How to Avoid Student Loan Scams

Financial scams can be devastating. According to the Federal Trade Commission (FTC), consumers filed about 2.6 million fraud reports in 2023 alone, amounting to more than $10 billion in total losses. These reported losses were 14% higher than the prior year.

A common type of fraudulent activity is student loan debt relief scams, which promise debt forgiveness that can’t be delivered or charge fees for services the federal government offers for free. We’ll share what you need to know about these types of scams and how to avoid them. 

How to avoid common student loan scams

The FTC has taken action against many student loan scammers in recent years. Recent enforcement actions were filed in May 2024 and June 2024, but that doesn’t mean consumers are fully protected. It’s essential to keep a watchful eye for scams.

Be vigilant when searching for student loan help because scams are still rampant—not to mention expensive. Below are five common scams seen in the student loan world. Study up, and make sure you know how to spot them before you encounter one.

Student loan scam	Why it’s suspect
Someone contacts you unprompted	The federal government won’t call you; lenders or loan servicers rarely do
Promises total loan cancellation	Total cancellation is rare, so it’s wise not to trust anyone promising this solution
Charges an upfront fee	It’s illegal for debt relief companies to charge an upfront fee
Asks for personal information	It may be used to steal your identity or process fraudulent bank or credit card transactions
They’re pushy or salesy	Scammers create a false sense of urgency to get people to act

1) Someone contacts you unprompted

If you get a call out of nowhere—particularly from someone claiming to be associated with the government or Department of Education—consider it a red flag. 

Federal student loans are managed by loan servicers, so a government employee will never contact you out of the blue about your loans. If anything, it would be the servicer.

These scams were rampant during the COVID-19 pandemic when the federal government passed various relief measures, many aimed at student loan borrowers.

Scammers often claim to be part of these efforts to help, offering to assist with fake loan forgiveness applications or other fraudulent paperwork.

How can you avoid this scam?

Be wary of anyone who calls you unannounced, and if it happens, ask questions. Find out who the caller is and what company they work for, and research online. If possible, ignore the call and research who the caller is in case they call back. 

Aim to determine the following::

• Is it a reputable company? 
• Does the company have complaints with the Better Business Bureau or the FTC?
• Has it been involved in recent lawsuits or government enforcement actions?

Avoid giving them personal or identifying information on the call. Don’t share your student loan ID, full name, address, birth date, or any other details. 

Do the same if you get unexpected messages via text, email, or social media. You might receive an occasional text or email from the Department of Education, but these will only come from official email addresses and numbers, as posted on the Federal Student Aid website.

Real solutions for borrowers dealing with payment issues

If you’re struggling to make your payments, don’t fall victim to these out-of-the-blue callers. Instead, look into refinancing (for private loans), or consider getting on an income-driven repayment plan if your loans are federal. 

You can also report student loan scams to the FTC and your state’s attorney general. 

2) Promises total loan cancellation

Your loans can only be forgiven in a few specific situations, such as if you enter a public service career, are disabled, or meet other stringent requirements. So if a company tells you it can get your debts wiped clean, it’s unlikely that it’s telling the truth.

In some cases, the company will charge an upfront fee while it “investigates” your options. (This is illegal.) Then at some point, it will stop calling, but the ACH or credit card payment you authorized will keep going through until you cancel it through your bank or card issuer.

These scams aren’t uncommon, and those with large balances that seem impossible to pay off can often fall victim. If you’re in this boat, you have other options.

How can you avoid this scam?

If you have federal student loans, your loans can be forgiven for several reasons, so start by seeing whether any of those scenarios apply to you. If one does, you can apply for forgiveness yourself without ever using a third party or paying a fee.

If you have private loans, forgiveness doesn’t exist. You can indeed refinance your loans, but it won’t cancel the balance. One exception is if you file for certain types of bankruptcy.

Real solutions for borrowers dealing with high balances

Borrowers with large student loan balances have other options. In many cases, refinancing or consolidating your student loans can help make them more affordable. 

For one, refinancing or consolidating your student loans can extend the term, allowing you to spread out the balance over an extended period (meaning lower payments). Plus, if you have private student loans, you might be able to get a lower interest rate, potentially saving you money.

Keep in mind: If you extend the repayment term on your student loan, you’ll pay a lower monthly payment, but you’re likely to pay more interest over the life of the loan. This can make your loan more expensive in the long run. 

3) Charges an upfront fee

Paying a fee before any service is performed is often unwise, especially when it comes to your financial health. It’s illegal for debt relief companies to charge upfront fees, but this situation occurs often in student loan scams. 

Companies might charge hundreds of dollars while claiming to investigate your options, help you apply for forgiveness or forbearance, or give you some other lofty benefit.

In most cases, these are tasks you can do yourself or with the help of a reputable nonprofit financial counselor, which is free.

How can you avoid this scam?

Never pay a fee upfront, no matter how legitimate a service might seem. If a company can achieve what it says it can do, it will bill you after performing, not before demonstrating its expertise or capabilities. Plus, charging this type of fee is illegal. 

You should also research any debt relief company you work with. The Better Business Bureau is an excellent place to start. You can also search for complaints using the CFPB’s Consumer Complaint Database. 

Real solutions for borrowers needing help

If you’re confused or want help understanding your repayment options, free help is available. With federal loans, the best place to go to get free help is the Federal Student Aid Information Center. Your loan servicer can also be a helpful free resource. 

For help with private student loans, you can start with your lender or a reputable nonprofit credit counseling agency.

4) Asks for personal information

Many student loan scams are precursors to bigger ones. For example, a company may ask you for personal details, such as your Social Security number or banking information, only to use it to steal your identity, make purchases using your credit cards, or drain your bank account.

