7 signs that a student loan debt relief offer is a scam
By Allie Johnson
July 8, 2015
If you're struggling with big student loan payments and spot an ad announcing a new government program can wipe out your debt, you may wonder if your prayers have been answered.
They haven't. It's most likely a scam.
Shady student loan debt relief companies are growing in number and marketing aggressively, says Deanne Loonin, staff attorney and director of the National Consumer Law Center's Student Loan Borrower Assistance Project.
Scammers target student loan borrowers through ads on Facebook, radio or TV, as well as with emails, letters, phone calls or even text messages, says Angie Barnett, president and CEO of the Better Business Bureau of Greater Maryland. These solicitations tend to increase in spring and summer because new grads are starting to look for jobs and prepare for student loan repayment, she says.
“That's when they suddenly realize they're going to be making $30,000 a year and they've got $90,000 in loans,” she says.
If you steer clear of scammers, you can focus on getting student loan help from legitimate sources. Here are seven signs a student loan debt relief offer might be a scam:
- Trying to seem official. If you see President Obama's name and face on an ad, that's a bad sign. Student loan debt relief companies might advertise a “2015 Obama Student Loan Forgiveness Program” or other program that doesn't exist. Mentioning the president of the United States lends an air of authority to the offers, Barnett says. Some companies even use a seal that appears to belong to a government agency, says Bruce McClary, vice president of public relations and external affairs for the National Foundation for Credit Counseling (NFCC), which is rolling out a student loan counseling program. “They're trying to deceive you to get you in the door,” he says.
- Charging to do something you could do free. In many cases, shady student loan debt relief companies are charging you a fee – sometimes a hefty one – to fill out paperwork you could easily complete on your own. “You can do it whenever you have a little free time, or when you can't sleep at night because of your student loan,” Barnett says.
- Asking for money upfront. When a student loan debt business requests payment before performing the promised service, that's a huge red flag, Barnett says. “A business should do something for you before you pay a fee,” she says. One student loan debt relief scammer who sent an “offer” to one of Barnett's BBB colleagues requested a $500 upfront fee, she says. “For that amount, you could make one, two or three payments to the student loan company,” Barnett says.
- Imposing a monthly fee. A 2013 NCLC report on student loan debt relief found that some questionable companies charge monthly fees ranging from $20 to $50. It's pretty much never a good idea to agree to pay a monthly fee for a student loan debt relief service, Loonin says. “It's essentially a fee for nothing,” she says.
- Making big promises. Beware of over-the-top promises to wipe out all or part of your student loan. Student loan scammers “make it sound like they have these magical solutions,” McClary says. While student loan forgiveness may be possible in some cases, such as if you work in public service, it's never quick or easy, Barnett says. “You have to go through the federal government's process, and there are lots of terms and conditions,” she says.
- Creating a sense of urgency. Unscrupulous companies will pressure you to act quickly, Loonin says. For example, a company might tell you they have a limited-time offer and ask you to pull out a credit card now, McClary says. “That's an indication they want to get the money quickly, then split,” he says. In fact, many complaints the NCLC receives from consumers are about companies that did exactly that, according to the NCLC report.
- Requesting your personal information. Some scammers request information such as your Social Security number or the PIN you received from the U.S. Department of Education that allows you to log into federal student loan accounts, make changes and sign documents, McClary says. Or they demand you sign over power of attorney, which is the authority to act on your behalf. Borrowers should stay in full control of their private information and any agreements that are made,” McClary says. You can lose important rights if a company puts you in a program that's not suitable for you, Loonin says. “In some cases, you only get one chance,” she says.
Where to turn for student loan help
If you can't get help from the company that claims it can make your debt disappear, where can you go? Fortunately, there are legitimate sources of student loan assistance. Here's what to do to get help:
- Contact your loan servicer. Your student loan servicer – the company you send your payments to each month – is a good place to start, Barnett says. “Going straight to the source is best,” she says.
- Visit government websites. Go to official sites such as StudentAid.Ed.Gov to get the skinny on repayment plan options, consolidation, forgiveness and how you can qualify for real government programs, Barnett recommends.
- Get student loan counseling. Some nonprofit credit counseling agencies are now offering student loan counseling from counselors trained in the ins and outs of student loan repayment. You can find a counselor through the NFCC or the Financial Counseling Association of America. Nonprofit credit counseling agencies typically offer an initial consultation for free or at a very low cost, McClary says. If you need additional services, such as negotiation with lenders, you might pay fees in installments, he says.
Before signing on with any company or agency, find out how long they've been around, and check their track record with the Better Business Bureau, McClary says. “You have to dig and do your homework,” he says.