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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.

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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.

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College Students and Recent Grads

5 Private Student Loans That Offer a Grace Period

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.

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Graduating college, trying to get a job and figuring out how to navigate adulthood feels overwhelming enough. Who wants to throw in making student loan payments? That’s where the grace period for student loans comes in.

Unfortunately, this financial breathing room isn’t always available. It’s common for federal student loans to come with a six-month grace period, but private lenders are not required to offer this buffer time. Still, even with private debt, some banks and credit unions are kind enough to extend the courtesy of a student loan grace period.

Which student loans have grace periods?

As mentioned, most federal student loans have a standard six-month grace period, with PLUS loans being the exception. (Federal Perkins loans used to come with a standard nine-month grace period, but the program expired in 2017.)

With private student loans, on the other hand, there is no standard grace period. Just as with other loan features, the grace period terms, if any, will vary by lender. You will need to read your specific loan documents to know whether your private loan has a grace period, or you can call your lender directly to ask.

Note that some private lenders might use another term instead of “grace period,” or they might not use a term at all and simply say that your first loan payment is due a certain number of months after graduation. Either way, though, it would amount to the same thing.

5 private lenders with grace periods for student loans

While your specific private loan agreement will determine whether you have a grace period, there are several lenders that state upfront on their websites that they do offer grace periods on student loans.

1. Discover

Discover’s website says: “All Discover Student Loans provide you with a grace period — a period of time when you are not required to make your full (principal + interest) monthly payments, which begin when you enter repayment. Depending on your loan type, full monthly payments are not due until 6 or 9 months after you graduate or your enrollment status drops below half-time.”

With Discover, if you have an undergraduate private loan, your grace period is six months long. For private student loans to pay for a professional degree, such as a law degree, medical degree or MBA, your grace period is nine months long.

For borrowers with more than one loan type, Discover may align your repayment start dates and periods so that they are on the same schedule.

2. Wells Fargo

Wells Fargo offers grace periods for some of its student loans. Specifically, the bank’s website says:
“With most Wells Fargo private student education loans, you start making payments six months after you graduate or leave school, although for some loans like the Wells Fargo Student Loan for Parents and the Wells Fargo Private Consolidation loan, payments begin once the loan funds have been sent.”

Make sure to read your loan documents to determine if your private student loan from Wells Fargo does include the six-month grace period. And if you do have any questions or uncertainty about the grace period, ask the lender — ideally, before signing.

3. Citizens Bank

The Citizens Bank website states the following:
“With our Citizens Bank Student Loan … no principal or interest is due while you are still enrolled at least half-time. Payment begins 6 months after graduation.”

Citizens Bank (like Wells Fargo) does not call this period between graduation and repayment a “grace period,” but the website does say that payment begins after a six-month period. Still, as with the other lenders on this list, speak with the bank to make absolutely sure when you’re expected to start sending in payments.

4. Sallie Mae

Sallie Mae’s website says that for the Sallie Mae Undergraduate Smart Option Student Loan, “you have six months after you leave school (your grace period) before you begin to make principal and interest payments.”

With this particular loan from Sallie Mae, you should have a six-month grace period before your loans enter repayment. Note that the lender also offers the option of interest-only payments or fixed $25 monthly payments while in school if you want to avoid interest from piling up during that time.

5. PNC

The PNC Solution Loan for undergraduates also has an optional grace period, according to the PNC website.

Specifically, the lenders says, “If you choose to defer payments, repayment begins six months after you graduate.”

Will my loan accrue interest during the grace period?

Bear in mind that you will probably end up adding to the amount you owe during that grace period, due to interest accumulating.

Some federal loans also rack up interest during grace periods (such as unsubsidized direct loans), though a few do not (like subsidized direct loans). But with private student loans, your debt will very likely accrue interest during the grace period.

How can I minimize the impact of interest?

If you want to stop your interest from capitalizing (in which unpaid interest is added to the principal of the loan), you can make interest payments during your grace period.

As mentioned, the private loans from the lenders listed above will likely accrue interest during the grace period. If you’re hoping to save as much as you can on your student debt, however, you can speak with your lender to see what options are available. Usually, small payments during school or while the grace period is in effect can cut down on those interest costs.

Again, speak with your lender to know how interest on your loan will work before signing on the dotted line.

When grace periods are over

It’s important to remember that should you choose to consolidate your student loans, you’d lose any of your remaining grace period. And once you use it up, it’s gone for good. That’s when it’s time to start paying back your loans.

If you aren’t able to get a private loan with a grace period, don’t panic: Repayment may start a little sooner for you than it will for others, but you have a lot of time to prepare for that inevitability. Plus, the faster you start paying back what you borrowed, the faster you’ll pay it off.

Grace periods: overview

  • The grace period is the time after leaving school when you don’t need to make payments toward your student loan.
  • Grace periods for federal loans tend to last six months. The timing for when you’ll have to start repaying private student loans, however, will depend on your loan terms — there is no standard.
  • The terminology that lenders use to describe this buffer before repayment starts might not include the phrase “grace period,” so be sure to read your loan documents carefully to know what’s expected.
  • Paying off any accruing interest during your student loan’s grace period will save you money in the long term.

