College students borrow billions of dollars every year, and where there’s money there are scammers. They know students want help – who wouldn’t want to get out of debt? Before you jump at the ‘amazing deal’ being offered, learn how to avoid student loan scams.
If a company offers to negotiate your student loans for a fee or promises to wipe out your student loans it isn’t legitimate.
Student loan scams are rampant. Avoid:
Only deal with the FSA and/or your loan servicer when reviewing your options for student loan assistance.
Yes, there are legitimate student loan forgiveness plans, but none of them offer immediate relief. The Department of Education offers a few forgiveness programs for graduates that work in specific fields, such as public service or teaching, but they require many years of service and 10 or more years of payments before they’ll forgive the balance. Any other student loan forgiveness plans you come across are not likely to be legitimate.
Companies that promise to consolidate your student loans and save you money are typically lying. If they ask for money upfront, they will likely take your money and run. Debt consolidation is something you can do yourself through the Department of Education if you have federal loans. If you have private loans, you can refinance the loans with a private lender, generally for little to no fee. If they do charge any fees, they typically add it to your loan – you should never have to pay out of pocket up front.
Law firms claim to have the ability to negotiate your student loan debt for you. Typically, the ‘law firm’ asks that you pay the amount you can pay to ‘settle’ the account to them. They claim they will settle the debt for you with your student loan servicer.
They don’t. Instead, they keep the money and you default on your loan. The law firm then calls the student loan servicer to settle your debt based on the fact that you can’t pay your bills, even though you did. This damages your credit and ruins your chances of getting any type of federal aid or other ‘real loan forgiveness programs.’
Who wouldn’t fall for a promise to eliminate your student debt? Thousands of dollars wiped clear? Where do I sign up? Don’t do it.
Student debt can’t be eliminated, not even through bankruptcy. The only way is through death, fraud, and possibly identity theft. Companies promising to wipe your debt clean aren’t real. They are looking for ways to make money from you, while still leaving you with your student debt and possibly now the lower credit scores and debt collectors on your back.
Companies helping you with debt settlement or even debt forgiveness (which shouldn’t cost anything) cannot charge you up front – it’s illegal.
By law, debt settlement companies may only charge a fee IF they were successful in settling your debt. Any company that asks you to pay fees up front or that requests that you send your payments directly to them is a scam.
Again, charging monthly fees is unnecessary and isn’t realistic for real debt settlement companies. They charge a one-time fee once they settle your debt. Don’t give out your credit card number or agree to send your student loan payment to the debt settlement company – always make your payments directly to your student loan servicer.
Look closely at the logos and ‘seals of approval’ debt settlement companies use. They often make it look like they are the recommended service or that they are approved by the DOE. They are not. The only providers approved to do anything with your loans are the approved loan servicers listed on the Department of Education website.
If a company asks for your Federal Student Aid ID or Social Security number, don’t provide it. They are trying to steal your personal information. They will tell you they need it to get into your federal student loan account to negotiate a settlement on your behalf – it’s not true. They are trying to steal your identity.
All debt settlement and student loan forgiveness programs are free – there is no profit made. The Department of Education offers a variety of programs that allow you to ease up on your payments, making them more affordable.
Companies that advertise do so for a profit. They probably also use one of the tactics above, trying to get money out of you to ‘start negotiating.’ Don’t fall for the ads and definitely don’t share any personal information with them.
Just like student loan debt, student loan forgiveness phone call scams are on the rise. It usually works like this:
In July 2019, the Federal Trade Commission shut down one such scam. They estimate the scammers managed to get around $23 million from thousands of people in student loan debt.
When it comes to student loan debt, the best way to reduce it is simply to continue paying it off over time. Any service that offers to remove or reduce it quickly is likely a scam. Also, asking for fees to help with debt up front is illegal, so you know the company isn’t legit.
Remember, too, that scammers can easily fake government or loan program seals and logos. It’s like seeing a really good Photoshop, but with way worse consequences.
If you get a phone call asking if you want to reduce your debt, contact your loan provider. They’ll let you know if there are currently any programs for reducing your debt. More likely than not, it’s just a scammer looking to make a quick buck off of your debt.
If you think you’ve fallen for a student loan scam, take the following steps:
Immediately contact your loan servicer. Let them know what happened and revoke any third-party authorization you provided to your account. Ask the loan servicer if any action other than the last action you can remember making has taken place on your account.
Put a freeze on your credit. Alert all three credit bureaus of the potential identity theft threat you’ve experienced. They will freeze your credit which stops anyone unauthorized from opening new credit accounts in your name.
Stop any check payments. Immediately contact your bank and stop any check payments you’ve made.
Stop credit card payments. If you gave the debt settlement company your credit card information, immediately report it to your credit card company and get a new credit card number.
Change all passwords. If you think the debt settlement scam company has your passwords, change them all including your bank, credit card and your Department of Education passwords.
Register a complaint with the Federal Trade Commission. You can file your complaint online.
Let the Department of Education know of the issue. You can file your complaint online.
Fortunately, there are ways you can settle your debt on your own, and they’re all free. There’s no risk of fraudulent activity or the need to pay fees.
Start by visiting the Federal Student Aid website. Here you’ll see your free options. It says right on their website: See how you can get loan forgiveness, cancelation or discharge. These are the only legitimate ways to get out of federal student loan debt. If you have private student loans, you may be eligible to refinance them, but do your research and make sure the company/bank is legitimate.
Go through the list of options including:
You can also go through your options for deferment or forbearance. These options stop your payments for a while but still accrue interest. This helps when you don’t have a job or are experiencing a difficult life situation and can’t make your payments temporarily.
If your request for forgiveness or cancelation was denied, you can also explore your options for repayment plans. Again, these are free and offer options to lower your payments.
You can view the FSA’s repayment plans here. You must apply for these options with your loan servicer. If you don’t know who your loan servicer is, contact the FSA. On the FSA website, you can view which repayment plans may be the best option for you by using their Loan Simulator. You can also view in-depth details on the eligibility information as well as the required payments. However, nothing is official until you talk to your loan servicer.
Student loan debt settlement shouldn’t cost you money, and you definitely shouldn’t pay anyone except your loan servicer. Always check with your loan servicer and/or the FSA before making any decisions. If you slip up and fall for a scam, take the necessary measures to report it and fix the damage immediately.