Common student loan scams (and how to protect yourself)
Even the smartest students can fall for student loan scams.
After all, there is no doubt that a good college education in the United States is expensive. Students often have no choice but to be riddled with massive student loans, which quickly become essential financial problems.
Then, devious and immoral companies add salt to the plague by fabricating scams that target desperate students. And if you think you can’t be fooled, think again. These companies can be very convincing in their tactics!
Being able to separate fraudulent businesses from legitimate businesses is essential so that your money is much better spent on opportunities such as to study abroad.
To protect yourself, check out the common student loan scams below and some tips on how to avoid them.
Common student loan scams
The crooks are deploying the tactics below to prey on students whose desperation to alleviate student debt may lead them to make regrettable decisions.
Here are some of the most common student loan scams you might come across.
Upfront fee scam
In this scam, a debt relief company will entice you by offering to negotiate better interest rates or repayment terms on your student loans for you. They may even offer to consolidate all of your loans so that you can make just one repayment each month. Sounds cool, doesn’t it? There’s just one catch: you have to pay an upfront fee.
While the business can keep its promise, it can also take the money and run. This is why it is illegal in the United States for a debt relief company to collect a fee over the phone before providing the service.
What can you do instead
Anything a debt relief company can do for a fee, you can do it for free. If you have a federal loan, you can apply for an income-based repayment plan, view loan forgiveness programs, or consolidate your federal loans at: studentaid.gov. For a private loan, contact your provider to learn more about alternative repayment plans.
Legal Hero Consolidation Scam
This program is run by fraudulent law firms that promise to help save you thousands of dollars by negotiating with your lender to settle your student debt for thousands less than you would otherwise pay. What a great deal!
Their lawyers promise to negotiate better interest rates and terms with your loan managers. Until then, you will need to transfer student loan repayments directly to the company.
However, despite transferring your repayments to the law firm, the law firm will refuse to forward the repayment to your lender. The company will claim that you cannot make the monthly payments and will use this to attempt to negotiate a settlement with the loan issuer.
The key word here is “try” – this process can take years without any guarantee of resolution. During this time, without regular and consistent payments, you will not be paying off your student loans. This will not only waste your money but also damage your credit score.
What can you do instead
There is no magic wand for this one. You can contact reputable law firms to find debt settlement information, but you should proceed with caution.
Endangered student loan scam
In this case, a private company will capitalize on your desire to save money by promising total cancellation or reduction of your student loan debt. The only thing you need to do is pay an upfront fee.
So how is this a scam? Student loans are extremely difficult to pay off, even if you file for bankruptcy. Beware of any financial aid company that tries to convince you otherwise.
What can you do instead
The only way to eliminate or reduce is to use government loan forgiveness programs that require qualifying reasons such as death, permanent disability, identity theft or school closing. Check if you are eligible for any of the programs and if so, you can apply.
How to Avoid Student Loan Scams
No one is immune to fraud. When dire circumstances are mixed with strong emotions, even the best can be fooled. But being well informed can significantly reduce your risk. Here are several red flags to look for to avoid falling victim to a student aid scam.
Never pay an upfront fee
You never have to pay anyone for student loan assistance. All of the services provided by the debt relief companies are things you can do on your own. If you need help, remember that reputable companies shouldn’t ask for an upfront payment.
For those who wish to save money on your student loans, you can discuss important matters such as collection of payments, loan inquiries, and possible repayment plans with your official loan manager.
Protect sensitive personal information
When unwanted people have your contact details, the risk of identity theft increases. Always be alert and vigilant when transmitting information over the phone or over the Internet. Know who has access to your data and ensure the credibility of your sources before submitting your social security number or credit card information.
If you are considering applying for federal student aid Through official government websites, you can further protect yourself by manually clearing your browsing data and cookies once you are done filling out forms.
Identity theft can happen at any time, so after submitting your student financial aid application, be sure to keep your hands on the status of your loan and financial aid offers. Review them regularly and follow them up to immediately identify questionable activity.
Beware of false legal claims from companies
Some scams take advantage of your instinctive trust in company professionals. But allowing law firms or debt relief firms to negotiate on your behalf cannot guarantee a reduction in student loans.
Use extreme caution as these systems often use persuasive emails with legal jargon to try to persuade you to give them your money.
If you are seriously considering reducing your loan, check to see if you qualify for a loan forgiveness. It is also best to consult your lender and trusted affiliates of the US Department of Education (below) for news and other services.
Other student loan scam red flags
Claims for reduction of your payments – for a fee
The total or partial cancellation of the loan is impossible unless you are eligible for a government loan forgiveness program. Companies that say they can negotiate better deals for a price only add to your spending with unnecessary fees.
Aggressive advertising techniques
Legitimate debt relief companies don’t employ aggressive advertising techniques like spam or junk mail, cold calling, and competitive social media marketing. Don’t feel rushed by “limited supply” claims or impatient sales reps. You have the right to make informed decisions about your debt and to seek help and other opinions.
Applications for your federal student aid card
Legitimate sources of debt relief assistance do not ask for your Federal Student Aid (FSA) username or password because your FSA ID can be used to sign legally binding documents and has the same legal status than a written signature. Never give out your username or password to anyone. If you share this information or sign a power of attorney, you authorize the company to act and decide on your behalf, even without your knowledge.
Only Certain Companies Can Help You With Student Loans
Loan holders often fall for illegitimate business scams because the business claims to be associated with the government. For added protection, remember that only selected companies are recognized as official US Department of Education (ED) debt relief partners.
Companies that work with the US Department of Education
These are legitimate lenders, managing agents and private collection agencies working on ED’s behalf. Check the government listings below to find an authorized and reputable company:
Debt Relief Banned Companies
Dishonest third-party debt relief companies often mistakenly declare their affiliation with ED and some even include the official government seal on their websites. The Federal Trade Commission (FTC) has listed the companies and individuals forbidden to alleviate the debt.
How to Report Fraudulent Student Debt Relief Companies
If you think you’ve been scammed before, change your FSA ID password first. After this step, you should contact your loan officer and inform them of the scam, and revoke any power of attorney or other authorization agreements on your file. Review your loans and make sure that no suspicious activity has been undertaken.
Then call your bank or credit card company to stop payments directed to the fraudulent company. You should also file a complaint with the FTC or the Consumer Financial Protection Bureau, as these agencies can observe these dangerous groups and may even be able to get your money back.
Student loan scammers can make the loan repayment process for any borrower difficult. You never know which offers will make your financial burden even more draining. While there are no easy fixes, with a lot of hard work and a fair amount of caution, you can be among those who successfully paid their student debt.