Advertiser Disclosure

College Students and Recent Grads

Common Student Loan Debt Relief Scams and How to Avoid Them

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Students Studying Learning Education
iStock

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.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at [email protected]

TAGS: ,

Advertiser Disclosure

College Students and Recent Grads

What Is a Private Student Loan? Here’s the Must-Know Info You Need

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Shutterstock

College is more expensive than ever, and most students cover costs with a mix of savings, scholarships and federal student loans from the Department of Education. But what is a private student loan, and how does it fit into this picture?

Private student loans offer a way to cover a gap in funding if you don’t have enough after maxing out your available federal loans. But these private student loans differ from federal ones in major ways, so it’s crucial to understand what you’re getting into before signing on the dotted line.

Here’s what you and your family need to know.

What is a private student loan?

A private student loan is money you borrow from a private lender (such as a bank or credit union) to put toward your education. Most lenders require you to be enrolled at an eligible school to qualify for a loan.

Each lender sets its own criteria, which you’ll have to meet in order to get the loan. Some will let you borrow up to cost of attendance of your school, while others set annual borrowing limits.

If you qualify, many lenders will send the funds directly to your financial aid office to cover your tuition bill. Any remaining money will get sent back to you to use for living expenses or, if you don’t need it, to return to your lender. Note, however, that some lenders will send the funds directly to you instead, meaning it becomes your responsibility to use them for your tuition bill.

When you borrow, you’ll choose repayment terms, typically between five and 15 years. You’ll also likely get to choose between a fixed interest rate, which stays the same over the life of your loan, and a variable rate, which can start lower but might also increase over time.

Each lender could offer different rates and terms, so it’s important to shop around before a private loan to find the best one.

What’s the difference between a private and federal student loan?

As a college or graduate student, you can borrow private student loans from a banking institution, or you can take out federal student loans from the government. Here are the main ways in which private student loans differ from their federal counterparts:

  • Private student loans require a credit and income check. While anyone who qualifies for federal aid can borrow federal loans, private loans have stricter requirements. To qualify, you’ll need to meet certain criteria for credit and income — or apply with a cosigner who can.
  • You’ll probably need a cosigner. You can borrow federal student loans in your own name, but if you’re an undergraduate, you’ll probably need a cosigner (such as a parent or guardian) to take out a private student loan. Because their name is on your loan, the cosigner becomes just as responsible for repaying the debt as you are.
  • Private student loans have less flexible repayment plans. Federal student loans come with a variety of repayment plans, including income-driven repayment, graduated repayment, deferment and forbearance. Private lenders, on the other hand, usually offer plans between five and 20 years, which you select at the time of borrowing. Some lenders will let you postpone payments through forbearance if you lose your job or go back to school, but this isn’t guaranteed.
  • You might be considered in default after three missed payments. Federal loans come with a 270-day delinquency period before your loan is considered to be in default, but private lenders might put your loan into default status after just three months of missed bills.
  • Private student loans can have a fixed or variable rate. While federal Direct loans to undergraduates have a fixed rate of 5.05% for the 2018-19 school year, private loans can have either a fixed or variable rate — usually, the choice is yours. Rates typically range from around 4% to 13%, depending on your (or your cosigner’s) credit.
  • You won’t get your interest subsidized. Students with financial need can qualify for subsidized federal loans, which don’t accrue interest until you graduate and your six-month grace period ends. Private lenders don’t offer subsidized loans, so interest will start piling up as soon as you get the money.
  • Private student loans aren’t eligible for federal forgiveness programs. Programs such as Public Service Loan Forgiveness only work for federal loans, not private ones. That said, private loans may be eligible for some loan repayment assistance programs, which could be offered by your state or a private organization.

So if federal student loans have more flexible repayment plans and better interest rates, why borrow private student loans at all? The most common reason is because federal loans come with annual borrowing limits, so you might not have enough funding to pay tuition.

