Written By Travis Hornsby, CFA®, CFP®
Student Loan Planner® got its start in September 2016. It was election season, and there was a lot of student loan advertising on Facebook. We mostly see refinancing ads today, but that wasn’t the case back then. Wild claims and sketchy consolidation scams were on the rise.
At the time, I ran one of my very first Facebook ads about Student Loan Planner®. The ad promoted a blog post I wrote about how veterinarians get screwed by student loan rules. With $100 of Facebook ad spending, that article went viral and was seen by 20,000 people in a single day.
Shortly after that, Facebook cracked down and put a stop to several advertising strategies that student loan scammers were using. But some of the more successful cons bilked people out of tens of millions of dollars.
It was horrible.
Unfortunately, student loan scams and errors still exist. I’m going to cover the top seven student loan “Travis”-ties to help you avoid getting caught up in a mess.
Travis Hornsby’s list of the worst things you can do to pay off student debt
7. Falling for a student loan scam
There are tons of student loan scams out there. They all use high-fee, high-pressure sales tactics. Here’s a rundown of the most common cons you’ll see.
The “consolidation will solve all your problems” scam
Consolidation is a wonderful tool for student loan repayment in the right situation. It doesn’t fix all of your problems and can cost you quite a bit if you consolidate unnecessarily.
One of our clients got some advice from a law firm in southern Florida. Coming from a law firm, you’d probably take the information pretty seriously. Law firms are ethical, right? There are honest and dishonest people in every profession, and attorneys are no exception.
This particular law firm was advising everyone to consolidate. If you had a student loan, no matter what your question was, the answer was consolidation.
Our client had direct loans and had four years of credit toward the 20 years of payments she needed for Pay As You Earn (PAYE). The law firm consolidated her loans, which started the clock over for forgiveness. That was four years of qualifying payments down the drain.
The consolidation scam cost this client over $50,000.
The “we’ll wipe out your student loan debt” scam
If you’ve heard that companies can eliminate your debt or settle for pennies on the dollar, you’ve likely encountered a debt elimination scam. It sounds great. Wouldn’t it be nice if your debt balance would evaporate into thin air?
It doesn’t work like that.
The federal government has an enormous amount of power when it comes to collecting on the student loan debt that you owe. It can garnish your Social Security income, your wages and your tax refunds if you don’t pay.
There are some extremely rare exceptions. The people I know that do help to settle student loan debt are all attorneys, and they don’t heavily advertise. The chances of your student loan debt going away are pretty minimal. These attorneys prefer to let people that are struggling find them rather than make promises they might not be able to keep.
Bottom line: Nobody is going to wipe away your student loan debt.
The “pay us an advance fee and we’ll take care of your payments” scam
Some scammers promise to take care of your student loan payments for you. The company puts you in a high-pressure situation. They say all you have to do is pay them a monthly student loan processing fee and they’ll do the rest.
You’re giving them an advance fee for their service of negotiating your payments.
This is one of the most lucrative student loan scams out there. The fake company makes you think the money you pay is going toward your student loans. What’s really going on is they put your student loans into forbearance or deferment and keep all your cash.
Keep in mind that forbearance and deferment can last up to three years. If you think about a couple of hundred bucks over three years, this scam could cost you $10,000 or more.
The “I want to join the Navient lawsuit” scam
This is classic. American’s love lawsuits. The trouble is there is no class-action lawsuit you can join against Navient (or any other student loan servicer). It might happen at some point, but most class-action lawsuits don’t deliver much of a benefit, if you get anything at all.
One of my friends joined in a class-action lawsuit against Facebook for a privacy violation. He got $10.
The amount of money you get is a joke.
Scammers will tell you whatever they think you want to hear so they can separate you from your money.
The “we’ll help you qualify for student loan forgiveness” scam
Student loan forgiveness is a legitimate benefit for federal loan borrowers. Forgiveness scams also exist, and they can be hard to spot.
Scammers go to great lengths to make the offer look like it came straight from the government. They’ll put together something that looks like it’s from the Department of Education and go so far as to put barcodes and form numbers on the paperwork you get.
The goal is to elicit a response from you, and these fraudsters do a good job.
Common tricks I’ve seen use presidential names, like the “Obama student loan forgiveness plan” or “Trump’s plan to forgive student loans.” Most of the time, the company makes a statement that they “can help you qualify for the government student loan forgiveness plan.”
I’ve said before that student loan servicers don’t give good advice. Your servicer won’t call you on the phone or send you a letter saying you could qualify for forgiveness. It’s up to you to do the research and figure out what your best repayment option is.
If you’re not sure, that’s okay. Just don’t fall for one of these loan forgiveness scams. We have a team of qualified Student Loan Planner® consultants who can do the math for you to get you on the right plan and save you the most money.
