The Secretary of Education John King recently spoke about the proliferation of student loan scam companies. He warned borrowers not to pay for help managing student loans. After all, you can contact loan servicers and get help for free right? Why then do I feel like I’m genuinely impacting my clients lives for the better with student loan consults?
Most Scam Companies Only File Consolidation Applications
The student loan space is almost entirely unregulated. That means anybody can set up a website and claim something wildly inaccurate to make money. Of course, that’s what a lot of people are doing unfortunately.
The biggest giveaway if a company is a student loan scam or not (in my opinion) is by looking for the words “document preparation service.” This is the term these companies list somewhere on the bottom of their websites to avoid getting sued one day for false advertising. What it means is that the companies do not run simulations. They don’t look at all your available options and explain what they mean. All they do is file paperwork.
The forms they file for you are almost always income driven repayment forms or loan consolidation applications. You can file all of this paperwork for free online at studentloans.gov or by contacting your loan servicer. Since this service is already free, these companies truly are ripping off their clients for every dime they can shake them down for.
A Legitimate Student Loan Company Should Study Your Options
I used to be a bond trader, and I built a proprietary simulation model to look at the different repayment options that exist for student loans. During consults, I prepare the simulation and discuss it for an hour with clients to see what route they’re most comfortable with.
I never submit paperwork or applications for people. That’s not a valuable service, as anyone can do it without charge. What is valuable is discussing the myriad of complex options facing graduate professionals with six figure debt burdens. Do I refinance with a private bank? Should I choose PAYE or REPAYE? Is it worth it to consolidate my FFEL loans but reset the clock on loan forgiveness? These are all examples of questions that I help clients think through.
The Fee Charged For Services Should Also Be Reasonable
Student loan scam companies are eager to get your credit card information right away. Then, they hit you with a $500-$1500 upfront fee with recurring monthly charges in some cases. They hire very aggressive salespeople, not consultative professionals that understand what they’re doing and know how to model loan payback scenarios in excel.
Of course, everyone wants to be fairly compensated for their service. However, I didn’t quit bond trading just to price gouge people in need of help. As of January 2017, my fee is $199 for individuals and $299 for couples. I collect it at the end of a consult call.
I expect this fee will increase in the future as my client list and experience grows because I only have so many hours in the day, but the point is that if you’re looking for an ethical company, they shouldn’t charge an insane amount for their services. If an aggressive sales culture tries to convince you to do something for a very high price, it’s probably a sketchy operation and you shouldn’t work with them.
When It’s Useful to Pay for Help Managing Student Loans
The reason I’m in business is because the student loan servicing companies and university financial aid offices in this country do not offer the right help. We have a classic mismatch of incentives that reward behavior that does not result in borrowers saving money on their student debt.
Consequently, consider that the typical rep you call at Navient or Nelnet might earn between $12-$20 an hour. What a medical professional, lawyer, or MBA grad with >$100,000 in debt needs is a consultative discussion about the various repayment strategies.
How can someone who receives a couple weeks of training to answer basic questions from folks with $20,000 in debt adequately help borrowers with $200,000 in debt? Of course, the answer is in most cases they can’t.
By and large, student loan servicing companies’ have two primary incentives. The first is to prevent default at all costs. The second is to deliver the lowest cost bid to the federal government to win the loan servicing contract. Neither of these incentives align with helping graduate professionals come up with a strategy to repay their debt.
You Probably Won’t Get Help from the Places You Should Be Able to Count on in a Perfect World
What about financial aid offices? Why do they not set up customized plans for their graduates? Look at who pays their salaries. It’s the universities. A financial aid officer’s main priority will always be securing student loans to pay for the cost of attendance.
Accordingly, you might get a 30 minute exit counseling session on how to repay debt. Zero clients told me that they received much help from their financial aid offices on how to repay their six figure student debt.
There aren’t many good sources of information on how to repay huge student debt burdens. Hence, that’s why my consulting service is valuable. Moreover, no matter how much money the Department of Education spends, its services will always be set up for the average borrower with $20,000-$40,000 in debt from undergrad.
My primary focus is highly indebted graduate degree holders. Presently, these are the people who should probably pay for help managing their student loans.
I Can Help Figure Out What to Do with Your Student Loans
My business model here at Student Loan Planner, LLC is helping graduate professionals conquer huge student loan balances with flat fee consultations.
I perform a comprehensive loan analysis with my proprietary simulation tool to see what your best available repayment options are (government, private refinancing, etc).