Unless yours is a rare case — for instance, if you’re a graduate student who could get better rates on a private loan and don’t need the federal protections — you’ll want to turn to federal loans first. Unfortunately, however, more than half of students borrow privately before exhausting their federal options.

What are the interest rates on private student loans?

The interest rates on private student loans vary from lender to lender. As of April 2019, some of the most competitive lenders offer fixed rates starting at 3.89% and variable rates starting at 3.00%.

Although this beats the current rate on federal loans, you or your cosigner would be unlikely to score these lowest interest rates unless you have excellent credit. On the other end of the spectrum, fixed rates can go up to 12.68%, and variable rates as high as 12.22% among our recommended lenders.

And don’t forget that these figures do change — in September 2018, rates ran as high as 14.24%. Interest this high could be a real burden for the 15% of graduates who carry private student loans.

As for deciding between fixed and variable rates, remember that the variable rate exposes you to the risk that rates (and possibly your monthly payment) could rise. If you’re confident you can pay your debt off quickly, a variable loan might be worth the risk, while if you’re planning a 10- or 15-year repayment, you might be safer with a fixed loan.

That said, you could always refinance your student loans for new rates and terms if you have the credit to qualify or have a cosigner who can do so.

What about repayment terms?

When you borrow a private student loan, you’ll get to choose your repayment terms. A 10-year plan is standard, but some lenders also let you opt for five, eight or 15 years.

You can use our loan calculator to estimate what your monthly payments would be on each plan. It might be tempting to choose a five-year plan and get out of debt more quickly, but it’s not worth it if you can’t keep up with the higher monthly payments. Meanwhile, on the flip side, a long term with lower monthly payments might appeal to you, but consider how much you’ll have to fork over in interest over the years. The calculator can reveal how much you could expect to pay over time — that said, you can typically prepay your loan without penalty if you suddenly come into some money.

Before you borrow, it’s also crucial to go over your repayment agreement. Some private lenders let you defer repayment while you’re a student and for six months after you graduate, while others require immediate payments or interest-only payments while you’re still in school.

Also make sure you know when your first payment is due so you don’t fall behind or go into default.

Learn what private student loans are before you borrow

Private student loans have both pros and cons for you as a borrower.

On one hand, they can be useful tools for paying for college and earning your degree. But on the other, as a downside, you’ll probably have to enlist a cosigner to qualify, and sharing debt doesn’t always go smoothly.

Plus, you might have relatively high interest rates, meaning you could end up paying back a lot more than you borrowed.

Whatever you decide, make sure you understand what private student loans are before you borrow any. That way, you can make an informed decision about borrowing before it’s too late.

And make sure to compare offers with multiple lenders so you can find one with the best benefits, rates, and terms for your private student loan.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Rebecca Safier
Rebecca Safier |

Rebecca Safier is a writer at MagnifyMoney. You can email Rebecca here

TAGS: , ,

Advertiser Disclosure

College Students and Recent Grads

How to Get Rid of Private Student Loans: Forgiveness and Other Options

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Shutterstock

After maxing out their eligibility for federal student loans, many students and families turn to private student loans to pay for college. While private loans can help fill the funding gap, they can also become burdensome if you borrow too much or get saddled with high interest rates. That’s where private student loan forgiveness and other types of assistance come in handy.

If you’re wondering how to get rid of private student loans — and do it quickly — know that you do have options. And although none of them will wipe away your debt overnight, they could help you regain control of your finances. Here are eight different possibilities to explore:

1. Qualify for private student loan forgiveness programs

Although private student loans aren’t eligible for Public Service Loan Forgiveness, you can find some student loan forgiveness programs for private loans. National, state and private organizations will wipe away a large portion of your debt, or sometimes all of it, depending on your profession or location.

For instance, the National Health Service Corps Loan Repayment Program offers up to $50,000 in student loan assistance to healthcare professionals who work in an underserved area for at least two years. Likewise, the Herbert S. Garten Loan Repayment Assistance Program has a similar reward for eligible lawyers.

