Student Loan Fraud – Don’t Get Scammed

There are scams promising to end student loan debt – don’t get scammed, get informed. These fake companies pretend to be affiliates of the U.S. Department of Education. But instead, bilk consumers out of millions of dollars. How? They make a false promise of student loan debt relief.

In November 2019, the FTC got a temporary restraining order against a few scammers. Arete Financial Group and some related companies. The Federal Trade Commission alleges these businesses scammed students through:

• Radio and TV ads
• Online ads
• Telemarketing calls

The gist of what these companies do is promise to enroll you in one of their programs. These programs span student loan forgiveness, loan consolidation, and repayment plans. The scammers also promised to reduce or end your monthly loan payments and balance. And, allegedly charged upfront fees as high as $1,800 when consumers agree to sign up.

But instead of delivering promises, the schemers contacted consumers’ loan servicer. Without the consumer’s authorization or knowledge. And had the servicer place the loans into temporary forbearance or deferment status. Luckily the Federal Trade Commission (FTC) has a Bureau of Consumer Protection. As a result of filed claims defendants face charges. Like violating the Telemarketing Sales Rule and the FTC Act.

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How to Avoid Student Loan Debt Relief Scams

If you educate yourself about your student loan debt, there is no reason to be a victim of the next scam. Here are a few tips to keep in mind so you don’t get scammed.

#1 Be Aware of “Payment up Front” Scammers

It is illegal for companies to charge you before they help you. And companies may promise to reduce your student debt. But there is nothing they can do for you that you can’t do on your own. And for free.

#2 Check Out Options for Financing College

Before you take out a loan, check out other financial aid sources. Like grants, scholarships, and federal work study programs. A first step is to fill out a Free Application for Federal Student Aid (FAFSA). You need to create an FSA user account, and when you do, do not share your ID. Dishonest people may use it to log in and hack your account.

#3 Learn About Student Loans

There are two types of loans. Federal loans from the gov’t. And private loans from lenders like banks and credit unions. While federal loans come with some protections, alternative (private) loans do not. Either way, you have to repay the money to your lender.

#4 Understand Loan Forgiveness and Repayment

You may be eligible for a different kind of repayment plan. Or, for your loans to be forgiven. This depends on the kind of loan you have and your situation. To qualify for such options, no company can do something for you that you can’t do yourself. Knowing this can prevent you from falling prey to a scammer.

If you have federal loans, the Department of Education has a few free programs.

• Income driven repayment plans – monthly payments based on how much money you make
• Deferment and forbearance – you postpone payments though may incur more interest
• Loan forgiveness or discharge – these programs let you off the hook, but you have to qualify (E.g. you become disabled or find out your school committed fraud)

For private loans, deal with reputable loan servicers. Keep in mind it is also unlikely the servicer will offer a loan forgiveness program. So, any third party claiming they can do this for you is likely a scammer. Don’t listen and don’t give any third party your account details either.

#5 Be Cautious with Consolidation

When you consolidate a loan, you roll a few loans into one. This gives you a new loan and new repayment terms but may affect your interest rate.

If you consolidate your loans with the federal gov’t it is free. So, if a company offers to do this for a fee, say NO. To consolidate loans with a private lender may cost something. But avoid companies that tell you to pay up front. Also, some debt relief companies and lenders offer to consolidate federal and private loans together. They say they’ll make them into one new loan to lower your monthly payments or interest rate. The FTC says, “Don’t do it.”

Five Things to Remember About Scammers to Avoid Student Loan Fraud

1. Only scammers promise fast loan forgiveness
2. Never pay a fee upfront (Think: free not fee)
3. Use trusted sites – scammers can make fake gov’t seals
4. Don’t give or share your FSA ID with anyone
5. You can’t roll federal and private loans together to lower payments
6. Report scams so others don’t suffer: 1-877-FTC-HELP (382-4357)