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.
This is one of the most common scams we find when talking about the debt relief companies.
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 a number of lenders who will refinance your private loans, federal loans, or both. Refinancing differs from consolidation in that rather than simply combining all your loans into one, you are actually taking out a separate loan with a new lender who pays off your existing loans. Credible is a comparison tool that allows you to fill out one form and see personalized offers from multiple lenders in the space. Going through any lender that Credible selects for you is NOT a scam.
Finally, if you are considering consolidation, make sure you read our guide on The Right Way To Consolidate Your Student Loans.
Law Firm Lawsuit Student Loan Scam
This is a scam where a law firm will claim to be able to settle your student loan debt. There are a lot of variations on this scam, but typically a borrower is referred to a law firm by a "student aid company". The student aid company promises that this law firm can settle your student loan debt for thousands less than you owe.
Many times the law firm will ask you to make your full student loan payment to the the law firm itself (or whatever amount you can afford to pay). The law firm says they'll then negotiate a settlement with your lender.
However, what typically happens is that this law firm doesn't make any payments while negotiating with your lender - as such, you go into default on your student loans. At that point, the law firm will then claim you can't pay your bills, and try to negotiate a settlement based on that.
What happens to you, as the borrower, is that your credit score is trashed, and you made thousands of dollars in payments to the law firm. In the end, there is no guarantee that you will be able to settle your loans. And even if you do, the process may take years, and you'll still have to deal with the settlement in the end.
If you're considering speaking to a lawyer about your student loan debt, learn about what a lawyer can do for 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!
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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.
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.
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