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Student Loans

How to Avoid Student Loan Scams

Financial scams can be devastating. In fact, according to the Federal Trade Commission, more than 2.1 million cases of fraud were reported in 2020 alone, amounting to about $3.3 billion in total losses.

One of the most common types of this fraudulent activity? That’d be student loan scams, which often make lofty, impossible promises of debt forgiveness or charge exorbitant fees for services already free from the federal government.

Scams like these not only rob hardworking Americans of their time and money, but they can have long-lasting mental and emotional implications, too. Want to make sure you steer clear? This guide can help.

In this guide:

What are the impacts of a student loan scam?

Student loan scams can be devastating. In fact, just two perpetrators last year caused more than $1 million in damages and impacted over 41,000 people, according to the FTC.

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

Another is worried 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 only to be taken advantage of. Once the dust settles, they’re left with regret, worries of identity theft, and an overall feeling of distrust.

How to avoid common student loan scams

The Consumer Financial Protection Bureau has taken action against several student loan scammers in recent years (one lawsuit was filed in March of 2021), but that doesn’t mean consumers are fully protected. You’ll want to be on your toes when searching for student loan help, as scams are still rampant — not to mention costly.

Below are the five most common scams seen in the student loan world. Study up, and make sure you know how to spot them before seeking help.

  1. You’re contacted out of the blue
  2. You’re promised total loan cancellation
  3. You have to pay an upfront fee
  4. You’re asked to give personal information
  5. They’re pushy or salesy

1) You’re contacted out of the blue

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 you’ll never be contacted out of the blue by a government employee about your loans. If anything, it’d be the servicer.

These scams have been particularly rampant during the COVID-19 pandemic when various relief measures — many aimed at student loan borrowers — have been passed by the federal government.

Scammers often claim to be part of these efforts to help, offering to assist with fake loan forgiveness applications or other fraudulent paperwork. They also might offer help exiting the federal loan forbearance plan, which many borrowers may be worried about as the September 30th deadline approaches.

How can this scam be avoided?

Be wary about anyone that calls you unannounced, and when it happens, ask questions. Find out who the caller is and what company they work for, and do some digging online. Are they a reputable company? Do they have complaints with the Better Business Bureau or the FTC?

You should also avoid giving them any personal or identifying information about yourself on the call. Don’t share your student loan ID, full name, address, or any other details.

Real solutions for borrowers dealing with pandemic-related payment issues

If you’re having trouble making your payments due to the pandemic, 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 you have federal ones. Remember: Federal student loans are on pause through September 2021, so that can provide a much-needed break as well.

2) You’re promised total loan cancellation

There are only a few situations when your loans can be wholly forgiven, and it’s usually only 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 probably not telling the truth.

In most cases, the company will charge an upfront or monthly fee while it “investigates” your options. Then, at some point, they’ll stop calling (but that ACH payment will probably keep going through until you cancel it through your bank).

Unfortunately, these scams are pretty common, and the victims who most easily fall victim are those with large balances — ones that seem impossible to pay off on their own. If you’re in this boat, there are other options.

How can this scam be avoided?

If you have federal student loans, there are a few ways your loans can be forgiven, so study up and see if any of those scenarios applies to you. If one does, you can apply for that forgiveness yourself without ever using a third party (or paying a fee for it).

If you have private loans, forgiveness doesn’t exist. While you can indeed refinance your loans, the balance won’t ever be canceled entirely — unless, that is, 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 can help make these loans more affordable. For one, it can extend the loan term, allowing you to spread the balance out over a more extended period (meaning lower payments). In today’s market, you may also be able to get a lower interest rate too. This can also save you money.

3) You have to pay an upfront fee

Paying a fee before any service is performed is usually a bad idea — especially when it comes to your financial health. This setup is often seen in student loan scams. Unfortunately, many companies 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 non-profit financial counselor (meaning free!)

How can this scam be avoided?

Never pay a fee upfront, no matter how legitimate a service might seem. If a company can achieve what they say they can do, they’ll bill you once the service has been performed — not before demonstrating their expertise or capabilities.

