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.
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?