How Do I Identify Student Loan Assistance Scams?
Reading time: 3 minutes
The federal government offers free assistance with your student loans, and you can often get help with private loans from the Consumer Financial Protection Bureau (CFPB). But beware: Scams abound and untrustworthy companies often try to take advantage of consumers desperate for student debt relief.
Scammers use many different tactics to target borrowers and trick them into fake debt relief programs. These may include repeated phone calls, personal-sounding emails, important-looking letters, friendly texts and even attractive advertisements across social media. You can help protect yourself by researching and verifying every company that claims to offer assistance with student debt. You should also be wary of any communication that doesn't come from the U.S. Department of Education or one of its partners.
Look for these common signs of a scam:
1. A requirement to pay fees up front. If a company asks you for money before helping you reduce or relieve your student loan debt, that's an immediate red flag. Untrustworthy companies use this method to take your money without providing any aid. There may be legitimate costs associated with your student loans — such as default penalties or occasional origination fees for private loans — but these fees should not be charged up front. You can find free assistance through your federal loan servicer or advice from the CFPB.
2. Speedy/instant loan relief or forgiveness. Beware of promises of instant debt relief. The hard truth is that loan forgiveness takes time, with many programs featuring multiple eligibility thresholds and a requirement that you make consistent payments against your debt for an extended period of time. Third parties don't have the ability to negotiate with your loan servicer or get you better terms for loan forgiveness than you can get on your own.
3. Phony official seals and illegitimate federal programs. Fraudulent companies often try to establish their credibility with official-looking seals and program names, such as "Presidential Debt Relief." In these situations, be sure to scrutinize these companies' legitimacy, asking questions that poke holes in their claims such as: "The government doesn't impose fees to help me manage my student loan debt. If you're government-affiliated, why are you charging me for these services? "
4. Requests for your Federal Student Aid (FSA) ID. Stay away from companies that ask for your username and password because your FSA ID is used to sign documents electronically and has the same binding legal status as a handwritten signature. If a stranger has access to your account, they can make changes to it without your permission.
5. Fees for federal student loan consolidation. You may want to consolidate your loans to streamline your payment process, but keep in mind that it is absolutely free to consolidate federal student loans through the Department of Education. If you have private loans, it may also be beneficial to consolidate your payments, as you can sometimes get a lower interest rate with another lender if your credit scores have improved significantly since you first took out the loan. If someone attempts to charge you a fee for that service, just say no. There's no reason to pay a private company for loan consolidation when you can do it yourself at no cost.
6. Advertising online and grammatical errors. Companies that pay to advertise their services are often for-profit organizations and should set off warning bells. While advertising debt relief does not always indicate a scam, it is definitely suspect behavior that warrants extra scrutiny. Another telltale sign of a scam is when a company uses incorrect grammar in their promotional materials, including unusual capitalization and incomplete sentences. Official communications from the Department of Education will use correct grammar and syntax.
The bottom line is if a company offers what sounds like an instant cure to your problems, be skeptical because it'll probably set you back more than it will help.