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.

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How To Know If Your Student Loans Are Private or Federal

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.

How To Tell If Your Student Loans Are Private or Federal

When you borrowed money to pay for college, you may not have paid much attention to the difference between federal and private student loans. You might not know who your student loan servicer is, or if you do, you may wonder for example whether that loan listed under Nelnet is federal or private.

In fact, it’s completely reasonable to ask why the difference between private and federal student loans matters in the first place.

There are a few ways to see if your student loans are private or federal — here’s how, along with what makes each different, and why knowing which type of loan you have is important.

What makes federal and private student loans different?

Federal student loans are offered through the Department of Education. Typically, these loans are easy to qualify for. For many federal student loans, your credit isn’t even checked.

There are four different federal student loan programs currently available:

  • Direct subsidized loans: These loans are awarded based on your financial need. When you apply for federal financial aid, your eligibility for subsidized loans is also considered. “Subsidized” here means that interest isn’t charged until after you graduate or drop below half time.
  • Directed unsubsidized loans: Anyone can receive an unsubsidized loan — they aren’t based on need. However, unsubsidized loans will put you on the hook for interest charges that accrue while you’re in school.
  • Direct PLUS loans: These loans are specifically for graduate students or for parents of undergraduate students taking out loans on behalf of their child. These loans aren’t based on financial need, and a credit check is required.
  • Direct consolidation loans: This type of loan allows you to combine all your federal student loans into one, giving you one manageable payment each month rather than many. Your new interest rate is the weighted average of all your loans, rounded up to the nearest one-eighth of a percent.

Private student loans, on the other hand, are offered by private lenders and have different repayment requirements compared with federal student loans. For example, private student loans can offer fixed or variable interest rates, while federal student loans only offer fixed rates.

Because the features of private loans vary from lender to lender, eligibility will depend on the bank, credit union or online financial institution that you borrow from.

Most borrowers usually favor federal student loans, given the flexible repayment options and debt-forgiveness programs they come with. But since federal loans also have borrowing limits, students may need to turn to private loans to help fund any remaining costs, and in a few cases, a private loan might have a better interest rate than their federal equivalent.

How to determine if your loans are federal

The first thing you should do to see if you have federal loans is log on to the National Student Loan Data System. The only loans listed here are federal.

If you’ve never used the NSLDS before, you’ll want to click the “Financial Aid Review” button on the homepage, hit “Accept,” and then enter your credentials.

If you have a Federal Student Aid (FSA) ID, you can enter it here. If not, there’s an option to create one. In May 2015, the government redesigned its student loan system, and you can now use your FSA ID to log on to multiple government sites. But if you haven’t visited in a while, you might need to create one.

In the event you forgot your credentials, you can click the “Forgot my username/password” button and have the information emailed to you or answer a challenge question. You’ll just be required to enter your Social Security number, last name and date of birth.

Once you log on, you’ll see a list of all the student loans that were disbursed to you. This page will also show you what your original loan amount was, and how much you currently owe.

Click on the numbered box to the left of your loan to determine your loan servicer. This will display all the information about that particular loan. Your loan servicer will be listed under the “Servicer/Lender/Guaranty Agency/ED Servicer Information” section. The name, address, phone number and website should all be displayed.

Additionally, this page will also inform you of your loan terms. Along with your original loan balance and current outstanding balance, it will tell you what the interest rate is and the current status of the loan.

How to determine if your student loan is private

As discussed, private student loans are loans not made by the government — banking institutions, such as Sallie Mae, Wells Fargo, Citizens Bank and others offer them. As a result, there are more lenders to look out for when it comes to private loans.

Unfortunately, there’s no central reporting system for private loans like there is for federal loans, which makes them slightly more tricky to track down.

Your first stop should still be the NSLDS to at least see if you have any federal loans. In 2015, just 5% of undergraduate borrowers had private student loans, so your student loans are more likely to be federal than private.

But in order to make sure you have no outstanding private student debt, you’ll want to take a look at your credit report. You can view your reports from the three main credit bureaus for free by visiting AnnualCreditReport.com.

Some lenders may not look familiar to you. Searching the lender’s name online may help you find out who the parent company is. Don’t hesitate to call the numbers available on your credit report if you’re still unsure.

If you graduated a while ago, some older loans may look unfamiliar. You might see “federal direct loan,” “federal Perkins,” or “Stafford” on your report — these are federal loans, so ensure they match up with what’s in your NSLDS file.

You might also be able to call your school’s financial aid office to see if they have records of your loans.

What should you do once you find out?

Knowing whether your student loans are private or federal can be important as you repay you college debt.

For example, knowing the difference is crucial if you ever decide to refinance or consolidate your student loans. You can only combine your debt under a direct consolidation loan if you have federal loans. Likewise, refinancing through a private lender will cause you to lose access to federal repayment and forgiveness programs, while private loans would be unaffected.

So, by knowing which type of student loans you have, you’ll get a better idea of what options you have to knock them off.

Customize Student Loan Offers with Magnifymoney tools

Dori Zinn contributed to this report.

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.

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