Top Student Loan Scams

Student Loan Scams

With billions of dollars being loaned to students each year, there is no doubt that there are scammers trying to get your money. Here are some common scams that are happening right now that you should be aware of when looking for student loans.

Advanced Fee Scam​

This scam involves a student loan company that tells you they can get you the "best" interest rate and loan terms, but you have to pay a "small" fee up front for this service. The fee can be anywhere from 1-5% of the loan amount.​

If you come across this offer - RUN! There are no circumstances in which you should have to pay money to get money. Legitimate student loans, even from private lenders, do not require any fees up front. If there are any fees, they are deducted from the disbursement check or they are included in the repayment amount and are amortized over the repayment period.

There are two common fees that will be paid with the loan, but once again, never up front. Federal student loans charge a 1% default fee, but charge no origination fees. Most private loans charge some type of either disbursement fee or origination fee, but these are usually negotiable and vary widely from lender to lender.

Loan Consolidation Scam

After you graduate, it might be a good idea to consolidate your student loans. This is another area that is ripe with scams. The most common student loan consolidation scam is one in which the company charges a consolidation fee, but actually does nothing. The fee is sometimes called processing fees, administrative fees, or consolidation fees.

If you have a federal student loan, there are no fees whatsoever for student loan debt consolidation.

If you have a private student loan, there are only FOUR lenders nationwide that offer consolidation loans. The companies are listed on FinAid.org, which is sponsored by the US Department of Education to help borrowers navigate the student loan process.

Finally, if you are considering consolidation, make sure you read our guide on The Right Way To Consolidate Your Student Loans.

Student Loan Debt Elimination Scam

​The important thing to remember about student loan debt is that it must always be repaid - it cannot be eliminated unless you have a federally qualifying reason (death, permanent disability, school closure, falsification of documents or identity theft). If you come across a company that promises to get your student loan debt eliminated, it is a scam!

If It Feels Like A Scam - Make Sure You Protect Yourself!

It's important to remember that if it feels like a scam, it probably is a scam.

But too many times, you get that feeling of being scammed AFTER you gave them your Social Security number, or FinAid login, or some other information.  Don't fret, just protect yourself.

Simply head over to Credit Karma and get a free credit report and monitor your credit.  If anything strange happens, you'll be the first to know.  Check it out: Credit Karma - and it's truly free!​

Secure Application

However, there are times when it's not a scam, but it just seems like one. For example, I get a lot of readers asking about the FedLoan Servicing Scam. FedLoan isn't a scam, but just a poorly run student loan servicing company. Another one I get asked a lot about is NelNet, especially when it comes to their KwikPay Service. Once again, not a scam, just a poorly run program.

I hope this helps you navigate the world of student loans a little better and avoid getting played. If you want to know more, don't forget to check out my Definitive Guide to Student Loan Debt.

Readers, have you ever been the victim of a student loan scam?

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Comments

    • says

      No I don’t. There is no central hub that tracks this, and the scams usually fall under labels like “Identity Theft” or “Fraud”. However, with student loans dispersing close to $100 billion per year, you know that there has to be more victims that you think.

  1. says

    I have fallen victim to a student loan scam. I had an outstanding loan that I was making payments on. I wanted to go back to school but I was unable to get funding aid while I still had my outstanding loan. I received a letter in the mail claiming I could have my student paid off and added to a credit card. I could then make payments on the card. They even offered me more credit on top of that.

    Well they sent me a Mastercard, added the loan to my balance, but never paid off the original loan. The student loan went into default and it was a big mess to clean up after.

    Moral of the story is stick to only to well known government back type of help when it comes to student loans.

  2. Melissa says

    I received a letter in the mail from a place in Orange, CA that called themselves Student Processing Center. Has anyone heard of them. They promised that they would consolidate my loans, after completing my associates degree in nursing, my bachelor’s degree in nursing, and halfway through my masters degree, I owe $51,000. They said that, based on my income and family size, they could decrease my payments to $30 per month, and after 25 years, whatever is left would be written off by the dept. of education. They said they require a fee of $599 up front. It sounds too good to be true. I asked if they were part of the DOE or a third party. The guy, “Kevin,” with whom I was speaking said they were a third party, but I would receive a contract and all the paperwork in the mail. However, I had to pay $599 over the phone before any of this would take place. I checked for this company on the BBB website and found nothing. Anyone ever heard of them? He said their website is StudentProcessingCenter dot com. I looked at it, but, like my husband said, anyone can build a website.