These scams can target anyone, but it often happens when you’re first talking to the company. The person might offer to “look up” your loan details by requesting your SSN or FSA ID, or they may even ask you to “confirm your identity” with this information. 

No matter the method the scammers use, they’re aiming to get your name and personal details so they can use it for their own benefit.

How can you avoid this scam?

This type of student loan scam is easy to spot and avoid. Keep a tight lip when talking to anyone about your student loan debts, and avoid sharing any identifying personal information, including your name, address, SSN, FSA ID, or loan balance.

Real solutions for borrowers vetting debt relief companies

If you’re looking to work with a debt relief firm, ask many questions first. Don’t provide any personal information without verifying its reputation and capabilities, and consider visiting the place of business before moving forward.

For trustworthy guidance, you can also contact the Federal Student Aid Information Center, your lender or loan servicer, or a reputable nonprofit counseling agency. Remember, you can get help for free.

5) They’re pushy or salesy

If someone is pressuring you to sign up for a particular student loan option, profit may be involved. This should raise an immediate red flag. Many scammers create a false sense of urgency to trick their victims into taking action.

Legitimate relief solutions aren’t profit-based, and with federal loans, the options are free and easy to apply for on your own. You can look to several places for free help, including the Department of Education, your loan servicer, and reputable nonprofit credit counselors.

Paying off your student loans takes time and careful planning. So if someone is pressuring you to move fast, they may not be operating with your best interests in mind.

How can you avoid this scam?

Be defensive when seeking help, especially if a student loan relief company contacts you unprompted. If someone seems pushy or requires too much commitment upfront, ask questions and do your research before taking any action. Don’t give in to the pressure. 

Your first instinct is often the right one in this type of situation. If something feels off, listen to your gut.

Real solutions for borrowers having repayment problems

If you’re having trouble making payments, you don’t need to resort to a pushy salesperson just out for a profit or trying to scam you. Instead, study up on your options. If you have federal loans, consider alternatives, such as income-driven repayment plans.

Private loan borrowers in tough situations can consider refinancing, consolidation, or even filing for forbearance or deferment. Contact your lender for help if you’re facing this situation.

Our expert’s advice for parents and guardians

Erin Kinkade

CFP®

It is important for parents and guardians to inform and educate their children or dependents about the tactics scammers use, many of which are outlined above. Let your dependents know they shouldn’t answer calls from an unknown source and to report any suspicious activity to you, so you can advise them to report the caller or take that responsibility yourself. This includes contacts through social media or other online apps; report all to the FTC.

Poor service can be confused with a scam

Not all student loan-related companies are scammers. In many cases, servicers or others related to the industry may just offer poor customer service. 

Some of these companies have glitchy payment platforms, slow response times, or pushy representatives that hound you about repayment.

As in any industry, some companies offer a better customer experience than others. If your loan provider offers poor service, you might consider refinancing to get a new lender. If you think you may have a legitimate scam on your hands, file a complaint and report it to the appropriate agency.

What are the impacts of a student loan scam?

Student loan scams can be devastating. The FTC continues to monitor these types of scams and takes legal action against companies that engage in illegal or predatory activities. 

Recent examples of FTC actions related to this include one that resulted in $4.1 million in refunds being issued to people who lost money to a student loan debt relief scheme. FTC actions led to consumer refunds of more than $324 million in 2023.

The impacts of a student loan scam damage your finances, including having your: 

• Identity stolen
• Credit damaged
• Bank account drained

Plus, these scams wreak more than just financial havoc. One Reddit user who fell victim paid almost $600 for his student relief “help.” After the company went dark for months, he says he “lost faith in humanity.”

Another worries about what will be done with his personal information after realizing the debt relief company he’d applied with was a fake. “I’ve made a horrible mistake,” he says.

Stories like these are all too common. Consumers seek help for their looming student loan debts, and scammers or predatory companies take advantage. Once the dust settles, they’re left with regret, worries about identity theft, and an overall feeling of distrust.

How to report a student loan scam

To report a student loan scam, start with the Consumer Financial Protection Bureau and the Federal Trade Commission. These two agencies work to protect consumers from fraudulent activity, and they may even refund money you lost along the way.

You can also report the scam to the attorney general’s office in your state and the Department of Education if you have federal student loans.

If you’ve shared personal information with a student loan debt relief company and paid an upfront fee, you should take the following actions: 

• Contact your loan servicer. If you signed legal documents authorizing the debt relief company to act on your behalf (e.g., a power of attorney), you should let your servicer know you’re revoking it and don’t want any actions taken on your loan. 
• Call your bank or credit card issuer. If you agreed to pay the debt relief company a fee, contact your financial institution or credit card issuer to ensure the payments to the company will not continue. 
• File formal complaints. Visit the FTC’s website and file a complaint about the debt relief company. Also, file a complaint with the Department of Education. 

Even if you don’t experience financial damages, it’s important to share information about potential student loan scams. Not only can this help you, but by filing a complaint, you’re also doing your part to protect others from falling prey to student loan scams. 

Resources for student loan help

If you’re struggling to make your student loan payments or you want options for repaying your loans, these companies and agencies can help—often for free.

Company or agency	Purpose
Better Business Bureau	Research companies and businesses
Consumer Financial Protection Bureau	File a complaint or research complaints
Federal Student Aid Information Center	Federal loan options or guidance
Federal Trade Commission	File a complaint
U.S. Department of Education	File a complaint
Student Loan Borrower Assistance	Student loan advice
StudentAid	Federal loan repayment options
Consumer Credit	Nonprofit credit counseling
The Institute of Student Loan Advisors	Free student loan guidance