You should also research any debt relief company you work with carefully. The Better Business Bureau’s website is a great place to start.

Real solutions for borrowers needing help

If you’ve found yourself confused or want help understanding your repayment options, you don’t have to pay for it. With federal loans, you can get the help you need for free through the Federal Student Aid Information Center. If you have private ones, non-profit credit counseling agencies are a great start.

4) You’re asked to give personal information

Many student loan scams are just precursors to bigger ones. For example, a company may ask you for personal details, like your Social Security Number or banking information, only to use it for further damage later on. Maybe they open a credit card in your name, apply for a loan, or drain your bank accounts before you have the chance to notice.

These scams can target anyone, but it usually happens early on in the scam — when you’re first talking to the company. They 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. Either way, they’re aiming to get your name and personal details so they can use them down the road.

How can this scam be avoided?

Fortunately, this scam is easy to avoid. Just keep a tight lip when talking to anyone about your student loan debts, and avoid sharing any information that’s personally identifying — like your name, address, SSN, FSA ID, or even loan balance.

Real solutions for borrowers vetting debt relief companies

If you’re looking to work with a debt relief firm, then ask them the questions first. Don’t give them personal information without verifying their reputation and capabilities, and consider meeting them at their place of business before moving forward.

You can also contact the Federal Student Aid Information Center, your servicer, or a non-profit counseling agency for trustworthy guidance.

5) They’re pushy or salesy

If someone is being pushy or pressuring you about a particular student loan option, there’s probably profit involved, which should send up a red flag immediately. Legitimate relief solutions aren’t profit-based, and with federal loans, many of your options are free and easy to apply for all on your own.

Another form of pushy? That’d be asking you to sign a contract or payment agreement right off the bat. Paying off your student loans takes time and careful planning, so if someone is forcing you to make a move quickly, they probably don’t have the best intentions in mind.

How can this scam be avoided?

Be on the defensive when seeking help and especially if you’re contacted by some sort of student loan relief company out of the blue. If someone seems pushy or requires too much commitment upfront, ask questions and do your research. Usually, your first instinct is the right one in this situation, and if something feels off, it likely is.

Real solutions for borrowers having repayment problems

Just because you’re having trouble making payments doesn’t mean you have to resort to a pushy salesperson just out for a profit. Instead, study up on your options as a federal loan borrower, and consider alternatives like income-driven repayment plans.

Private loan borrowers can consider refinancing, consolidation, or even filing for forbearance or deferral if things are tough. Contact your servicer for help if you’re in this boat.

Sometimes lousy service can get confused with a scam

Not all student loan-related companies are scammers — even though some may feel like it. In many cases, servicers (or others related to the industry) may have poor customer service. They might have glitchy payment platforms, slow response times, or pushy representatives that hound you about repayment.

As in any industry, there are good eggs and bad ones. If it’s just bad service you’re receiving, you might consider refinancing to get a new servicer. If you think you may have a legitimate scam on your hands, you’ll want to file a complaint and report it to the appropriate agency.

How to report a student loan scam

There are several places you should report a student loan scam. First, 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 any money you lost along the way.

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

Finally, “you should also instruct your student loan servicer that they should only provide information about your student loan directly to you,” the CFPB warns. If you’ve previously given a scammer your personal information, they may be able to change the details on your loan accounts and have communications routed through them. Contacting your servicer to alert them of the scam can help ensure this doesn’t happen.

Resources to reference when in need of student loan help

If you’re struggling to make your student loan payments or you want options for paying back your loans, there are people that can help — often for free, too.

Here’s where to start:

Better Business BureauFor researching companies and businesses
Consumer Financial Protection BureauTo file a complaint
Federal Student Aid Information CenterFor federal loan options or guidance
Federal Trade CommissionTo file a complaint
U.S Department of EducationTo file a complaint
Student Loan Borrower AssistanceFor student loan advice
StudentAid.govFor federal loan repayment options
Consumer CreditFor non-profit credit counseling
The Institute of Student Loan AdvisorsFor free student loan guidance