It’s no secret that student loan debt in our country is out of control. Recent estimates from the Consumer Financial Protection Bureau suggest there’s $1.2 trillion in outstanding student loan debt, and the number continues to grow. What’s worse is that approximately seven million borrowers are currently in default.
This challenging setup unfortunately provides an opportunity for student loan scam artists to prey on those with student loan debt relief on their mind, such as recent college graduates or those struggling to make monthly payments.
Here are some common types of student loan scams—and how to avoid being left holding the bag:
“Pay” your way out. If an agency says it can fix your default on a loan if you pay first, run the other way. The best thing to do if you find yourself dealing with default is to call your lender directly. Per federal regulations, lenders are required to help you figure out a solution, such as through consolidation or rehabilitation. Exploring these student loan relief services should not incur a fee.
Up-front fee in exchange for lower rate. Many borrowers are so anxious in trying to reduce student loan debt that they don’t think through the offers presented to them. If a lender or loan agent tells you to pay him/her up front in order to reduce your interest rate, just say no. Legitimate lenders don’t charge fees upfront; instead, they end up taking a percentage after the loan is closed—which means you don’t pay anything out of pocket.
Pay to have your loan discharged. If only it was that easy. Student loans rarely get discharged outside of a few permitted reasons (e.g., your school goes out of business), but there are several student loan relief scams that claim to have the secret potion for making it happen. The usual outcome is bad news for you—and with a fee attached, of course.
Made-up debt relief programs. One company in Illinois promised customers a debt solution through enrollment in the “Obama Forgiveness Program.” Unfortunately for those customers, such a student loan forgiveness program does not exist—and now the Illinois Attorney General is getting involved. This type of lawsuit is the first of its kind against student loan scam artists, but as opportunists continue to go after confused and nervous students, we can expect more.
Change account info/contact details. If a lender wants to “take over” your loan, whether by changing contact details or asking for power of attorney, get ready to walk away. It’s your loan and you need to be the primary contact person—how else would you know if something fishy is happening with it? Additionally, some companies will attempt to “take” your loan from you and begin harassing you if you can’t pay or meet their terms.
Student Loan Consolidation
One option available to certain borrowers is student loan consolidation. If you have multiple federal education loans, it can help simplify loan repayment by combining multiple loan payments into one, possibly lowering the amount of your monthly payments, and extending the time it takes to pay off the loan. While this is a solution you can take charge of yourself via the Federal Direct Consolidation Program, there can be pros and cons that you'll want to weigh carefully. Working with loan consolidation company can help—but they will charge a fee for the service. Just be sure you understand the service being offered, make sure they are a reputable company—and don't be afraid to shop around.
At the end of the day, it’s crucial to research any company you want to do business with in reference to your student loans. What are people saying about the business online? Is there a listing with the Better Business Bureau? Oftentimes, those who have had a bad experience with a company will post a review or blog about their experience, so you might as well learn from someone else’s mistake.
There are lots of changes happening around student loans including new legislation from Washington that’s trying to help borrowers in different ways. As such, companies are sprouting up with claims of helping citizens navigate student loan repayment.
The best advice is to use common sense. Think rationally about any business you come across or whatever enticing offer is presented to you. If it sounds too good to be true, chances are (as the saying goes), it probably is.
Struggling to pay off your student loans? Get a free evaluation to find out what options are available to you to reduce or eliminate your student loan debt.