    • says

      Melissa, it’s not a “scam” in the fraud sense, but it is a scam in the waste of money sense.

      Companies like this simply charge you a fee to get you paperwork you could easily get yourself.

      For the student loan consolidation stuff, check out my recent article on the subject: http://thecollegeinvestor.com/11616/consolidate-your-student-loans/

      For the repayment options, check out my ultimate guide on student loan debt and learn the options you qualify for: http://thecollegeinvestor.com/the-definitive-guide-to-student-loan-debt/

      To change repayment options, you simply call your lender and don’t have to pay anyone!

      • LogicSpeaks says

        So I guess same question as above, since this isn’t a “scam” in the fraud sense, then if I didn’t agree to pay them anything (however gave them too much personal information) does it mean they can still screw me out of more money at this point? Should I create a new checking account number? I almost embarrassed to call my self LogicSpeaks……… but hey, probably have to fall for a scam at least once in your life? :p

        • bhansen3 says

          I just gave them entirely way too much information myself and then had a small panic attack after i got off the phone, did any of your accounts get compromised?

      • Andrew Dolan says

        The same thing happened to me. I just talked to the Student Processing Center today and told them my information. They said my monthly bill would be $29.99. Now I am having second thoughts about this. The contract said that you have up to 30 days to cancel the contract. I don’t know what to do, I am feeling nervous about getting screwed over by them. What can I do about this? Has anyone been able to successfully to get out of this??

        • Andrew Dolan says

          Also, I electronically sign the contract, only one of them and not the second one. I called back tonight and told them I want to cancel and I was told that the manager will call me tomorrow with more information about it. So I hope I’m not locked in to much yet.

          • says

            Hi Andrew,

            Basically, you’re paying them to make a phone call and fill out some paperwork for you. Is it worth a few hundred dollars? Not really – you can do it yourself in the same amount of time you spent on the phone with them.

            I would take the money you’re paying them and put it towards your student loans.

        • Andrew Dolan says

          Thank you, Robert. Do you think I will be able to successfully get out of this thing without anything bad happening to me? I’m a little nervous and I’ve hopefully learned my lesson.

  3. David Diaz says

    My fiance is working with a company called nationwide student loan, they are supposedly going to be able to consolidate her student loan debt by making payments of $133 for 6 months.Once 6 months of payments have been received they will qualify her based on her income $0 for 12 months and will apparently continue that process until the loan company for fill debt. Is this real?

  4. SteveLen80 says

    I wondered the same.. they want $599 up front to process an application with 2-4 months of skipped payments though.. i opted to go through studentloans.gov much of the same info is entered, though the terms of repayment dont seem quite as long, though maybe thats not until you get the info from the new servicer, in my case nelnet and its free to try

  5. Daniel Arturo Bahena says

    Does anybody know anything about the Student Loan Support company? I called them at (866) 233-8481 ext.422 to get information, and it all seemed too good to be true. I couldn’t find anything wrong with it, but I also don’t feel like it’s legitimate. I need to know if anyone has had experience with Student Loan Support in the past. Please offer your experiences. Thank you.

  6. cody says

    I recently started dealing with studentaidcenter.org I found them on Google and contacted them. they are not requiring me to pay anything but they consolidated my loans and because of my income they dropped my payments to $100 a month and after 20 years anything that’s left will be forgiven by the government. I haven’t made any payments yet and also don’t want to give them too much personal information. Is this a scam?

    • Barbara Davidson says

      I spoke to a company National Student Loan Relief Center and they want 625 in 4 payments and they would get my student loans forgiven. They checked with studentloans.gov for my loan totals and what they could do for me. I worked 20 yrs with a public non profit state agency. My loans are not going down due to interest. But when I check with studentloans.gov the same payment plans come up but not the forgiveness that the company promises. I was advised they are a 3rd party not affiliated with the department of education and I am paying for administrative work to complete the process. When I asked is this for sure the loans are forgiven Alexandria said yes I have already been confirmed that all payments would be 0 income based. Is this for real or a scam.