Many states, as well as some universities, also offer student loan repayment assistance for qualifying professionals. Some of the common eligible occupations include doctor, nurse, dentist, pharmacist and teacher. Check with your state to find out if it offers student loan forgiveness for private loans.

2. Find an employer with a student loan assistance benefit

Even if you can’t qualify for private student loan forgiveness programs, you might get a student loan assistance benefit from your employer. Some companies will match a percentage of your student loan payments to help you pay off that debt faster — for example, Fidelity and Aetna each offer up to $10,000 in student loan assistance to their employees.

According to Forbes, student loan matching was the hottest benefit of 2018. And with the student debt crisis continuing to weigh on the U.S., more companies might follow suit and introduce this benefit in the future.

If you are looking for a job or open to changing your employer, consider companies with this perk. They might help you make a bigger dent in your student loan balance than you’d be able to on your own.

3. Postpone payments through forbearance

While the government offers a number of flexible repayment plans for federal student loans, including income-driven repayment, private lenders don’t often have equivalent programs. On the other hand, some do allow you to pause payments through deferment or forbearance if you lose your job, return to school or run into financial hardship.

If you’re going through a financial rough patch, reach out to your lender to find out if you can put your loans on pause for a few months. This break from payments might offer the relief you need until you can get back on your feet.

Just remember that interest typically continues to accrue during a period of forbearance, so you might end up facing a bigger balance once repayment resumes.

4. Request a temporary interest-only payment plan

Along with temporary forbearance, some private lenders offer the option of interest-only payments. With this approach, you could postpone full repayment while still making small payments on interest from month to month.

Although you won’t be chipping away at your principal, you will pay down interest before it accumulates. These reduced payments could give you some breathing room until you’re able to enter full repayment.

5. Negotiate lower payments with your lender

Private lenders typically don’t offer income-driven repayment plans, but some might be flexible if you’re really struggling — after all, they don’t want you to default on your loan completely. So if you can’t keep up with payments, call your lender and find out if they can adjust your bills.

6. Refinance your private student loans for better terms

By refinancing your student loans, you can restructure your debt with new terms — typically between five and 20 years — and adjusted monthly payments.

You could opt for a short term, which might increase your monthly payments but will get you out of debt faster and save you money on interest. Or, if your bills are too burdensome, you could choose a longer term to lower your monthly payments.

You might also snag a lower interest rate, resulting in major savings over the life of your loan.

But while student loan refinancing has a number of major benefits, it’s not accessible to everyone. You’ll need to meet certain requirements for credit and income to qualify — or apply with a cosigner who can. And if you decide to refinance, make sure to shop around among multiple lenders to get the best deal available to you.

7. Discharge your private student loans through bankruptcy

Student loans are notoriously difficult to discharge through bankruptcy, but this route isn’t impossible. If you qualify for Chapter 7 or Chapter 13 bankruptcy, you could wipe away your private student loans.

You will have to prove your student loans are causing undue hardship, and the entire process could destroy your credit and cost you thousands in legal fees. But if bankruptcy is your only option, know that it could lead to wiping away your private student loans.

8. Apply for permanent and total disability discharge

Finally, experiencing a permanent and total disability might remove your obligation to pay back your student loans. Some lenders will wipe away your debt in this circumstance. If you’re unable to work due to a disability, reach out to your lender to find out if you could qualify for private student loan forgiveness.

How to get rid of private student loans

While options such as forbearance and interest-only payments can decrease your bills, they won’t help you get rid of your private student loans any faster. If you’re set on shedding your debt ASAP, your best bet (outside of private student loan forgiveness) is throwing extra payments at your student loans.

If you can find ways to increase your income or decrease your spending — or both — you can use the extra money to make additional payments on your debt. This will save you money on interest and move up the timeline on repayment.

But if your budget is too tight right now, lowering payments might be the best temporary solution to help you manage your private student loans without going into default.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Rebecca Safier
Rebecca Safier |

Rebecca Safier is a writer at MagnifyMoney. You can email Rebecca here

TAGS: , , , ,