy student loan forgiveness. Here’s the reality.
There are many different ways to qualify for student loan forgiveness, based on your situation, your career path, your place of employment, and other factors — none of those student loan forgiveness options are easy and none of them are fast.
Public Service Loan Forgiveness (PSLF) takes 10 years of qualifying loan payments before you can apply. Other student loan forgiveness options could take between 20 and 25 years even. Loan forgiveness is not a quick and easy process and any business that claims anything otherwise is a fraud.
All of the student loan scams listed here offer help that would be attractive to anyone with student loan debt, especially borrowers with debt of over $200,000. Scammers do their best to make their ads, commercials, videos, and websites look as “official” as possible. Be sure to investigate companies making any of these claims before handing over your money for their services.
Other student loan debt relief red flags
Beyond the student loan scams listed above, there are other telltale signs you’re dealing with a student loan scam. Be on the lookout for any of these warning signs:
- High-pressure sales tactics
- Businesses that only offer loan consolidation and no other options
- Customer service with limited knowledge of student loan repayment options
- Use the verbiage “document preparation service” in their marketing
- Aggressive advertising with outrageous claims
- Customer service that asks for your FSA ID
- Official-sounding names and logos that make them seem connected to or part of the federal government
- High, upfront fees that don’t match up to the services they are providing
In our opinion, these are signs of businesses that don’t have your best interest in mind and are just looking to make a quick buck. At Student Loan Planner, we’ve experienced student loan debt personally and know that repayment can be complicated.
The benefits of paying for student loan consultations
Everyone’s student loan situation is different and while you can technically navigate the process alone, sometimes seeking out guidance can save you thousands of dollars in the long run. Student Loan Planner offers a paid service for advice related to your student loan debt repayment.
We wouldn’t have a business if the federal government could answer everyone’s questions and solve every borrower’s debt problems. If you are a grad school graduate with six-figure student loan debt, your situation is very different from someone who has $20,000 in student loans.
You might require more help than your federal loan servicer’s customer service department can provide. This is a difference between paying for help with wading through all the different repayment options to find the right one for you, versus a company making false promises of eliminating debt quickly.
Debt is one of the biggest stressors in life. We don’t have the answers to wipe away your debt in one fell swoop, nor do we claim to provide immediate loan forgiveness. We don’t offer this, there are student loan forgiveness scams that do, but this doesn’t exist.
Here’s the reality: there’s no magic wand to getting rid of student loans quickly.
And while you’re able to go at it alone — for free — through the Federal Student Aid website, the reality is that figuring out which repayment option is best for you is complicated. If you find yourself in feeling in over your head with your options, it might make sense for you to invest in one of our one-on-one student loan consultations.
We are not a document preparation company. We don’t fill out any paperwork for clients and that’s on purpose. If you are looking for someone to take care of your debt for you while you’re cruising along in autopilot, we’re not the right service for you.
That’s because the more involved and educated you are in your own repayment decisions, the more focused you’ll be at killing off your student loan debt the right way.
We charge a small, flat fee for a consultation, which we collect at the end after you’re satisfied with the repayment options we’ve narrowed down for your situation. We’ve been able to help hundreds of people just like you, some of whom had over $400,000 in student loan debt — contact us today for a consultation and we’ll help you find the right student loan repayment option to save you money.
Hoping you can now better identify student loan forgiveness scams!