      • says

        They are charging you for something that you can do yourself – your last line says it all: they are going to change your repayment plan to IBR (Income Based Repayment). On this plan, your payments could be $0, and after a period of time (typically 20-30 years), your loan will just be forgiven. However, there are tax consequences from this, but they could be minor.

        You can set that up yourself, just call your student loan servicer.

        Don’t pay them to fill out some paperwork for you.

    • says

      If it’s a company that wants you to pay them for a something, be aware. You should never have to pay to get your student loan payment plan changed, to get student loan forgiveness, or get deferrals, and more.

  7. LogicSpeaks says

    Greetings, so overly excited idiot me gave way too much personal information to Student Processing Center, however they asked for 599.99 and I stopped. They even ‘lightly’ pushed for me to borrow that 600$ from someone else. I said no I can’t afford it so I just let him go. I don’t think I’ve ever fallen for a scam before… I know down below you said this company isn’t exactly fraudulent, they’re just charging you money for something we could do ourselves (now I know). Will this company screw me with any fees? or are they legit in terms of not doing anything until you agreed on it? I’ve changed my Student aid PIN on FAFSA.ED.GOV Should I call my bank since I idiotically gave them my routing/account number?

  8. April Williams says

    Please tell me if USLPR government program is a scam. These people have all of my information. I called 1.888.609.6997

    • says

      Once again, they are not a “scam” but you’re paying for a service you don’t need and you could probably do yourself by calling your lender.

      You don’t need to pay to reduce your payments, change your payment plan, or get consolidation. All of those can be done with a simple phone call to your lender and filling out some paperwork.

  9. RAW says

    I recieved info from student processing center and gave them my SS# and, email, and they accessed my Fin Aid pin. When they mentioned I would them $599.0 to get the process started and it would be few months before I would have to pay anything I said I needed time to think about it. Should I be concerned about the info I gave them? Is this a serious scam? Im very concerned now.

    • says

      You shouldn’t be concerned from an identity theft standpoint beyond simply being vigilant like you normally should. However, I wouldn’t pay them as you can simply take care of everything they will do for you by yourself. Don’t spend the money.

  10. John says

    I’ve recently been working with a guy named Andrew Reyes at “Student Loan Exchange”… their website boasts a lot, and they look legitimate. I set up a payment plan that was supposed to be a “pay for 10 years, and the rest is forgiven” kind of deal. He said it would take 30-90 days, but nothing has been done and it’s been over 90 days. In the mean time, per his advice, I have been withholding payments for 3 months. FedLoan Servicing has been contacting me about these missed payments, and I’m worried I’ve been scammed.

    Is Student Loan Exchange a scam? My “loan officer” has my SS# because I was an idiot and I trusted in what I thought was a legitimate company. http://www.studentloanexchange.org.

    Any thoughts or advice?

    John

    • says

      I’d be concerned because they haven’t done anything for you in the 90 days they said, and FedLoan doesn’t know and is asking for payments.

      You should never stop making payments – and you can do all of this yourself by simply calling FedLoan.

      I would check your credit to make sure no damage has been done. See the box above for Credit Karma.

      • John says

        Thank you. The only thing that kept me on the hook is that Andrew was very quick to reply to emails, return phone calls… they have a very professional looking website, calling center, etc. I feel pretty stupid to be honest.

  11. nando says

    I signed up with Student Loan Support. They are on the bbb website with a D- rating. They have a address that was the same on my email as it was on the bbb site. I have to pay a starting fee which im fine with as long as the company is legit. Could anyone tell me if this is a legit company?

    • says

      I’ve never heard of it but I’d be concerned by their BBB rating, as well as having to pay a fee.

      You could have done everything they did for you simply by calling your lender. You are paying them for something you could have done.

  12. John Peacock says

    Does anyone know if nationwide student aid is a scam??? I was set up for my payment plan and have been making payments to fed loan servicing company. My loans were consolidated but the individual loans have not yet come off my credit report. My original amount due was 65,000 and now on my credit report its 135,000 bc the consolidated loans are on there… its been about 4 months is this enough time for the non consolidated loans to come off my credit report or does it take longer than that.

