If you’re looking for relief from your student loans and see a claim that seems too good to be true, it probably is. Knowing that borrowers can find themselves in dire straights, scammers may advertise that you can get some or all of your loans forgiven due to a new law or rule. They may take your money and do nothing. Or, they may not rip you off completely, but charge you a one-time or monthly fee to sign up for a federal program — a program that you could easily sign up for free on your own.
In October 2017, the Federal Trade Commission (FTC), 11 states and the District of Columbia launched Operation Game of Loans, which is a coordinated effort to address student loan scams. And in case you thought the reference to “Game of Thrones” was unintentional, the acting chairman Maureen K. Ohlhausen, said, “Winter is coming for debt relief scams that prey on hard-working Americans struggling to pay back their student loans.” The resulting court cases claim that the companies collected over $95 million from student loan borrowers looking for help.
While managing student loans can be tricky, take your time and research a company or person before agreeing to pay for assistance and watch out for scams.
Student loan debt relief scams to watch out for
Some companies provide legitimate help to borrowers who want to better understand or deal with their student loans. But it’s best to be cautious. The scams often involve similar promises or premises, and some of the most common scams include:
Student loan debt elimination/cancellation/settlement scams
One of the most enticing offers involves a promise to eliminate or cancel all your student loan debt. It may sound great, and vaguely possible as you may have heard of legitimate student loan forgiveness, repayment, discharge or cancellation programs. However, a promise that you can quickly get rid of your student loans is almost certainly a scam.
Companies may alternatively claim they can help you settle your debts for less than you owe. However, this is rarely the case. If you stop making payments, or the scammers tell you that they’ll make payments on your behalf, but they don’t, you could be left owning additional money in fees and accrued interest.
Lower monthly payment or interest rate scams
Some companies will ask for upfront enrollment fees or monthly maintenance payments with a promise to lower your monthly payments or reduce your interest rates. The companies may switch your federal repayment plan, which can lower your monthly payments but is also something you can do for free.
Even worse, some companies may request you send your monthly payments to them, instead of your loan servicer, and they simply keep the money and let your loans go into default.
The interest rate on federal loans is locked in when you the loan is disbursed and generally can’t be changed. You may be eligible for a 0.25 percent interest rate reduction on Direct Loans if you sign up for autopay. But again, this is something you can easily do for free by contacting your loan servicers.
Loan consolidation scams
If you have multiple student loans, consolidating (combining) the loans could make it easier to manage your finances and may lower your monthly payment. Eligible federal loans can be consolidated for free through the Direct Loan consolidation program. You may be able to consolidate private student loans by refinancing them with a new student loan.
The scam is when a company charges you hundreds or thousands of dollars to consolidate your loans without offering any additional aid or consultation. The Department of Education (ED) even has a warning on its site about paying others to consolidate your loans since there’s no application fee and the process is easy and free.
There is a lot to consider before consolidating or refinancing student loans. For example, if you consolidate a federal Perkins Loan, it won’t be eligible for the Perkins Loan cancellation and discharge options but may now be eligible for other federal forgiveness programs. Or, after you refinancing federal loans, they won’t be eligible for any federal programs. You may want to pay for an expert analysis of your situation and options. But spending hundreds of dollars to simply have someone else apply for consolidation on your behalf may not be a wise way to spend your money.
Red flags to watch out for
The specifics of a particular scam may vary, but there are a few trends and common themes that can tip you off that something isn’t right. For instance, Joshua Cohen, a student loan attorney based in West Dover, Vermont, says if the claim or offer has Trump or Obama in the name, that’s generally a clear red flag that it’s actually a scam.
Here are a few others to watch out for:
- You’re promised all your loans could immediately be forgiven or cancelled. There are programs that may lead to loan forgiveness or cancellation, but they only apply to certain types of loans and the process can take years to complete.
- There’s an upfront fee. Legitimate companies and individuals may charge fees to help you better understand your situation and options. However, it may be illegal for companies to charge a fee before they’ve done any work. In some cases, the scammers may try to convince you that the initial fee will pay down your debts, but then they actually pocket the money. Also, watch out for companies that ask you to make your monthly payments to them rather than your loan servicer.
- They promise you relief based on a “new” program. Student loan programs may come and go, but tying an offer to a new program can be a warning sign. “Any company that claims there is a ‘new’ program under the Trump administration is a huge red flag,” says Cohen. “There is no ‘Trump forgiveness,’ nor was there ever ‘Obama forgiveness.’”
- They pressure you with a limited-time offer. Some companies may tell you that you need to act now otherwise a program may end and you’ll miss out. Cohen says this tactic may be becoming more popular since many people know there haven’t been any new forgiveness programs under President Trump. “What I have seen is, ‘Sign up now before they take forgiveness away,’ or change the laws,” says Cohen. The added pressure can make some people fall for this trick. Cohen says while there are proposals that would end some federal forgiveness programs, they only affect future borrowers.
- The salesperson isn’t knowledgeable about student loans. Whether you’re meeting with someone in person, on the phone, on social media or via email, do some independent research first and make sure what they say or write matches what you find on official government websites. “If the sales rep can’t explain the options, can’t point to a reference from the Dept of Ed. or offer anything in writing, that’s also a red flag,” says Cohen.
- You’re asked to share your FSA ID. Your Federal Student Aid ID (FSA ID) is the username and password you use to sign on to federal websites and manage your loans. While it may seem like the same info you use to log into dozens of other sites, your FSA ID may be much more important. It can be used to sign loan agreements, apply for different student loan repayment plans and to consolidate a loan. A company could make irreversible changes to your loans using your FSA ID.
