Can You Spot a Student Loan Scam?
5 Warning Signs That Might Indicate a Student Loan Scam
Many individuals have student loans to repay, and unfortunately, some are having trouble making those monthly payments. This is often due to other debt they are carrying like a car loan payment(s), a mortgage payment, and even credit card debt. This issue is ripe for a student loan scam.
In practically all publications that accept advertising, you’ll run across ads that say your problems can be over if you sign up with them. The ad will go on to say that they can help you to repay your student loans faster and at a lower cost – or they will get them completely forgiven.
These types of claims should be a red flag waving in your face and making you extremely cautious. There are some companies that may be legit, but there are also many that are scammers.
The following will help you to identify a student loan scam:
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Must pay an upfront fee
If they request a fee up front – Run! No one can legally charge a fee in advance to give you help in reducing or getting rid of your student loans. If they did charge you a fee, chances are very high that you would not get any help, nor would you get any money back.
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Very fast loan forgiveness
If they tell you they will get your loans forgiven very fast, beware. A scammer will have no idea what your personal situation is like and will tell you they will quickly get your loans forgiven through some program available to them. This cannot be done.
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The loan consolidation scam
Sometimes, usually after graduation, it makes sense to consolidate all of your student loans and get a monthly payment amount that you can handle. Scammers are very active in this area and request a fee for the consolidation. After collecting the fee, they generally do nothing for you and trying to contact them is next to impossible.
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The law firm settlement scam
Before I comment here, let me say that there are many law firms that can and do make bona-fide settlements on student loans. That being said, there have been cases involving unethical law firms. One of the variations on this scheme begins when a company advertising aid for students promises you a certain law practice will negotiate a settlement for all of your student loans. The company goes on further to say the amount will be many thousands of dollars lower than you would be able to do.
- Usually, the law firm will ask you to send your monthly payment to them instead of the loan servicer. The law firm then holds the payments and your student loan goes into default. When that happens, the law firm now tells your lender that you are unable to pay your bills. They then try to negotiate a settlement based on that issue. A student loan scam & outright fraud.
- You may say, well if they can save me thousands of dollars this way, it’s okay by me. However, by that time, your credit score is ruined and the law firm is still holding your money. There is still no assurance that your outstanding loans can be settled, and it may take a long time to accomplish, if it does.
- Always keep in mind, with federal student loans, you can contact StudentLoans.gov yourself without paying a fee.
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Remember also, an official looking seal or logo doesn’t mean the company is legit
Scammers can Photoshop seals that resemble the Department of Education stating they have special access to various federal student loan programs, when they don’t.
Never give your FSA (Federal Student Aid) ID to anyone. A scammer can get access to it and would be able to have complete control of your personal financial aid records on US Department of Education web sites.
A recent lawsuit was filed against four companies by the FTC for alleged illegal student loan relief practices. They were Financial Education Benefits Center (FEBC); Brandon Demond Frere; American Financial Benefits Center (AFBC); and Ameritech Financial. All were charged with alleged illegal upfront fees to students and did not deliver on their claims to have any loans forgiven. They also were not able to place any students in a government program that would have their monthly payments permanently lowered.
To make matters worse, these companies were charging a monthly fee for the full term of the loan. This resulted in fees for 10 to 25 years that were supposed to be applied to the student loan balance, and of course, they were not. The old saying still applies “If it sounds too good to be true, it probably is.”
One thing to remember, you can get help with your student loans without paying for it. You can do what any company can do completely free of charge. There’s a website, https://studentaid.ed.gov/sa/repay-loans, for those who have federal loans, and those who have private loans can contact their loan servicer to discuss the matter.
Before you consider accepting any type of help from any company, perform your due diligence and be certain that it is not another student loan scam.
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12 responses to “Can You Spot a Student Loan Scam?”
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I almost fell for one of these scams. I was reading where this company could get part of your student loans forgiven and I called the number on the ad. The guy that answered the phone seemed kind of vague trying to answer my question. I asked how they could do what they were advertising & he said don’t worry about it, we do it all the time. Then he said there would be a fee upfront for them to start the process.
You did the right thing Pam. When someone wants a big fee up front and you have no idea how they will perform, if at all, run.
I graduated college a couple of years ago with a boat load of student loans and was having a hard time paying them. I saw this company on the internet that said they could get a lot of your loans forgiven fast. I borrowed 1,200.00 from my parents for their fee & needless to say, that was pretty much the end. My parents called someone in the state legal area & was advised that I was a victim of a student loan scam. Everybody should read this article first and save a lot of problems.
So sorry to hear about this Annette. We write these articles in hope that they may be of help to someone. There are a lot of individuals getting stung by some student loan scam, and we hope that we can help to reduce them.
Every time I read the news, there seems to be some type of scam going on. Now they are picking on students who don’t have any money to begin with. When we graduate from college, most of us have at least 35,000 to 40,000 in student loan debt that will take many years to pay back. I think there should be some central point where a student can get help & they all should know where it is.
Thanks for your comment Rebecca. Yes, scammers don’t care who they hurt. Having a central point staffed by competent personnel might be an answer.
The government must surely be aware of the individuals and companies that are scamming people with student loans. Why can’t the department of education or some other department shut these thieves down?
Hi Emma. Yes, I’m sure the government becomes aware of scammers after a few complaints are filed, but usually, that is too late. As soon as they close one down, another opens up shop and it starts all over again.
I almost got caught by one of those crooks. I was searching the Internet for student loan consolidation, and clicked on this site that had an official looking logo. I called the number listed and this very friendly lady began telling me they would be able to have my loans consolidated, and maybe even a part of them forgiven. She had my attention until I asked her if there would be any charge for their services. She said there would be a small fee paid with my application & the figure quoted was not small to me. I thanked her & hung up.
You were fortunate, Carolyn. Many folks with student loans aren’t aware that they can have student loans consolidated with no fee. Steer clear of any site that wants a fee for doing so.
After I graduated college, I had quite a few student loans with different payments, interest rates, and terms. I needed to do a consolidation to make my life a little easier. I came across a site on the internet who was advertising quick consolidation. I called them & found out there was a sizable fee for their services. A friend of mine had read this article on your website and told me it was probably a scam. He gave me a link to the student loan site & I got it done free of charge. Thanks for looking out for us.
Thanks for your comment Gino. It’s nice to hear that one of our articles has helped someone, especially if it avoids some scam. As you saw on the student loan website, a consolidation is fairly easy to do and there is no cost.