  13. Andrew Dolan says

    Is there any other things I should make sure to do or get from them to seal my termination with them for good?

  14. C OLaughlin says

    I met with a credit advisor (in person) to help clean up some credit stuff on our reports. He suggested using a company to consolidate our loans into a program that some have basically described above. We pay 699.00 and they consolidate my loans to where I only pay 33 bucks a month versus the 300 to 400 Nelnet has me paying and after 25 years the loans are forgiven. I understand I could fill out the paperwork myself and I’m, in essence, paying him to do so for me, but my question is more on the forgiveness part and the monthly payment of 33 dollars. I’m a firm believer in that if it sounds too good to be true, it is. It seems surreal that I would qualify for this. Is this something that my credit could be hurt with? Is this a real program?

  15. Tomas alvarez says

    i recive a letter, i contact them we talk about i give him my information as a soon i told him i work in a bank he hang up on me… now im getting second tough , it student processing center a scam?

  16. carole Taylor says

    I received a card in the mail stating “Student Loan Consolidation & Payment Reduction Program Prepared for Carole Taylor”. It continued saying that due to your loan balances totaling over $21,000 you are now eligible to receive benefits from a new law that has passed regarding federal student loans including TOTAL FORGEVNESS in some circumstances and they work on behalf of the Department if Education. I called and was told that since I have been paying my loan in full for more than 22 payments and I currently am employed full time in the public service area I can receive loan forgiveness. can you tell me if this true? in todays world I am skeptical as I am sure most are. any advice would be helpful.
    Thank you
    Carole

    • says

      Hi Carole,

      I’m sure they want to help, and their mailing campaign sounds appealing. But read the bottom of their website (best disclaimer yet): “Student Loan Education Center offers private, fee based application assistance services to assist consumers in applying for government offered programs. While such programs may be available for free directly by various government agencies, our services are fee-based and focused on application and document preparation. We do not charge fees for access to such programs, only to prepare and counsel relating to such applications programs.”

      Once again, you could do this yourself – they are going to charge you to simply fill out the application…

  17. Erin says

    This is the place that scammed me.http://www.studentloansupport.us/ They literally called me very single day, multiple times for about 5 months from different numbers yet I still gave them my credit card info? Yes I am stupid but I thought it was legit. THANKFULLY they did not get any money out of me because my bank closed my card down because they noticed RIGHT after I gave them my info from my brand new card I had gotten just days before that it was being used in other states and online. Ugh I am so mad but oh so thankful they didn’t get my hard earned money.

  18. Heather says

    I got something in the mail from student processing center, and called them today. They offered the IBR plan that I had looked into on the FedLoan website, but hadn’t done because my loans are now in forbearance and I was concerned about the law changing someday and I’d be stuck with a large amount of interest from doing the IBR. Student processing center made it sound like I would be “grandfathered” into my payment plan (which would have me paying about $7,000 total after 20 years instead of my actual $49,000 debt). What I’m wondering is, if I decide to just do the IBR payment plan on the actual FedLoan website rather than this student processing center deal, will I be “grandfathered” into this as well, and able to have my debt forgiven after 20, 30 years? Or could I suddenly be subject to a law change and be stuck with even more debt due to added interest? I was pretty excited about this opportunity, but I would have to end up borrowing the $599.00; but if its actually not a scam and they could have me “grandfathered” into this whereas with FedLoan IBR I’m not and perhaps subject to possible changes someday, maybe it would be worth the $599.00?

  19. Ak says

    Can you clarify the taxation on the IBR loan forgiveness program? I have 80,000 in loans. The loans are 3 years old. I qualify for a $0 monthly payment under IBR. My understanding is that interest accrues and unpaid interest is capitalized quarterly. Does this mean that in 20 years the loan will be huge, maybe $500,000? Assuming my income remains low (under $20,000) and taxation policy doesn’t change, how much taxes would I owe?

    • says

      Yes, any interest that is capitalized into the loan and is forgiven is taxable. So, let’s say that your current loan is $80,000 and you never pay it for the full 20 years. You didn’t say what your interest rate was, but I’m going to assume 6.8%.