6. Parents lending kids money for college
Parents have good intentions when they offer to pay for their kids’ college education. It becomes a problem, however, when the kid takes an interest in an academic or not-for-profit employer.
A classic scenario might look like this:
- Ted goes to dental school at USC, one of the most expensive in the country with a tuition of about $600,000.
- Ted’s parents have a paid-off house worth $600,000 and almost nothing saved for retirement.
- The parents can only borrow about half of the cost of tuition, leaving Ted with $300,000 of student loan debt.
- Ted marries Samantha, whom he met in dental school. Samantha’s parents didn’t pay for college, giving them a combined student loan balance of $900,000.
In this situation, PSLF is the only logical solution, so the couple pursues that option.
The only benefit Ted gets from his parents paying for half his college is that his balance is $300,000 less when he reaches his 120 qualifying payments.
On the other hand, Ted’s parents are stuck with paying for a $300,000 mortgage that they took out to cover the cost of his dental school. And that’s money they could have put toward retirement because Ted’s loans were forgiven anyway.
5. Financial advisors offering student loan advice as a sales tool
If you have a personal financial advisor who says they also know about student loans, it won’t hurt to double-check. Ask them to calculate a payment off the top of their head, or you might ask:
- What’s the discretionary income definition?
- What’s my student loan payment going to be based on this income and this debt?
- What is the breadwinner loophole?
- What are the community property rules, and how do they apply to PAYE?
- How do you calculate the REPAYE subsidy?
There are several questions you can ask the person to see if they can give you quality student loan advice. Don’t fall for the “Travis”-ty of trusting a financial advisor who doesn’t know what they’re talking about.
4. Taking advice from online forums and bloggers
Let me tell you about a fight I recently started in a Facebook group dedicated to PSLF borrowers. One of the members, a doctor, had refinanced $400,000 of student loans and was suggesting that others should do the same. She had a referral link, which meant she’d cash in on anyone who refinanced through her link.
I told everyone her advice was extremely dangerous. She may have wanted to help people by saving them money on interest fees, but she was steering them in the wrong direction. A 3% rate on a refinanced loan is a great rate. But it isn’t as good as -10%, which is what you might get after having your student loans forgiven with PSLF.
Online forums and bloggers can sing praises of how wonderful student loan refinancing is. In the right situation, refinancing can be great.
We have cash-back bonuses on our site that give you free money for refinancing. But it isn’t for everyone. If you qualify for PSLF, or think you might be eligible for it, refinancing isn’t for you.
3. School exit counseling
Schools must provide exit counseling as part of the requirement to have financial aid. But they do a terrible job because schools have no incentive to do otherwise.
The primary goal of financial aid officers is to make sure the student gets the funds and follows disbursement rules. Completing the necessary paperwork takes a significant amount of time.
My mother-in-law works in financial aid. She says a huge part of her job is talking to students and families about different ways to get funding and making sure tuition is paid on time.
Financial aid staff in this position don’t have enough time for detailed exit counseling. The ones that do might not have the expertise to provide sound advice. Make sure you understand your financial aid and tuition situation.
2. Believing what your loan servicer says
The “Travis”-ty that we hear the most is a borrower believing what the loan servicer told them.
One common story that I hear about once a week is FedLoan kicking someone off income-based repayment (IBR) or Pay As You Earn (PAYE) plan. It mainly affects physicians or PSLF borrowers who get a surge in their income.
When that happens, the loan servicer sends a letter saying the borrower no longer qualifies for a partial financial hardship, and the borrower panics.
Partial financial hardship isn’t even what it sounds like. You don’t have to be flat broke and live under a bridge to qualify.
If your income-driven payment amount is less than what your payment would be on the standard 10-year plan, you have a partial financial hardship. If your income shoots up and your income-driven payment is more than the standard 10-year payment, you get that scary letter in the mail.
The reality is that servicers send this letter out in error. What happens is you do nothing, and your payment gets capped at an eligible standard 10-year plan.
1. Borrower apathy (or the “head in the sand” approach)
To best demonstrate borrower apathy, which is the No. 1 “Travis”-ty, I’m going to give you an example.
One of my first clients was a teacher. She was very smart. She also was in default on her student loans. I didn’t understand why she was in the situation. She was working at a not-for-profit government job, which qualified her for PSLF.
Instead of paying $400 or $500 a month toward the 10 years of repayment she needed for PSLF, she defaulted. This was a teacher who had two master’s degrees, but the debt stressed her out.
She wasn’t able to come to terms with dealing with it or taking the first step. By ignoring her loans, the balance grew from $70,000 to about $150,000.
