Considering that Americans are more encumbered by education loans than ever before, it may come as no surprise to hear that fraudulent and questionable practices among those claiming to offer student debt relief are also on the rise. Often using official-sounding names of bogus programs and false claims, perpetrators of these schemes have been slipping past authorities to bilk consumers out of millions. In response, the Consumer Financial Protection Bureau, along with 11 states and the District of Columbia, even launched a joint effort to curtail these abuses with a 2017 initiative dubbed “Operation Game of Loans.” To avoid becoming a victim of these tricksters, stay alert to these common tactics they may use:
Loan consolidation—at an exorbitant price: Thinking about consolidating your federal student loans? There’s no need to hand over money to do this. While a business may try to charge hundreds, or even thousands of dollars to consolidate your federal student loans, all this would entail would be to start a paperwork process that you could easily do yourself for free at the U.S. Department of Education’s website, or by calling 1.800.557.7394. As Magnify Money points out, you may also be able to consolidate your private student loans by refinancing. To help you determine whether student loan consolidation or refinancing makes better sense for you, check out this financial calculator from Make Lemonade, and recommended by Forbes.
Name dropping: Steer clear of any company that solicits you for debt relief and purports to be affiliated with the Department of Education, or who mentions a “new” program that includes a U.S. President’s name (e.g. Trump Student Loan Forgiveness). This is just a crooked way to quickly get your attention and establish credibility with you. Such programs don’t actually exist.
An offer to make payments on your behalf: Don’t agree to sign a third-party authorization form to enable a company to make payments to your lender for you. There isn’t any reason they should have to do this. In most cases, they’ll just take your money while your loan goes into default and your credit is damaged. You should also refuse to work with any company that tells you to stop making payments while they negotiate with your lender. According to The College Investor, these disreputable businesses actually want you to go into default, since this will give them more leverage to negotiate.
A claim of immediate debt cancellation or forgiveness: If a company offers to eliminate all of your student debt right away for a fee, this is a major red flag. Although certain loan forgiveness and cancellation programs exist for those who meet specific eligibility criteria, you can’t qualify for any of these by making payments, and the process often takes years. According to Student Loan Hero, discharging your federal student loans is nearly impossible, except in cases of death or permanent disability. In reality, the fraudster is trying to swindle you for the fee and has no intention of following through, or is after personal identifiable information, such as your Social Security number or your FSA ID. Visit “Who is Eligible for Student Loan Forgiveness” from FinancialWellness.
A promise to lower your interest rates: Interest rates on federal student loans are actually set by Congress each year. Unlike a credit card, you generally can’t negotiate student loan interest rates, so be wary of anyone who says differently. However, you may be able to get a small rate reduction of .25 to .50 per for a Direct Loan or private student loan by setting up auto-pay. To learn more, check out “How to Automate Your Student Loan Payments and Save Money.”
A demand for an upfront fee: Just to clarify, legitimate organizations do exist that can offer genuine help in managing and understanding your options when it comes to student loans. What’s illegal is to charge a fee before a successful settlement has been reached or service rendered. Any request for payment up front should tip you off that this is likely a scam. There’s a real possibility that the company is simply trying to take your one-time payment and then do nothing for you, or sign you up for a sham program in which your monthly payments go directly to them, and not to reduce your debt.
Although it pays to be cautious when dealing with companies claiming to offer relief from student loans, keep in mind that there are also plenty of trustworthy resources that you can turn to for guidance. And as an SFPCU member, you have access to comprehensive money management education and coaching through our partnership with Balance. This includes working one-on-one with accredited debt counselors that can help you assess your options, and determine the best course of action for you. Find details on our site here.