Scams to Avoid: Student Loan Debt Relief Companies
Whether you are working on repaying your student loans or will be in the near future, it is very important to be aware of potential student loan scams. In many cases, these phony debt relief companies promise thousands of dollars in savings on your student loan debt by falsely claiming special expertise or a relationship with the Department of Ed, only to enroll you in a payment plan that’s available for free for all borrowers with federal student loans – all at a cost of hundreds of dollars or more and as a result, further driving you into debt.
Within the past year, the Consumer Financial Protection Bureau has shut down a student loan debt relief company called College Education Services and filed a lawsuit against Student Loan Processing.US for running illegal debt relief services. These companies were exploiting vulnerable student loan borrowers, making false promises about their services and charging illegal upfront fees.
Remember, you do not have to pay someone to help with your student loans. Here are some warning signs that a debt relief company may be trying to rip you off:
Promises of immediate loan forgiveness or debt cancellation. Debt relief companies do not have the ability to negotiate with your creditors for a “special deal” under the federal student loan programs. Payment levels under income driven payment plans are set by federal law, and for most borrowers, loan forgiveness is only available through programs that require many years of qualifying payments.
Pressure to pay high up-front fees. If a debt relief company is requiring you to pay an upfront fee or is trying to get you to sign a contract on the spot, it may be a scam. Avoid companies that require payment before they actually do anything, especially if they are trying to get your credit card number or any bank account information. Not only is assistance free through your student loan servicer, taking payment for debt relief services before providing help is illegal.
Demands that you sign a “third party authorization.” You should be wary if a company asks you to sign a “third party authorization” or a “power of attorney.” These are written agreements giving them legal permission to talk directly to your student loan servicer and act on your behalf. In some cases, they may even step in and ask you to pay them directly, and promise to pay your servicer each month when your payment is due.
Requests for your Federal Student Aid PIN: Be cautious about companies who ask for your Federal Student Aid PIN. Your PIN is a unique identification number issued by the U.S. Department of Education to allow access to information about your federal student loans. This number is often used as the equivalent of your signature on any documents related to your student loan. If you give that number away, you are giving a company power to perform actions regarding your student loans on your behalf. Honest companies will never use your PIN to access your student loan information.
How to get help
Submit a complaint online or call the Consumer Financial Protection Bureau at 855-411-2372 if you have been the victim of a student loan debt relief scam. You should also instruct your student loan servicer that they should only provide information about your student loans directly to you. If you are having difficulty making your student loan payments, or have questions regarding your loan repayment, contact your loan servicer to discuss your options. They can help determine if you are eligible for a smaller monthly payment through a different payment plan based on your monthly income or if you are experiencing a partial financial hardship.
Bottom line: Debt management resources are available to you for free. Always think twice before paying hefty fees for something that likely won’t live up to your expectations.