What Should You Know About Student Loan Scams in 2020

By Mugdha Gurram / Posted: Oct 10, 2019 / 0 Comments / Posted in Student's Corner

Avoiding Student Loan Scams
It’s stressful enough applying for student loans, without the hassle of falling for a scam.

Student loan debt relief companies advertise student loan management services for a fee, but oftentimes fail to help, or act without your authority – costing you at best, the service fee, but at worst, massive loan fees and bad credit.

What You Should Be Aware Of When Dealing With Potential Student Loan Scams

To identify and avoid student loan scams, you should know the following:

The ED’s Loan Servicer Assistance on Federal Loans is Free

The number one thing to keep in mind is that “there’s nothing a student loan debt relief company can do for you that you can’t do yourself for free”.

Whether it’s consolidating federal loans, applying for loan forgiveness, lowering/capping your monthly federal student loan payments, or getting your loans out of default, the Department of Education’s loan servicers can assist you for free.

Seek for the Lender’s Assistance in Case of Loans Taken From a Private Company

If you’ve taken out loans from a private company, you can reach out to them as well to receive information and help to manage your loan. You can choose to hire a company for help, but it’s not required.

Be Aware of the Approach of the Loan Servicing Company you Engage for a Fee

Companies that help you manage your loans for a fee are unnecessary, but not necessarily a scam. The fraudulent aspect comes into play when certain companies charge a fee for their services, but fail to do anything, or fail to follow through completely on their promise.

This might mean that they promise to get your student loans forgiven, fail to follow through, and fail to notify you – leaving your credit score to spiral downwards as you stop payments on a loan you thought was forgiven. Or it could mean that they put your loan on forbearance – an option often best used cautiously as a last resort.

Warning Signs For Fraudulent Schemes

Using a False Sense of Urgency

Offers that pose a deadline, such as those requiring you to sign up within the next thirty days to take advantage of a deal, are counting on you not having enough time to research their scheme.

Don’t fall for it. There’s no cutoff for managing your loans and no cutoff for the amount of time you have to look into a company’s offer.

Posting on Social Media

It’s an easy way to grab your attention, but these advertisements often make promises that the company will not follow through on.

They also indicate that the company is for-profit and will, therefore, charge you for services you could otherwise obtain for free.

Offering Programs That Don’t Exist or Services They can’t Guarantee

Student loan forgiveness programs are limited in the scope of people eligible for them. Be wary of companies that promise to have your loans forgiven.

Be especially wary if a company makes it seem like using their service is the only way to qualify for help or a program like student forgiveness. Remember, they can’t do anything for you that you couldn’t do yourself for free.

Avoid Document Processing Companies

Also beware of document processing companies, which will charge you for their services (most of which is filing paperwork, sometimes incorrectly, and does not include financial advice). Checking the fine print on a company’s website will often reveal a lot of what their advertising doesn’t.

Identifying as or Affiliating Themselves with the Department of Education

The ED does work with loan servicers and private collection agencies (PCAs) that can be trusted to help, but check their list to make sure the one you’re using isn’t falsely utilizing the authority of the ED to scam you.

If they’re trying to charge an upfront cost, they’re not associated with the ED; the ED’s loan servicers will assist you with no cost whatsoever.

Asking for Third-Party Authorization” or for Direct Payments

Third-party authorization gives companies legal permission to make changes to your loan on your behalf, without your knowledge. Asking you to pay them directly, and promising to make your payments when they’re due is another unnecessary step that indicates the company may be seeking to take your money without providing help.

How to Protect Yourself from Loan Scams

One of the essential things you can do to protect yourself is doing your research ahead of time.

Keep an eye out for red flags discussed above and learn as much as possible about:

  • Their pricing,
  • Their affiliations, and
  • The contract.

Charging a fee does not automatically make a company fraudulent, but make sure you understand what it is you’re paying for.

Good to Know!
If you choose to use these services, monitor your loans regularly. If monthly payments change drastically, or your loans get put on forbearance, call your servicer to learn more about the changes being made.

What If You Are A Victim of Student Loan Scams?

If you find yourself the victim of one of these schemes, get a lawyer to take a look at your contract and see if you can get out of it.

Don’t stop making payments to the company once you learn about the scheme; doing so can tank your credit score if you decide to stop while your contract is still in effect.

Also contact the CFPB, FTC, and your state’s attorney general – chances are there are others who have been hurt by the same scheme.

Works Cited
1. Federal Student Aid, “Beware: You never have to pay for help with your student loans.”https://studentaid.ed.gov/sa/repay-loans/avoiding-loan-scams
2. USA Today, “She fell for a common student loan forgiveness scam. You don’t have to”.https://www.usatoday.com/story/money/personalfinance/2019/02/26/student-loan-forgiveness-scam-how-spot-shady-debt-relief-companies/2949813002/
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