Student loan scams are alive and well in America. Many people have reported receiving numerous phone calls, emails and letters offering relief from their federal student loans. Others have received warnings that student loan forgiveness programs are ending soon, enticing them to act quickly. Most of the time, these companies don’t offer any relief at all; rather they are fraudsters who are after your money.
This is no small problem. In April 2020, the Federal Trade Commission claimed scammers had deceptively charged Americans $95 million in illegal fees over several years.
And who needs that? Not you. That’s why it’s important to stay educated about these scams and protect your money.
Here are some catch-phrases to watch out for. If you are solicited by any of these claims, don’t be fooled:
- “Act immediately to qualify for student loan forgiveness.”
- “You are eligible to receive benefits from a recent law that has passed regarding federal student loans, including total forgiveness in some circumstances.”
- “Your student loans may qualify for complete forgiveness.”
- “Your student loan is flagged for forgiveness pending verification. Call now!”
These types of aggressive advertising claims are set up to lure borrowers, and are NOT coming from the U.S. Department of Education or its partners.
Here are some of the more common scams:
Student Loan forgiveness scam—Scammers seize this opportunity to make money off of unsuspecting borrowers by offering quick and easy loan forgiveness. This process is actually neither quick nor easy, and any business that claims to be able to do that is a fraud. There ARE legitimate ways to qualify for student loan forgiveness based on your situation, your career path, your place of employment and other factors. Consult the Department of Education for more information.
Student loan consolidation scam—It often makes sense to combine student loans into one easy payment. If you have federal loans, you can consolidate them for free on the Federal Student Aid website. There are also options if you have a mix of private and federal loans.
Here’s the scam: If someone is offering you consolidation services for a processing or administrative fee, avoid these fee-driven scams and do it yourself.
Student loan debt elimination scam—If you come across a company offering quick debt elimination, run the other way. Debt elimination is a myth. Scammers try to claim that because you attended a certain college and it closed, you can get your debt wiped out—for a fee of course. There are instances when this could be true; for details go to the Federal Student Aid website, or review the Department of Education’s student loan forgiveness, cancellation or discharge criteria.
Advance fees scam—Scammers will try to convince you that for an upfront fee, they can negotiate lower interest rates or better terms. The issue is not that the scammer is charging a fee, but rather that the scammer is charging you before services have been provided.
Lawsuit scam—Unscrupulous law firms promise saving you thousands of dollars to settle your student loan debt in exchange for a hefty fee. They may even ask you to make loan payments to them under the pretense of negotiating settlement with your loan provider. Typically, the law firm never actually pays your loan, and it then goes into default. Don’t let desperation to be free from debt drive your decision-making.
Be sure to investigate any companies making any of these claims before handing over any money to them.
If you’re not sure whether you can trust a company that contacts you, visit the Department of Education to find out all the information you need about student loan services.
Resources: Forbes.com; Nerdwallet.com; Studentaid.gov; Studentloanplanner.com