For years, student loan scams have been tempting borrowers with empty or misleading promises that…
Debt, despite how essential it is for many American families trying to afford college, can be in and of itself the cause for quite a bit of stress. When you factor in the further difficulty students are having finding employment after graduation, and loan management companies that can be less than forthcoming with information that could ease your repayment burdens, the tension only grows. Wouldn’t it be great if there was a trick or a quick fix to help get you debt-free? This is the pitch of various scam artists that prey upon those who’ve been made vulnerable by mounting debt and the perception of dwindling options. These are just a few of the student loan scams you’ll want to look out for.
Identifying Federal Student Loan Scams: The Red-Flags
The first and best rule to follow to help avoid federal student loan scams, scholarship scams, or any other kind of scam is to operate under the belief that no one wants to go out of their way to give you free money. This simple line of thought will keep you wary of “pre-approval” for things you didn’t apply for or a debt relief plan offering “instant forgiveness.” Matt Ribe, the senior director of legislative affairs and corporate secretary for the National Foundation for Credit Counseling, calls these the “too good to be true” scams. While the idea of a quick fix or an easy way out can seem like a miracle, most scams like these crumble under even the slightest of scrutiny.
I know I just told you there’s no such thing as a free lunch, but conversely, if you are being asked for an upfront fee for a better interest rate, a quicker forgiveness period or anything for that matter, you are being scammed. You will not be asked to anything upfront for legitimate private loans, and you certainly will not be charged an upfront fee for Federal loans. Student loan lawyer Joshua R.I. Cohen has seen companies offer nebulous “relief” for as much as $2000 upfront.
This tactic is also used in conjunction with scholarship promises. You should never have to pay for a scholarship. Some red flags to look for: “Guaranteed or your money back” “Processing fee” “We need your credit card or banking information to hold the scholarship.” If you hear any of these claims, head for the hills.
It’s important to remember, that paying someone for help is not automatically a scam, but it’s extremely important to keep your eyes open should you decide to do so.
Keep Control of Your Loans
If you are using a third-party debt relief company (which Ribe and Cohen say there is never an actual ‘need’ to do), make sure you know exactly what they plan to do to help you and never let them take control of your loan. A common student loan scam is to offer lower payments, consolidation or even flat out forgiveness for a few easy installments of a few hundred dollars. Unfortunately for you, all they’ve actually done is placed your loan into forbearance and collected your money. Not only are you out however much you gave them, but your loan is also in no better shape than it was before, on the contrary, you’ll likely be worse off. To be clear, there are certain situations where forbearance is appropriate however it is not a solution in and of itself and anyone who presents it as such probably does not have your best interest in mind.
Never fall victim to the “pay us, not them” scam. This scam can take on many different incarnations but the basic premise remains the same. A company will offer some kind of relief intensive, often to get you a lower interest rate, or sooner forgiveness, all you have to do is make your payments to them, instead of whoever you owe the debt to, this third party company will handle the rest. Some may even claim to be working with the Department of Education, don’t fall for it.
How to Protect Yourself from Federal Student Loan Scams
The best way to protect yourself from student loan scams is to do your research. Most of these scam agencies have the thinnest of facades. If you do choose to work with a company to help you manage your debts, look up everything they tell you. If they offer to enroll you in the “Obama Student Loan Relief Program” break off communications because that doesn’t exist.
You have options to make your Federal student loans more manageable, but none of them cost you money and none of them are going to be an instant fix.
Beware of fees wherever you find them. There is no fee for Federal student loan consolidation; there are no fees to change your repayment options. You may pay a service for assistance, but if they ask for processing fees, or formatting fees, they are likely trying to swindle you.
At My College Planning Team, we know that information is your strongest ally. The better informed you are, the more options you’ll have open to you. Visit My College Planning Team and set up a free consultation, to explore some of those options for your particular situation.
There are a lot of people out there looking to take advantage of you when you’re the most vulnerable; they want to make decisions for you that will benefit them. We want to make sure you have all the information you need to make your own decisions in your own best interest.