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:
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.
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.
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.
The law firm settlement scam
Before I comment here, let me say that there are many law firms that can and do make bonafide 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.
- 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.
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.