- You’re asked to give them legal authority. By signing a power of attorney or third-party authorization form, you may be giving the company the legal right to make changes to your loans on your behalf. The company could then change the contact info in your account so you won’t notice that it isn’t paying your bills.
- They claim to be part of the Department of Education. Scammers may go as far as using the ED’s seal, or a logo that looks like it could belong to a government agency, to gain your trust and try to convince you they can offer something special or exclusive. But that’s not how forgiveness programs work. If you have federal student loans, StudentAid.gov is a reliable and official source of information. With private student loans, contact your servicer before trusting a third party.
- The company doesn’t act professionally. Misspelled words, grammatical errors, a notice urging you to sign up in all caps or other unprofessional communications could also be a red flag. Even if the company has the best intentions, you may not want to work with it.
Already a victim of a student loan forgiveness scam?
If there are bells going off in your head and you realize that you may have been paying a company that isn’t following through on its promises or offering legitimate help, there are a few steps you can take to help rectify the situation.
1. Stop working with the company
First things first, if you suspect you’ve fallen for a scam you should stop paying the scammers. If you only paid a one-time fee, you may want to contact the company just to let it know you’ll no longer be needing its services. You could also ask for a refund, although the company may not have to give you one.
“If there is any kind of auto payment being made to the scam company, the borrower should call their bank immediately and cancel all future payments,” says Cohen. He says you should then call or write the company to cancel your contract and request a refund.
Also, let your loan servicers, the companies you send payments to, know that you were working with a scammer. If you gave the scammer legal authority to access and make changes to your account, ask the servicer what you need to do to take back full control.
2. Check the status of your loans
In some cases, the scammers take your money and don’t do anything to your loans. But other scammers may make changes to your account that need to be undone.
You can log into your accounts online or call your loan servicers to check the current status of your loans. Look for and ask about any missed payments, changes to your repayments plans and any other changes to the account or loans.
With federal student loans, you can check your loan balances on the National Student Loan Data System (NSLDS) website or by contacting your loan servicer. For private student loans, reach out to the company you were making payments to, which may be different than the company that lent you the money.
3. Tell the FTC and your State Attorney General
You can file a complaint against the company with the FTC, Consumer Financial Protection Bureau and your State Attorney General. Filing a complaint could lead to formal legal actions against the scammer, may save other borrowers from falling for the scam and in some cases could lead to refunds for victims.
4. Update your FSA ID.
If you gave the company your FSA ID, you can update your username and password online. You may also want to contact the Federal Student Aid Information Center (you can call them at 1-800-433-3243) if you think the company used your FSA ID to make changes to your federal student loans.
5. Monitor your credit
If you don’t already monitor your credit, you may want to sign up for a free or paid credit monitoring service. The scammers may have stopped making payments on your loans, which could lead to late payments or defaults that hurt your credit. Check your credit reports for these derogatory marks. Although you may not be able to get them removed, it’s good to know where you stand.
You can also add a fraud report to your credit reports by contacting one of the credit bureaus, which you may want to do if you shared your Social Security number or other personal information with the scammer.
Legitimate student loan debt relief strategies
Getting scammed can be frustrating, expensive and put you in a worse position with your student loans. However, there are legitimate paths that you may be able to take towards student loan forgiveness or relief.
Federal repayment plans
If you’re having trouble making payments on federal student loans, look into the federal income-driven repayment plans. Switching plans can lower your monthly payments and depending on your income, family size and where you live your payments may drop all the way to $0 a month. Also, the remainder of your loan balance will be forgiven after 20 to 25 years of making payments on an income-driven plan.
You can use the federal repayment estimator tool to see how switching plans could change your payment amount.
Federal loan consolidation
Consolidating your federal loans may extend your repayment term. Although you’ll wind up paying more overall, this could lower your monthly payments.
Depending on the types of loans you have, consolidating the loans may make them eligible for, or disqualify them from, certain loan forgiveness or cancellation programs. Also, since you’ll receive a new loan that pays off your existing loans, payments that you’ve made towards a forgiveness or cancellation program won’t carry over to your new loan.
Federal loan forgiveness, cancellation and discharge programs
Depending on your loans and situation, you may be eligible for legitimate federal loan forgiveness, cancellation or discharge programs. For example, with the Public Service Loan Forgiveness program, you may be able to get the remainder of your loan forgiven after making 120 payments while working full-time for an eligible nonprofit or government organization.
Loan deferment and forbearance
You may be able to put federal or private student loans into deferment or forbearance. Eligibility can depend on your situation and the type of loan you have. Deferment is often for when you can’t make payments because you return to school, are on a military assignment or working with a public service organization. Forbearance could be granted for economic hardship, perhaps due to a loss of job or medical emergency.
With either deferment or forbearance, you can temporarily stop making payments without incurring late fees or defaulting on the loan. However, your loans in forbearance may continue to accrue interest during these periods.
Get real help managing your student debt
There are also people and organizations that can genuinely help you understand and manage your student loans. Some of them charge fees, but that isn’t necessarily an indication that it’s a scam.
Cohen suggests borrowers start with the free route by checking official government website if you have federal student loans, or your loan servicer’s site for private student loans. “If the borrower is still confused or uncertain, contact a student loan lawyer,” says Cohen. “Most folks don’t need a lawyer, but at least the lawyer is regulated by the State Bar which creates a higher degree of accountability.”
You can also look for assistance from nonprofit organizations. The National Consumer Law Center has a student loan borrower assistance project that you may find helpful. Many nonprofit credit counseling organizations also offer student loan and debt management counseling for a $50 to $200 fee. The National Foundation for Credit Counseling can help you find a certified counselor.