Student Loan Forgiveness Scams
Student loan debt is one of the biggest pressing issues facing the US – with the total student loan debt of the country currently standing at $1.6 trillion, it’s no small problem.
With the idea of paying it off seeming impossible for many, the prospect of the debt being wiped or forgiven can seem like the only option.
Unfortunately, this has led to the rise of a thriving student loan forgiveness scam business.
To help you separate the real from the fake, let’s break down some red flags to look for.
How To Spot a Student Loan Forgiveness Scam
As they say, if something sounds too good to be true, then it probably is – this motto definitely applies to student loan forgiveness scams.
Student loan forgiveness plans are notoriously hard to be accepted for, are only available to a small subset of the graduate population, and have a set application process.
Anything that doesn’t immediately live up to this is instantly suspicious.
Then there are other companies who don’t necessarily scam their customers but do charge money unnecessarily for simple services, such as enrolling in a program or filling in an application.
Having said that, here are the key warning signs to look out for:
Student loan forgiveness programs are free to participate in and apply for, so you should be instantly wary of any company that asks you to pay for their services – whether it’s an upfront or monthly fee.
“You don’t have to pay to receive help with loan services such as consolidating your federal student loans or applying for an income-driven repayment plan. If you are contacted by a company asking you to pay “enrollment,” “subscription,” or “maintenance” fees to enroll you in a federal repayment plan or forgiveness program, you should walk away.” –Federal Student Aid Site
Unfortunately, this is a legal gray area. Even though these companies are advertising their services dishonestly, what they’re doing isn’t illegal as long as they follow through on their promises.
So, if a company promises to fill out your application for you and they do fill it out, they haven’t done anything wrong in the eyes of the law.
If you’ve ever wanted to apply for a tourist visa and found dozens of companies on Google offering to fill in your application for you for a fee, you’ll know what we’re talking about.
However, it is illegal to ask for money for debt relief services such as lowering or settling a loan, before the service has been carried out. Instead, fees should be added to the total loan amount so you can pay it along with your monthly payments.
Any company that wants you to pay advance fees is most likely a scam and outside of this gray area.
The Promise of Immediate Loan Elimination
This definitely comes under the category of sounding too good to be true. Under genuine student loan forgiveness programs, it takes ten or even twenty years for the debt to be forgiven – any organization offering to forgive loans straightaway is lying to you.
Scammers may try to claim they can eliminate your debt because you went to a college that’s now closed or you experience other special circumstances, like disability or death. It’s true that debt can sometimes be discharged for these reasons, but you should never pay a fee for it.
Past scams have had names such as ‘Obama student loan forgiveness’ – despite the seemingly legitimate name, the program is completely made up. Falling for such a blatant scam can be easily avoided by checking your eligibility for real student loan forgiveness plans straight from the government website.
Feeling Pressured To Sign Up
It’s well known that scammers like to exert psychological techniques on their victims to give them a sense of urgency and pressure. If you believe that you have to act immediately, you’re more likely to neglect further research and make a rash decision.
The truth is that established loan forgiveness programs are long-running and don’t have limited availability – you’re either eligible or you’re not. Being told otherwise is extremely shady. Plus, scammers are becoming more sophisticated, so even if your phone says someone is calling from a certain company or number, it might not be true.
To avoid being fooled, carry out careful research in your own time and ensure you know the facts before taking to a sales representative. If somebody calls you first and you have any doubts about who they really are, hang up and call the organization directly instead.
Supposed affiliation with the Department of Education
Although there are a few loan servicers who genuinely have a relationship with the Department of Education, they’re few and far between.
Fraudulent companies know that name-dropping official names are a great way to gain the trust of people, and few names are more trusted than the Department of Education itself.
You can find a full list of the private student-loan servicers that work with the DoE here, and it’s a small selection:
- FedLoan Servicing (PHEAA)
- Granite State – GSMR
- Great Lakes Educational Loan Services, Inc.
- OSLA Servicing
Having To Share Personal Data
We all know that giving away sensitive information, like your social security number or Federal Student Aid ID, is a bad idea. Yet many people still do it – especially when faced with pressure by pushy salespeople over the phone.
Handing over this information gives a third party the ability to sign in to your account, which is a bad idea for obvious reasons. Another common trick is to ask people to sign a power of attorney agreement, which is even worse, as it will give the scammer complete control over your account. No legitimate company needs to log into your account or control it.
Luckily, even if you do end up falling into this trap, it’s a simple one to resolve as long as you act quickly. Once you give your loan servicer a ring, they should be able to return the control of your account back to you.
As mentioned, student loan forgiveness programs are free to apply for, so they won’t run advertisements. Although there are some genuine organizations that charge borrowers a fee to receive their advice or services regarding tackling debt, it’s certainly a warning sign that a company is hoping to earn enough profit to cover the adverts and more.
Legitimate companies sometimes run advertisement campaigns in this sector, but it’s fairly unlikely, and they should always be viewed with skepticism. There are many scam companies whose real business model is to collect personal data from borrowers struggling with their student debt and sell it on to other companies.
As a rule of thumb, make sure you’re aware of the free options out there before you consider any service hoping to make money from you.
Student Loan Consolidation
Consolidating your loan can be a great option and solution. But many scam companies use this as a way to extract money from unsuspecting borrowers.
These are often called ‘processing fees,’ ‘administrative fees,’ or ‘consolidation fees.’ It’s rarely necessary to pay a fee for student loan consolidation, so be wary of anyone telling you otherwise.
Another aspect to watch out for is a lack of transparency over the effect a consolidation will have on your monthly repayment – it goes back to the factor of wanting to rush and pressure you.
Plus, if a company is claiming they offer consolidation but nothing else, it’s almost guaranteed to be a scam; most businesses would offer a variety of similar services.
Offering To File a Lawsuit
Another common scam is that a ‘law firm’ will claim they can eliminate your student loan debt by negotiating with the lender – for a fee, of course.
In reality, law firms will often put your loans in default, claim that you’re unable to make the payments, and base its negotiation on this.
This is a dishonest method that will have a disastrous impact on your credit score, making it harder to apply for loans or even a mortgage in the future.
It’s also an expensive way to achieve something you could do without the law firm in the first place.
What Should I Do If I Find A Student Loan Forgiveness Scam?
Now you know all there is to know about spotting and avoiding scams on your student loans, you might be wondering what you should do if you actually come across one.
After all, not all borrowers are quite so savvy about the techniques used. There are a few ways to file a report.
- The Consumer Financial Protection Bureau has an online form you can submit easily, and the Federal Trade Commission helps you to identify who to send your complaint to depending on the type of scam you find.
- Alternatively, you can contact your attorney general directly – find out who yours is on the National Association of Attorneys General site.
- Finally, it could be worth letting the Better Business Bureau know the company is fraudulent.
What Should I Do If I’ve Been Scammed?
The same organizations named above are also helpful to contact if you’ve fallen victim to a scam. They may even be able to help you to get your money back.
If you realize you’ve been scammed earlier on and haven’t actually lost any money yet, you might be able to solve the problem yourself if you act quickly enough.
It might sound obvious, but the first thing you should do is change the password of your student loan account.
Then, it’s time to make a few phone calls. To be sure nothing has changed in your student loan account, ring your loan servicer, and make sure they also remove any third parties or power of attorney who you don’t want to have the authorization to access your account.
If you paid anything to a scam company, you should also ring your bank or credit company to see if they can stop the payments.
It may also be worth contacting the major credit bureaus (Experian, TransUnion, and Equifax) so they’re aware of the fraud.