After completing college, you may feel overburdened by your student loan costs, but don’t fall victim to student loan forgiveness scams that offer false promises of easy debt relief.
That’s not to say there’s no such thing as student loan forgiveness — federal loans really can be forgiven under certain conditions. But debt relief companies know that millions more people are struggling to repay student loans and, in response, they’ve set up programs that offer to help reduce your debt — for a fee.
Often they offer services that you could perform yourself at no cost. According to the U.S. Department of Education, such companies solicit business through mail, mobile phone ads, social media, and direct phone calls.
Not all debt relief offers are illegal. There’s no law against charging a fee for a service that borrowers could have obtained on their own, notes Mark Kantrowitz, publisher and vice president of strategy for Cappex.com, a website that helps students compare colleges and search for scholarships.
“These scams, which take advantage of the borrower’s lack of awareness of their options, only become illegal when they charge a fee before providing the service or make false claims when promoting their services,” he says.
Robert Farrington, founder of TheCollegeInvestor.com, says there are a variety of ways that companies make money from people who are struggling to repay student loans.
In addition to charging fees for loan modification services, some companies charge money for services that aren’t performed, or are performed incorrectly, he says. There also are companies that falsely claim that they have a special relationship with the Department of Education that enables them to help their clients reduce debt.
One scam is to ask borrowers to make payments directly to the debt relief company instead of to the lender. In some cases the money is never forwarded to the lender, and the missed loan payments go on the borrower’s credit report.
You should have realistic expectations about debt relief. Whenever companies make sensational claims about their ability to reduce debt, “they usually just take your money and disappear,” says Justin Chidester, a financial planner in Logan, Utah.
Watching for Warning Signs
There are a variety of warning signs that a company offering to help you with your student loan debt may be scamming you. These include:
- Asking for upfront fees, before services are performed.
- Claiming the ability to provide debt forgiveness or negotiate a special deal on your behalf.
- Asking you to sign a “third-party authorization” or “power of attorney” in order to gain permission to negotiate with loan servicers and make decisions on your behalf.
- Asking for your Federal Student Aid PIN, an identification issued by the Department of Education to allow access to information about your federal student loans. This allows a third party to make decisions on your behalf.
Where to Get Real Help
While student loan forgiveness scams may be all smoke and mirrors, student debt is a very real problem for millions of Americans. In less than a decade, the volume of outstanding federal student loan debt more than doubled, according to a 2015 report from the CFPB, increasing from $516 billion in 2007 to more than $1.2 trillion in the third quarter of 2015.
What’s more, in some cases, companies that service student loans may fail to do their jobs. In 2015, the Washington Post reported thatthousands of students have complained to the Consumer Financial Protection Bureau (CFPB) about loan servicers who give them inconsistent loan information, lose their paperwork, or surprise them with unexpected fees. This can cause frustrated borrowers to turn to debt reduction companies for help.
However, if you’re unable to make your student loan payments, there are better options. Federal student loans — which are made or guaranteed by the Department of Education and comprise the bulk of student debt — offer many different repayment plans that can lower your monthly payment based on your income, as well as forbearance and deferment options, and even legitimate paths to student loan forgiveness in some circumstances. The DOE has an online guide for repaying student debt.
While private student loans don’t have as many protections in place, you should still contact your lender to see if they’re able to refinance the loan or make adjustments to your payment schedule. The CFPB has an online repayment guide that walks borrowers through the process and helps them explore their options.
Hindsight is 20/20, but the best way to avoid running into student loan debt problems is to understand the terms of repayment before you borrow money. Read your loan contract carefully and ask questions about anything you don’t understand.