Common Student Loan Debt Relief Scams and How to Avoid Them
If you’re looking for relief from your student loans and see a claim that seems too good to be true, it probably is. Knowing that borrowers can find themselves in dire straights, scammers may advertise that you can get some or all of your loans forgiven due to a new law or rule. They may … Continue reading Common Student Loan Debt Relief Scams and How to Avoid ThemThe post Common Student Loan Debt Relief Scams and How to Avoid Them appeared first on MagnifyMoney.
Posted — UpdatedIf you’re looking for relief from your student loans and see a claim that seems too good to be true, it probably is. Knowing that borrowers can find themselves in dire straights, scammers may advertise that you can get some or all of your loans forgiven due to a new law or rule. They may take your money and do nothing. Or, they may not rip you off completely, but charge you a one-time or monthly fee to sign up for a federal program — a program that you could easily sign up for free on your own.
While managing student loans can be tricky, take your time and research a company or person before agreeing to pay for assistance and watch out for scams.
In this guide, we’ll cover:
Student loan debt relief scams to watch out for
- Student loan debt elimination scams
- Loan consolidation scams
- Student loan lawsuit scams
Learn More:
Red flags
Already a victim of a student loan forgiveness scam?
Legitimate student loan debt relief strategies
Student loan debt relief scams to watch out for
Some companies provide legitimate help to borrowers who want to better understand or deal with their student loans. But it’s best to be cautious. The scams often involve similar promises or premises, and some of the most common scams include:
Student loan debt elimination/cancellation/settlement scams
Companies may alternatively claim they can help you settle your debts for less than you owe. However, this is rarely the case. If you stop making payments, or the scammers tell you that they’ll make payments on your behalf, but they don’t, you could be left owning additional money in fees and accrued interest.
Lower monthly payment or interest rate scams
Even worse, some companies may request you send your monthly payments to them, instead of your loan servicer, and they simply keep the money and let your loans go into default.
The interest rate on federal loans is locked in when you the loan is disbursed and generally can’t be changed. You may be eligible for a 0.25 percent interest rate reduction on Direct Loans if you sign up for autopay. But again, this is something you can easily do for free by contacting your loan servicers.
Loan consolidation scams
Red flags to watch out for
Here are a few others to watch out for:
- You’re promised all your loans could immediately be forgiven or cancelled. There are programs that may lead to loan forgiveness or cancellation, but they only apply to certain types of loans and the process can take years to complete.
- There’s an upfront fee. Legitimate companies and individuals may charge fees to help you better understand your situation and options. However, it may be illegal for companies to charge a fee before they’ve done any work. In some cases, the scammers may try to convince you that the initial fee will pay down your debts, but then they actually pocket the money. Also, watch out for companies that ask you to make your monthly payments to them rather than your loan servicer.
- They promise you relief based on a “new” program. Student loan programs may come and go, but tying an offer to a new program can be a warning sign. “Any company that claims there is a ‘new’ program under the Trump administration is a huge red flag,” says Cohen. “There is no ‘Trump forgiveness,’ nor was there ever ‘Obama forgiveness.’”
- They pressure you with a limited-time offer. Some companies may tell you that you need to act now otherwise a program may end and you’ll miss out. Cohen says this tactic may be becoming more popular since many people know there haven’t been any new forgiveness programs under President Trump. “What I have seen is, ‘Sign up now before they take forgiveness away,’ or change the laws,” says Cohen. The added pressure can make some people fall for this trick. Cohen says while there are proposals that would end some federal forgiveness programs, they only affect future borrowers.
- The salesperson isn’t knowledgeable about student loans. Whether you’re meeting with someone in person, on the phone, on social media or via email, do some independent research first and make sure what they say or write matches what you find on official government websites. “If the sales rep can’t explain the options, can’t point to a reference from the Dept of Ed. or offer anything in writing, that’s also a red flag,” says Cohen.
- You’re asked to share your FSA ID. Your Federal Student Aid ID (FSA ID) is the username and password you use to sign on to federal websites and manage your loans. While it may seem like the same info you use to log into dozens of other sites, your FSA ID may be much more important. It can be used to sign loan agreements, apply for different student loan repayment plans and to consolidate a loan. A company could make irreversible changes to your loans using your FSA ID.
- You’re asked to give them legal authority. By signing a power of attorney or third-party authorization form, you may be giving the company the legal right to make changes to your loans on your behalf. The company could then change the contact info in your account so you won’t notice that it isn’t paying your bills.
- They claim to be part of the Department of Education. Scammers may go as far as using the ED’s seal, or a logo that looks like it could belong to a government agency, to gain your trust and try to convince you they can offer something special or exclusive. But that’s not how forgiveness programs work. If you have federal student loans, StudentAid.gov is a reliable and official source of information. With private student loans, contact your servicer before trusting a third party.
- The company doesn’t act professionally. Misspelled words, grammatical errors, a notice urging you to sign up in all caps or other unprofessional communications could also be a red flag. Even if the company has the best intentions, you may not want to work with it.
Already a victim of a student loan forgiveness scam?
If there are bells going off in your head and you realize that you may have been paying a company that isn’t following through on its promises or offering legitimate help, there are a few steps you can take to help rectify the situation.
1. Stop working with the companyFirst things first, if you suspect you’ve fallen for a scam you should stop paying the scammers. If you only paid a one-time fee, you may want to contact the company just to let it know you’ll no longer be needing its services. You could also ask for a refund, although the company may not have to give you one.
“If there is any kind of auto payment being made to the scam company, the borrower should call their bank immediately and cancel all future payments,” says Cohen. He says you should then call or write the company to cancel your contract and request a refund.
Also, let your loan servicers, the companies you send payments to, know that you were working with a scammer. If you gave the scammer legal authority to access and make changes to your account, ask the servicer what you need to do to take back full control.
2. Check the status of your loansIn some cases, the scammers take your money and don’t do anything to your loans. But other scammers may make changes to your account that need to be undone.
You can log into your accounts online or call your loan servicers to check the current status of your loans. Look for and ask about any missed payments, changes to your repayments plans and any other changes to the account or loans.
4. Update your FSA ID. If you gave the company your FSA ID, you can update your username and password online. You may also want to contact the Federal Student Aid Information Center (you can call them at 1-800-433-3243) if you think the company used your FSA ID to make changes to your federal student loans.
You can also add a fraud report to your credit reports by contacting one of the credit bureaus, which you may want to do if you shared your Social Security number or other personal information with the scammer.
Legitimate student loan debt relief strategies
Getting scammed can be frustrating, expensive and put you in a worse position with your student loans. However, there are legitimate paths that you may be able to take towards student loan forgiveness or relief.
Federal repayment plans
Federal loan consolidation
Depending on the types of loans you have, consolidating the loans may make them eligible for, or disqualify them from, certain loan forgiveness or cancellation programs. Also, since you’ll receive a new loan that pays off your existing loans, payments that you’ve made towards a forgiveness or cancellation program won’t carry over to your new loan.
Federal loan forgiveness, cancellation and discharge programs
Loan deferment and forbearance
With either deferment or forbearance, you can temporarily stop making payments without incurring late fees or defaulting on the loan. However, your loans in forbearance may continue to accrue interest during these periods.
Get real help managing your student debt
There are also people and organizations that can genuinely help you understand and manage your student loans. Some of them charge fees, but that isn’t necessarily an indication that it’s a scam.
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