Student Loan Scams: Why Borrowers Are At Risk

Education concept. Isolated on white

Most families know that student loan debt has reached a crisis point.

Families also know that an alarming number of students (especially those with graduate degrees) are carrying debt balances in excess of $100,000. Unable to find suitable employment, many are being forced to live with their parents as they struggle to meet their large monthly loan payments.

This has created a growing industry of student loan scammers who are promising students that they can have their loans discharged, forgiven, or taken out of default. They are changing fees to do what the Department of Education can do through it’s network of official loan servicing companies–for free.

So why are borrowers turning to the scammers?

There are several reasons people turn to the scammers rather than their own loan servicing company.

First Reason: Public ignorance of existing government programs

Though many options already exist to consolidate your loan, reduce your monthly payments, and enroll in government loan forgiveness programs, there are millions of borrowers who still don’t know about them. Public ignorance is the biggest reason the scammers are having an easy time ripping off borrowers. Borrowers simply don’t know that help is readily available from their loan servicing company.

It’s the next reason, however, that should be of concern to all of us.

Second Reason: The loan servicing companies are deliberately not telling borrowers about the payment and forgiveness options available to them.

The loan servicing companies assigned to student borrowers by the Department of Education are another important reason why borrowers remain ignorant and vulnerable to the scammers. These loan servicing companies are not telling borrowers about the options available to them—even when borrowers are behind on their monthly payment. The scammers are simply filling the void and charging borrowers for services that are already available to them for free. Their fees, in some cases, can also exceed $1500.

Third Reason: The large number of borrowers who are in trouble

The large number of borrowers who are in trouble in itself presents a huge opportunity for the scammers. These financially stressed borrowers are naturally vulnerable to promises of loan consolidation, reduced monthly payments and loan forgiveness.

Why is this going on? How can I get help?

As you might suspect, it’s all about the money.

The most profitable loan program for the loan servicing companies is the standard ten-year payback program. And unless the loan servicing companies are required to change their methods, it’s the only option you are going to be offered when it comes time to pay back your loan.

This doesn’t mean you need to use an outside service to help you enroll you in a program that already exists. You do, however, have to take the initiative to get your assigned loan servicing company to help you. If you ask for help they will give it to you.

How can I qualify for loan forgiveness?

Under the loan forgiveness program if you go to work for a non-profit, you can qualify for full loan forgiveness in ten years. Though borrowers working in the private sector can also qualify for loan forgiveness, they have to make twenty years of payments to get it. Private sector borrowers, however, will also have to pay tax on the forgiven amount.

To qualify for loan forgiveness, borrowers are only required to make payments based on their discretionary income, not on the total loan amount. Borrowers with a large amount of student loan debt can save many thousands of dollars and will never have to worry about defaulting on their loan.

A student with a total of $100,000 in the Stafford and Grad Plus loan debt who is only earning $50,000 per year, for example, can consolidate her loan and only be required to pay a little more than $200.00 per month under the Pay As You Earn Program (PAYE).

A word of warning

Unfortunately, because these forgiveness programs are not profitable to the loan servicing companies, close to one-half of those enrolled are kicked-out of it by failing to report their annual income by the required deadline. Borrowers must be diligent about reporting their income on time every year.

Take the initiative and remain diligent and you can survive unscathed from your student loan debt!