Student Loan Scams and The Ways to Identify Them

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In the United States, over $1.5 trillion are issued as student loan debt. Every year more and more students suffer from this and cannot overcome the obstacles that student loan debts create for them. If we consider the fact that millions of dollars are taken by students annually, it is no surprise that there are student loan scammers who are indeed trying to get your money. In the last decade, the number of student loan scams increased rapidly. It became common for students to get deceived by those scammers. Even the Consumer Finance Protection Bureau was involved in the situation and gave several warnings to students regarding the matter. 

Every student who suffers from high loan debt searches for optional ways to compensate. Sometimes, the second party that they rely on turns out to be a fraudulent organization. That is why, it is best to cooperate with only legal entities to solve the issue. In this guide, we will deliver information about common student loan scams and give you some tips on how to identify a scammer whenever you face those situations. Before that, let’s briefly explain what you need to know about the student loan help. Then we can move on to analyzing the common student loan scams that are currently happening.

Student Loan Debt Help- What are the Essentials?

Before we analyze the various student loan forgiveness scams, it is better to give clarification about loan debt help. There are lots of companies that are using various marketing methods to reach out to students who are dealing with student loan debts. You can frequently see the pop-up ads on Google, Facebook, and even in your mailbox about those companies. Most of those advertisements are so natural. As you read the context, you become satisfied with their service and try to sign up or call for getting more information. 

Before you take any serious action, keep in mind that none of the students need to pay for third parties while trying to solve the federal student loan debt issues. In private student loans, the case is a little bit different than this. However, if you have a federal loan, you can apply for forgiveness programs by yourself. It is a matter of choice for students. The process is harsh, and it takes time for students to get loan forgiveness. Cooperating with professionals is a great way to handle the case. However, you need to be careful about those companies because they might be student loan scammers. Before losing any hard-earned money, keep in mind the following points for further notice.

Who Has the Authority for Solving Federal Student Loan Debt Issues?

Student loans dot gov is giving free opportunity for students who have federal loans and want to apply for any of the available repayment programs.

Debt relieves companies do not have the right to negotiate with the creditors regarding the federal student loan.

Debt relieves companies cannot solely reach to the better deal with creditors in federal student loans.

Federal law is the one party that set the programs such as Pay as You Earn, student loan consolidation. Besides that, they set the payment amounts, requirements for paying back the loan, and qualifiers for loan forgiveness.

It may sound confusing, but we will get over it as we expand the context of student loan scams. Although the federal government is the one organization, who is in charge, that does not necessarily mean that you cannot pay for someone to do all these things. It is perfectly fine to cooperate with the right companies to solve the issues. 

Most of the time, students get confused by the registration process for loan forgiveness or consolidation programs. That is the major reason why they want to get professional help. We are not saying that all of those companies are scammers, and you should not believe any of them. Instead, we are trying to help you in getting more information about the common student loan consolidation scams and identify them whenever you face those types of actions.

Some of the Warning Signs to help you About Student Loan Scams

Advanced Fee

Advanced fee scam is one of the commonly used methods to deceive students. In this scam, the company which is the scammer tells you that they are ready to help you with the interest rates. Those scammers are arguing that they will make loan repayment terms easier than ever. For those services, you asked to pay a small fee before they start working on your loan. The value of the fee may vary from one to five percent of the initial loan. It can also be a flat-rate fee, which can cost you around 1000 dollars. If you come across with the companies that offered the same type of service and fees, just run.

It is unacceptable to pay for getting money back. Prior to the service, you should not pay a penny for those companies as most of the legitimate student loan companies for both federal and private student loans are not requiring any fee upfront. If they ask for any fee, then they will do it by cutting the amount from the disbursement check, or they add the amount to the initial; repayment period. Generally, there are two types of fees that you can encounter during the process. Nevertheless, none of them should be asked or paid beforehand.

What are the types of fees?

student loan scams

For those of you who have student loan debt from the federal government, you need to be informed about the 1% default fee. For private student loans, the companies are asking for either the origination fee or disbursement fee.

In cases where you cooperate with the third-party company, they can ask for a fee, but the payment method of that amount would be like this. You and the company that is going to solve the issue are finding out another party for payment. The fee amount is transferred to that party’s account, and only after the loan relief company helps you to sign up for the respective loan forgiveness program, they can take the money from that other party’s account.

You need to find the company that is stating that they are only taking the fee after you successfully made your first payment with the new repayment program. In 2018 the new type of student loan scams had emerged as the companies used the fee method again. In this new method, the third party scammer company offers you another loan instead of charging you for a direct fee. Most students do not understand the process fully and agree on the terms and conditions. After the fall on the trap, they realize that they have another loan to pay, and there is no way for them to escape from that debt amount.

So, the bottom line is that whenever you decide to cooperate with the third-party company who will work on your student loan debt, make sure that you fully understand the pricing process.

Student Loan Consolidation Scams

After you graduate from the university, it is a good idea to consolidate the loan. Unfortunately, loan consolidation is another area where the scammers are trying actively to deceive the students. The most common sign about the student loan consolidations scam is where the company charges the student fee for their services, but in reality, they do nothing besides stealing the money. 

