Right now there is over $1.5 trillion in student loan debt. With billions of dollars being loaned to students each year, there is no doubt that there are scammers trying to get your money that are offering services that they do not follow through on, or have no real idea about.In fact, the Consumer Finance Protection Bureau (CFPB) has even issued multiple warnings about what to look out for when it comes to getting help with your student loans. (For example, this one and this one).Here are some common scams that are happening right now that you should be aware of when looking for student loan help.This article is pretty long – we cover a lot of ground here. If you’re looking at a specific company, jump to our section on “Is There Any Company You Can Trust To Help You”.
Before we dive into different types of student loan scams, it’s important that we talk about getting help for your student loan debt.There are a lot of companies that advertise that they can help you with your loans – you might see the ads on Facebook, on Google, or even in the mail (yes, people still get mail). And these companies might promise you things or advertise some type of help for your student loan debt which might entice you to call or sign up.Before you take any action with these companies, remember this: Here’s why:
While these programs are free, signing up can be confusing for some people. Or they may have complex situations and want someone to help them. Just like some people do their taxes themselves, while others hire a CPA, the same applies to student loan debt help.You can do it yourself. Or you could pay someone to help you (if you want to see who we recommend, scroll to the bottom). However, if you pay someone to help you, .Here are the warning signs to help you avoid student loan debt relief scams.This scam involves a student loan company that tells you they can get you the “best” interest rate and loan terms, but you have to pay a “small” fee up front for this service. The fee can be anywhere from 1-5% of the loan amount. Sometimes the fee is a flat rate up front (say $1000).If you come across this offer – RUN! There are no circumstances in which you should have to pay money to get money. Legitimate student loans, even from private lenders, do not require any fees up front. If there are any fees, they are deducted from the disbursement check or they are included in the repayment amount and are amortized over the repayment period.There are two common fees that will be paid with the loan, but once again, never up front. Federal student loans charge a 1% default fee, but charge no origination fees. Most private loans charge some type of either disbursement fee or origination fee, but these are usually negotiable and vary widely from lender to lender.If you are working with a third-party company to help you with your student loan debt, they might take a fee up front. But this fee should go into an escrow account (or third party account) and the company should only get paid once they prove they’ve helped you sign up for a program. Look for wording like “we only get paid once you’ve made your first payment on your new repayment program”.Note: A new variation on a theme has emerged in the last year. Instead of charging a direct advanced fee, some companies are offering a second personal loan – which is basically a fee in the format of a loan. Most borrowers who get involved in this don’t realize they took out a new loan, and there are repercussions if you cancel or don’t pay (such as interest and collection fees). The bottom line is, if you use a third party company, make sure you fully understand the pricing and payment structure. After you graduate, it might be a good idea to consolidate your student loans. This is another area that is ripe with scams. The most common student loan consolidation scam is one in which the company charges a consolidation fee, but actually does nothing. The fee is sometimes called processing fees, administrative fees, or consolidation fees.If you have a federal student loan, there are no fees whatsoever for student loan debt consolidation. You can do it yourself for free at StudentLoans.gov.If you have a private student loan, there are a number of lenders who will refinance your private loans, federal loans, or both. Refinancing differs from consolidation in that rather than simply combining all your loans into one, you are actually taking out a separate loan with a new lender who pays off your existing loans. Credible is a comparison tool that allows you to fill out one form and see personalized offers from multiple lenders in the space. Going through any lender on the Credible platform is NOT a scam.Plus, College Investor readers can get up to a $750 bonus when they refinance through Credible!Finally, if you are considering consolidation, make sure you read our guide on The Right Way To Consolidate Your Student Loans.This is a scam where a law firm will claim to be able to settle your student loan debt. There are a lot of variations on this scam, but typically a borrower is referred to a law firm by a “student aid company”. The student aid company promises that this law firm can settle your student loan debt for thousands less than you owe.Many times the law firm will ask you to make your full student loan payment to the the law firm itself (or whatever amount you can afford to pay). The law firm says they’ll then negotiate a settlement with your lender.However, what typically happens is that this law firm doesn’t make any payments while negotiating with your lender – as such, you go into default on your student loans. At that point, the law firm will then claim you can’t pay your bills, and try to negotiate a settlement based on that.What happens to you, as the borrower, is that your credit score is trashed, and you made thousands of dollars in payments to the law firm. In the end, there is no guarantee that you will be able to settle your loans. And even if you do, the process may take years, and you’ll still have to deal with the settlement in the end.If you’re considering speaking to a lawyer about your student loan debt, learn about what a lawyer can do for your student loans.The important thing to remember about student loan debt is that it must always be repaid – it cannot be eliminated unless you have a federally qualifying reason (death, permanent disability, school closure, falsification of documents or identity theft). If you come across a company that promises to get your student loan debt eliminated, it is a scam!We see these scams a lot relating to closed for-profit colleges and universities. Companies will advertise that, simply because you attended a certain college or university, you can get your student loans eliminated. This is usually false. There are many potential student loan forgiveness programs that you can read about here. If your school closed or is facing lawsuits, you can potentially do what’s called Borrower Defense to Repayment. But if you’re paying a company for help, ask them specifically what they are doing for you.There are times when it’s not a scam, but it just seems like one because the customer service is bad or paperwork gets “lost”. For example, I get a lot of readers asking about the FedLoan Servicing Scam. FedLoan isn’t a scam, but just a poorly run student loan servicing company that is looking out for their own best interest.Student Loan Servicer is actually the code word for “Student Loan Collection Agency.” Another one I get asked a lot about is NelNet, especially when it comes to their KwikPay Service. Once again, not a scam, just a poorly run program that is incentivized by the collection of full payments. I hope this helps you navigate the world of student loans a little better and avoid getting played. If you want to know more, don’t forget to check out my Definitive Guide to Student Loan Debt.Now that you know some of the main types of student loan relief scams, what are some red flags to look for?Based on talking to consumers for several years, these themes have emerged:Even though I’ve said countless times you can do it for free at StudentLoans.gov, there are still people who’ve asked me “that’s great Robert, but I still want to pay someone to help me – who can I trust?” That’s a fair question, so who can you trust?Next, call your student loan servicing company. I know this sounds counter-intuitive, but 80% of issues and concerns can be resolved by simply calling your loan servicer. These free options are usually your best bet for help with student loans.If you’re still not quite sure where to start or what to do, consider using a DIY service likethat can help you understand the best repayment plan options, as well as show you how to do the paperwork. Check out LoanBuddy here >>I hope this helps you navigate the world of student loans a little better and avoid getting played. If you want to know more, don’t forget to check out my Definitive Guide to Student Loan Debt.Are you worried that you could be dealing with a scammer? Stop by our new Student Loan Forum and post about it in the Student Loan Scams section. Protect yourself and protect others as well!