With student loan debt totaling nearly $1.75 trillion in the U.S., you can bet that it’s an issue that will attract its fair share of fraudsters and shady characters. Unfortunately, the number of student loan scams is reported to be on the rise, and the situation with COVID-19 isn’t making things any easier.
Student loans aren’t only a burden for 20-year-old Americans. Many older adults have student loan debt. Around 9 million Americans age 50+ have student loan debt ($290 billion). In 2020, the White House began pausing federal student loan payments and extended this freeze six times. Additionally, there has also been a lot of talk from president Biden as well as several members of Congress about possible student loan forgiveness. All of this has created confusion for the general public about where these issues stand, and its set the stage for scammers to prey upon those in need of help.
How to Spot a Student Loan Scam
Not sure if someone you’re considering working with is the real deal? Here’s how to tell if they’re a scam.
1. Asking for Money Upfront
If anyone associated with loans or debt ever asks you to pay for their services before they assist you, then they’re not who you think they are. The Federal Trade Commission (FTC) has made it very clear that it’s illegal for any debt relief company to collect fees from a customer before they’ve actually settled or otherwise resolved the consumer’s debts.
The government and the private companies that they’ve approved to service student loans will never charge you for what they do. The forms and applications that these scam companies claim to file on your behalf can be done on your own for free, such as:
- Free Application for Federal Student Aid (FAFSA)
- Income-Driven Repayment Plans
- Public Service Loan Forgiveness (PSLF)
- Scholarship forms
- Debt consolidation
2. Pressuring You to Act
Anytime someone urges you to work with them or tells you that you’ve got limited time to act, they’re using old-school sales tactics. And most likely, they need you more than you need them.
Agents of for-profit companies often work on commission, meaning the more people they get to sign with them, the more money they make. Businesses that operate under this model will not put their best interests forward.
3. Asking for Your Personal Information
Whenever someone asks for your personal information such as your Federal Student Aid (FSA) ID or password, hang up the phone. Under no circumstances should this information ever be given out to anyone because it would allow them to enter your account, lock you out by changing your password, and then make agreements that you didn’t authorize.
The same thing could happen when you update your bank or demographic information. Service providers may have changed over the past few years since the CARES Act and the federal payment you’ve made, so it’s possible you might be unfamiliar with the new loan servicer. That’s a perfect opportunity for theft.
A major red flag is to never give out your Social Security number (SSN). With your SSN, a scammer can do all kinds of damage from opening credit cards and taking out loans … even a mortgage! Never give anyone your SSN unless you’re absolutely sure about who you’re working with.
4. Offering Student Loan Forgiveness or Cancellation
Over the past two years, there have been several actions from the White House that have resulted in nearly $20 billion in student loan forgiveness. However, these were very specific situations or borrowers who met certain criteria.
Scammers might try to make you believe that they somehow have the inside track and can get you to also qualify. For example, they might tell you they can get your loan charged off or forgiven for an upfront credit card payment of $399. However, this is all nonsense.
In extreme situations, they can even make things worse. They might try to convince you into strategies like missing payments or filing bankruptcy. But make no mistake … you’ll still not only owe in addition to now also having late fees and penalties to deal with.
5. Promising Quick Relief
Another line scammers will use is that they can provide you with “quick” relief. No offense to the government, but being quick is not what they’re known for.
Again, no one has power over the government. Filling out the proper forms for debt consolidation or changing your payment terms based on income will take time to process. Be patient while you await a response from the government.
How did you find the company or offer that you’re considering? Was it at the top of a Google search or in one of the sidebars of a website? If so, then it was most likely a paid advertisement.
Companies regularly pay to be at the top of search engines. And while their listing is clearly marked “Ad”, some people miss this detail and click on it anyways.
Although there’s nothing wrong with advertising, think about it logically. These companies are paying for advertising because they want to boost their revenue. That means they may be more financially motivated than interested in providing you with honest help.
7. Direct Contact
Did someone contact you directly about refinancing your student loan or offering to get your payments reduced? Unfortunately, many of these agents will cold-call or spam potential customers using lists they purchased from marketing companies. They often have little or no information about your exact situation, and no basis for any of the claims they’ll make.
8. Website URL
Check the address (URL) of the website that’s contacting you. Unless it says “.gov”, then it’s a for-profit company and most likely a scam. A lot of companies will create their websites with a “.us” URL to make it seem like an official government entity, but the reality is that anyone can register a .us domain … including criminals.
9. Fake Endorsements
Another trick that fraudsters will use is to add the Department of Education’s official seal or other organization logos to make it seem as though they’re affiliated or endorsed. However, these companies most likely have no actual connection to the government and are most likely using these images illegally to trick consumers.
10. Seems Too Good to Be True
As the old saying goes, any time someone makes you an offer that’s too good to be true, then it probably is. As much as you’d like to have someone tell you there’s a way out of your student loans, the truth is that the only real way is by paying them off.
Everything you need to know about your options is right on the Department of Education’s website. The best way to keep up with the latest news and programs is to check their official website.
What to Do If You’re the Victim of a Student Loan Scam
If you read any of these tips and believe you may have been or are currently being scammed, the first thing to do is not to panic. Check online for any negative reviews or with the Better Business Bureau to see if anyone else has reported trouble with this company in the past.
To take action, report your case immediately to the following:
- The Federal Trade Commission (FTC) at ReportFraud.ftc.gov. Additionally, if someone has stolen your identity, then you can also report it to the FTC at identitytheft.gov.
- Local state attorney general’s office
- The college or university’s financial aid or admissions office
- The loan service provider
To further stop the scam, take the actions:
- Alert your financial institution
- Stop payment with your credit card company
Author bio: Mary Jo joined Yrefy, LLC in 2017, as a business partner and Managing Partner. She has over 20 years of experience working for companies in the education and student loans space. She was responsible for understanding and managing thousands of technical software requirements along with federal compliance (Department of Education requirements) for the development of an automated federal financial aid software processing student, parent, and veterans’ administration loan programs. Previously she served as Vice President of Corporate Development for CampusLogic, Inc., Director of National Lending Associates, Inc. (NLA)/Education Loan Source, and President/Founder of the StudentLoanProcessors, Inc.(TSLP) an education student lending company.
By Mary Jo Terry, Managing Partner at Yrefy