The fee that they ask from students is called consolidation fee, processing, or administrative fee. If you owe a federal student loan debt, keep in mind that there are no fees or whatsoever in the consolidation process. Though, if you own a private student loan, then you can find credible companies who are specialized in this area and work with them to solve your issues regarding the student loan debt consolidation.

Law Firm Lawsuit Scams

Law firms are another way to scam students. In this case, the law firm that you go to states that they can settle your student loan debt. There are various ways that these law firms deceive students. The most common way is the cooperation between two scammer agencies. For example, you, as a student, go to the student aid company, and they advise you to get help from some law company. They also argue that a specific company can help you to deliver the same results by paying less money. After you agree on terms and conditions with the law company, the agency asks you to pay your student loan debt (annual) to their bank account so that they can negotiate with the loan lender.

Most frequently, the particular scammer law firm does not make any payment while negotiating with the lender. So, your loan debt goes into the default. It is not the only drawback that you will experience from those scammers. As they took thousands of dollars from you, your credit score will get worse. Therefore, you will leave off with additional debts. As you have a bad credit score, there will be no chances for you to consolidate the loan debt with credible agencies. So, before you make any serious meeting with the law companies, make sure to check the background and be hesitant if they ask for fees.

How to spot the scammer?

There are several conditions where you need to be suspicious about the possible student loan scam. Let’s separately discuss them.

The first case is where the company ensures that you will get the complete student loan forgiveness. For instance, they argue that they use the Obama student loan Forgiveness program while such a program does not exist. You need to be aware of the legitimate federal loan forgiveness programs prior to that. For instance, the Public Service Loan Forgiveness (PSLF) is a federal program that helps students eliminate or reduce loan debt after a particular time frame. 

Though, not all the students are qualified for this program. There are certain conditions that should be met to enroll in this program. Other than that, there are various programs such as income-driven student loan forgiveness, income share agreements, public service loan forgiveness, and more. The key here is to know whether or not the program that the possible scammer agency exists or not. For instance, if they argue that they will use the PSLF, you need to be aware of the conditions and check your status on official sites to see whether or not they are lying.

When the Salesperson is insisting on signing up 

DeVry lawsuit

Another condition where you need to be suspicious about the legality of the company is when a salesperson tries to convince you on signing up to their portal. The sales representatives of the companies are getting certain percentages of the student loans whom they can convince to sign up with their company. They use sentences that instill a sense of urgency for a student like “this is the last chance to apply, or else you will lose the chance, “etc. In reality, it is not working like this. There are no legitimate student loan forgiveness or consolidation programs that expire that fast.

That is why it is recommended to do deep research about your student loan debt, your status, eligibility, and such aspects. To spot the scammers who are trying to get you to sign up, you need to ask some questions. For example, ask them whether or not they are associated with official branches of the federal government, such as the Department of Education. Ask them whether or not you can do that service on your own without paying any money. Honest and legal companies will tell you that they are not associated with the official bodies. In addition, they will inform you that it is possible to do it by yourself. On the other hand, scammers will try to convince you that they are the only choice for you if you want to get rid of the loan debt.

You get asked to share the personal information

It is another way that you can spot the student loan scams right away. Some fraudulent agencies may ask you for personal information regarding your FSA ID or security numbers, passwords. They state that while logging to your account, they will try to solve the issue. However, none of the legitimate companies or governmental bodies ask for this type of information from students. For example, we can take the affiliated nonprofit counseling companies with the NFCC. 

Some student loan scams use the power of attorney contracts as well to attract the customers and deceive them. This contract allows them to directly get in touch with the student loan lender and speak to them on behalf of you. To protect yourself from these types of incidents, you need to keep your FSA ID in a safe place and never sign the power of attorney contract.

Social Media Advertising

As a student, you need to be skeptical about the companies that use digital marketing services such as PPC advertising, display ads, and so on. If you encounter such a situation, keep in mind that paying for ads in these types of cases means that the organization seeks profit rather than help. As we already mentioned, you do not have to pay for consolidating federal student loans. That is why those companies may mislead you and take your money by using this type of student loan forgiveness scams. 

There were several instances where the officials tried to stop those companies.

For instance, in 2015, for CFPB loan ombudsman R. Chopra took action. Rohit wrote a letter to Google saying that some fraudulent agencies are misusing the system. He added that those companies are aggressively advertising the services that they cannot handle in reality. There are various forms of those scams, and another one is happening by stealing the Personal information of the students. For instance, you enter the website which claims that they can help you with loan debt. Those sites ask for sensitive information regarding you and your loan. After they acquire the information, they will sell it to third-party companies. 

How can you protect yourself?

It is better to be prepared for these situations if you want to avoid them. Students need to research the advertisements and the sites that are behind those ads. You should never share or write down your personal information in any of those sites for safety purposes. Be careful about the online forms because they can also be the partners of student loan scammers.

How can you Report Student Loan Scams?

It is another issue that most people are concerned about. If a student encounters the fraudulent actions by some student loan company, they need to file their complaints with the FTC, their state attorney’s general office, and FTC. These agencies will evaluate your complaints regarding student loan scams, and when they see any misconduct, there is a possibility that you can get your money back.