      You loan balance would be $80,000, and you would have capitalized $54,400 in interest, for a total forgiveness of $134,400. You’d owe ordinary income tax on that balance, which at the current rates would be roughly $33,000.

      You could then setup an IRS repayment plan on this lower amount.

  20. Steve says

    Rob,

    I have been scammed. I did sign the service agreement about 1 and a half years ago and have realized after a year that what I thought was happening was that the monthly service fee was being tacked on to my monthly payment to my loan company which i thought was going through them. But what they are doing is charging me $40.00 a month and I pay nelnet.com on my own. So I did ask them what they do. They told me they provide a service that stays with the loan until it is forgiven. It did not make sense. So I am being charged money for them to do nothing. They handle no money for my company, they handle no loan or deal with any moneys that pay off anything. So if I make changes to my loan or make all the payments, what is the $40.00 a month going to. Nothing – they do nothing. They did file paper work and get my loan going for me, which i could have done myself. But they were handsomely paid for that service. $285 twice to join the different programs they offer plus $40.00 a month service fee. But in the end, when I tried to get out they said there was no way of getting out. I hired them and they are attached to the loan until it is paid off or it is forgiven. My question was I do not like your service, you have been paid for every piece of work that you have done plus some, why can I not get out of their service. I am going to a lawyer concerning this. But if i ask a financial consultant to watch over my money and after a year of me paying them I decide to go to someone else – then I should be able to. My service agreement says no where that I am locked in forever, but it says I just need to have in writing that I am terminating their service and not to deduct money from my account. But the person on the phone said other wise. SO I am not sure who to believe here or what to believe.

  21. April says

    I received this information from someone who is telling me how their student loans were forgiven and I should try it. I just don’t know if this is legit? And don’t get how the amount is paid off?? What do you think This is what was sent to me :
    Her name is Jess Myers and basically she gets your info and see what u qualify for for example my loans were 14000 and my approval was 11,188 so now I only owe 3000 and make 10.00 payment for 300mo span first payment not due till March, now there is a 3payment fee of 239. For then consolidating my 5 loans to 1 and looking as if I paid off 14000 in loans so we know what that does to credit right, everyone is a bit different but call her she will give u the whole breakdown.

  22. Kimberly Eastman says

    I was just contacted by student processing center and they said that I qualify for government her to help with my student loans. But they do not mail anything and would not when I requested information. He wants me gov pin for my loans or my ss number. I need the help with my loan but I am not going to just hand out my ss number over the phone with out really checking them out. He said that it only costs $500 for processing the paper work and I could make payment over the next 5 months. Please help!

    • says

      Don’t do it. You can call your lender and do everything they say yourself. You are basically paying $500 for them to fill out a form for you. You can fill it out yourself for free! Just call your lender and get it!

      Do you really think that they should call you and not the other way around? Why would you trust someone that calls you out of the blue?

  23. Edie says

    So I received a call yesterday, I think it was from something I filled out online off of facebook about seeing if you qualify for student loan forgiveness. I was transferred several times after answering several questions about my loans. Eventually I ended up with someone named Jack Howard from studentadvocates.us, he requested my PIN number for fafsa and my ss#. I was hesitant to give it to him, then he sent me an email with a link to the website and it looked legit. I did give him the info and now I am thinking that I shouldn’t have. He said I qualify for IBR and loan forgiveness as a public servant after 10 years since I am a hs teacher. It seems so confusing, and concerning that they want to charge me almost $500 to sign up for it. I went on and changed my fafsa pin after speaking with him. Should I be alarmed that they have my SS number? Have you heard of this company or any other fraud associated with them. I did check their LLC with the state of California and they are licensed. Just really losing sleep over that temporary lapse of judgement, any insight would be appreciated. Thanks.

    • says

      I wouldn’t be alarmed – they are just a company trying to get you to pay for a service you don’t need. Yes, you might qualify for IBR, but you can change your repayment plan yourself by simply calling your lender and filling out the form. You are basically paying them to file your own paperwork for you. It’s a waste of money. Just monitor your credit to be safe, but don’t lose sleep over it.

      Here’s an article on the plan the guy was telling you about: http://thecollegeinvestor.com/11856/secret-student-loan-forgiveness/

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