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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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:
Charging a fee does not automatically make a company fraudulent, but make sure you understand what it is you’re paying for.
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.
Mugdha Gurram is a rising junior at Boston University studying International Relations. After graduating, she hopes to pursue a career in law. In addition to international and domestic politics, she is passionate about accessible education, including the ability of students of all backgrounds to pay for their education.