Don’t let these “Travis”-ties happen to you
Borrower arrogance is another problem I see in the student loan world. Luckily, I don’t see that too often. Borrower overconfidence is a real issue, where people think they know what they’re doing when they don’t.
Student loans are complicated. Borrowers might not know about the breadwinner loophole, the advantages of married filing separately on taxes, or the refinancing ladder strategy.
Don’t be ashamed of what you don’t know. If you’ve had apathy toward your student loan debt and finances in the past, or if you’ve fallen for any of these other travesties, just admit it and try to get help.
Don’t pretend the problem will go away, because it won’t.
And if you’re ready to take the next step, we have an entire team of Student Loan Planner® consultants who are at least as good, if not better, than I am at helping you with your student loans. Our advisors have advanced credentials and can help you avoid making mistakes with your student loans.
Not sure what to do with your student loans?
Take our 11 question quiz to get a personalized recommendation for 2024 on whether you should pursue PSLF, Biden’s New IDR plan, or refinancing (including the one lender we think could give you the best rate).
Travis,
Please do your research before disseminating erroneous information regarding our veterinary program at the University of Missouri. It is completely false not to mention irresponsible to inform a candidate for our program they will come away with $350k of student debt. No student in our program would be left with that much debt even if they remained an out-of-state student all four years.
Our financials are available not only on our website but also in any of our admission collateral material. It is unknown what are or where your sources for this misinformation originated but please refer to our website or even students to our website, http://www.cvm.missouri.edu. Thank you for your time.
It appears I was wrong. They would leave with FAR MORE THAN $350,000 of student debt as an out of state student if they financed the entire amount of the education.
Here’s my math, which you’re free to dispute. The site here https://cvm.missouri.edu/financial-aid/cost-and-tuition/ lists the projected costs for four years of vet school.
Year 1 $87,121
Year 2 $87,305
Year 3 $87,570
Year 4 $89,596
Total all four years = $351,592.
But it’s more than that because that doesn’t account for tuition inflation, loan fees, and accrued interest. So my back of the napkin estimate for accrued interest during school is about $61,000. Loan fees would be about $10,000 (PLUS loans making the majority of the borrowing at about 4.25% origination fee and Stafford at 1% origination fee would be 3% on average.) Tuition increases have happened at Mizzou’s vet school every year. Add an assumed 4% escalation in tuition annually. That adds another $20,000.
Add all the finance charges together based on your own school’s cost of attendance published on the website, and the total balance a student would graduate with using today’s costs (not the costs for class of 2019 which they can’t borrow at),
and the grand total would be $443,000. You’re welcome to dispute my math Douglas, but I don’t think I’m wrong here. The only way you’d leave with less than that is if you had family financial support or savings.
The in state estimate for Mizzou would be $249,000 using this same method. The national college scorecard data for University of Missouri vet school lists the class of 2017 as having a median debt of $153,973 and average debt of $139,100. That implies a lot of students must receive some sort of financial assistance for the average to be skewed below the mean. Since that data reflects the class of 2017, I think it’s fair to say that these metrics would be expected to be at least 20% higher than that.
https://cvm.missouri.edu/financial-aid/cost-and-tuition/
So how am I wrong? Your own website says that it costs $351,000 over four years for an out of state student. Are you offering the student merit aid to reduce that expense?
This can easily be proven by any one of our actual veterinary students or graduates. Your knowledge seems to be more factual and based on experience than any one of them. One of our recent ’19 graduates posted her payoff date for her tuition payment plan of her near $100k (Mizzou vet school debt) as 2029. Again, this is a non-argument. Clearly, your knowledge is far more factual than someone who actually works there. Very few scholarships are available for veterinary programs but that also varies from program-to-program. The majority of our students receive financial assistance to pay for school as well as other expenses; rent, utilities, airfare (home & back), etc., as many students do not work and even if they did the income is not nearly enough to pay for any of those incurred expenses. So even on the high end of variable like personal expenses still does not amount to your figures.
So are the figures for cost of attendance that your university posted on its own website not true? I didn’t list cost of attendance on the Mizzou website as $200,000 in state and $350,000 out of state. The university did. Are you saying that the university provides grant (not loan) based financial assistance that brings the average cost for a DVM down to $100,000? If not then the anecdote mentioned above is irrelevant. If a millionaire sends her child to Mizzou vet school and the child only borrows $100,000, that doesn’t mean the cost of the program is not what’s listed on the website. If a student not from a family of means attends your school, they will not leave with $100,000 of student debt. Prove my math wrong.
Hey Travis. Question on your email from today (4/2/20). You mentioned “Also, you can call your servicer and request a refund if you made a payment on or after March 13”
So I made a payment after March 13. If I request a refund and get it, will that NOW zero dollar payment still count towards our 120 qualified payments??
Also our consult with you in early 2019 was EXCELLENT!