One of the most frustrating questions I get everyday (seriously, everyday), from readers is: Is this company that's saying they want to help me with my student loan debt a scam? Is this a student loan consolidation scam or legit company to work with?
My answer? If you're even asking me, it means you went online, searched the company's name, or found my article on Student Loan Scams, and it raised a big red flag. That should tell you something right there.
There are many scams out there, and the CFPB, along with multiple government agencies, have issued warnings to be on the lookout. However, there are some good players out there as well. It’s important to do your homework and know what to look for so that you can make a smart choice.
Note: You never need to pay a third-party company to help you with your student loans. You can always do it yourself by going online to StudentLoans.gov or calling your loan servicer. If you choose to pay a third party company, make sure you read this article in-depth and fully understand what you're paying for before moving forward.
If you're not quite sure where to start or what to do, consider hiring a CFA or CFP to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.
Is It A Scam, Unnecessary, Or Do You Know What You're Getting?
First, I want to clearly distinguish between scam companies, companies who are charging you for unnecessary services, and companies who are up front about charging you for a service you’re interested in.
Scam companies are student loan assistance companies who charge you for a service and then never do it, or don’t do it 100%. For example, the firm might advertise ‘student loan forgiveness’ or ‘lower student loan payments.’ They charge you hundreds of dollars and say ‘they’ can do it but in reality don’t actually do anything at all. You pay the money, the firm does nothing at all and is shut down 6 months later. This is a scam.
However, there are legitimate student loan assistance companies that simply charge you for services that you can go do yourself for free. For example, they might advertise student loan consolidation, and charge you to consolidate your student loans – even if you don’t need a consolidation, or a consolidation is not right for your situation based on the programs available you! This is what's known as a student loan consolidation scam.
But, remember, student loan consolidation is a free service offered by the Department of Education and you can sign up and do it yourself for at StudentLoan.gov. If you did use a company, you would need to make sure that they know (but this is what you would pay them to already know!) which loans, if any, need to be consolidated. It is possible to make your situation worse by consolidating!
Just like doing your taxes, it could make sense to do it yourself, or it could make sense to pay a CPA. Like taxes though, you need to make sure you have the right CPA or you could end up with problems you didn’t have before. You need to decide for yourself. Just realize that you have options. If you do decide that you don’t want to deal with it and paying someone makes more sense for you, you can see some of our recommendation at the bottom of this article.
For student loan consolidation, read out guide on The Right Way To Do Student Loan Consolidation.
The Most Common Student Loan Scams
There are several different types of student loan scams, but the most common is a variation of the advance fee scam. This is where you pay for a service (in this case something to do with your student loans) but the company never does any work or produces any results for you.
When it comes to student loans, the scam typically unfolds something like this. The company is offering student loan forgiveness, a lower payment, or consolidation. In exchange for doing it for you, you just have to make 3-6 payments of $199. Once they’ve received all your payments, you’ll be set, right? In the meantime, all they will do is set your loan on forbearance so you won’t have to make a student loan payment. This is not enough.
The problem is, these scams usually involve the company taking your money, your student loans remain in forbearance for months or years, and the borrower finds out that the forbearance has expired and that nothing was done.
If a company is going to put your loans into forbearance, make sure you follow up and know exactly why, for how long, and any action that is being required from you during the process to keep thing progressing. Forbearances should only used if absolutely necessary and only for a very limited time as a buffer while the borrower is being submitted and approved for the different programs available to them to enhance their loan situation.
Don't think this kind of thing is happening? It's gotten so bad that the Consumer Finance Protection Bureau has asked Google to step in and filter results around student loan debt and prevent advertisers from advertising topics like Obama Student Loan Forgiveness.
Dealing With Student Loan Relief Fees
Remember, student loan consolidation can be done for free at StudentLoans.gov. Paying a fee for help with your student loans may not be necessary for you, just like you may want to do your own taxes yourself, but just paying a service in itself for what they offer and fulfill is not a scam. It’s only a scam if you pay for a service and the company does not do what you paid them for or if they mislead you on the services you paid them for. Working with a company, like the ones recommended below, can be useful if you don’t want to do it yourself, or would prefer it to be done by true professionals who can ensure the loans are consolidated and managed properly.
If you’re going to pay a company to help you with your loans, you should know specifically what you’re paying them for. You are paying them to help you decide what the best repayment strategy are, and which forgiveness options are available for YOUR student loan debt, then to manage and process the paperwork on your behalf, on time, and in the correct order. There are very few companies that exist today that are successful at this process due to the dynamic complexities currently impacting the student loan industry – there are countless loan types, programs, and qualifications that make the entire process difficult.
A legit company will charge you an amount, but should put that amount into a special third party account and only get paid when they have successfully completed the work. Since paperwork processing and submitting takes time, it could be a 3-6 month process, or longer. As such, while you might pay something up front, it should be clear to you that this money is going into an third party account and you would get it back if the work is not completed.
Big Student Loan Scam Red Flags
If you have this happen to you, it's a big giveaway that you are likely going to be scammed, or at least asked to pay for something you are not getting.
Forbearance – Putting your loans into forbearance should only be used for very specific situations and on a very ‘as needed’ basis – it’s not a blanket approach and not the solution. If your loans are going into forbearance, make sure you understand why.
Stop Making Your Student Loan Payments – No company should ever tell you explicitly to not make your student loan payments. Always pay the minimum on your statement.
Pay Us, Not Them, We'll Make Your Payments For You – big red flag, just shady having someone else make payments on your behalf. What are they hiding from you?
Did They Contact You Using An Auto-Dial System (or Robo-Dialer)? – If they contacted you and you ‘pressed #1’ to be connected, this is a big red flag and the company is most likely breaking the law. Run! Specifically, be aware of marketing pieces with government seals that have your financial information splattered all over it. Example would be, ‘Your student loan of $56,987 has been Pre-Qualified to be forgiven!’ If you see this, run!
Any Company Claiming To Be Working With The Department Of Education – None of these companies work with the Department of Education, and the Department of Education will never call you. All correspondence with them will be via mail, so don't fall for anyone telling you this.
How To Research The Company
The best way to protect yourself is to research the company before you do business with them. There are a few places to start.
First, look on the basic list of known companies to watch out for. We call out several companies that have been known to charge for services that are not needed on this article about Not Paying For Student Loan Consolidation. Also check out our Student Loan Scams forum to see if any other readers are discussing the company that has solicited you.
NerdWallet also maintains a list of companies to watch out for.
Second, check and see if they are just a document processing company where you are still going to have to do the work yourself at the end of the day. Avoid document processing companies, as these companies don’t provide any financial help, are not licensed or bonded, and simply charge you large amounts of money to do paperwork that may not even be accurate, and which you can easily do yourself.
To know for sure, they must list it on their website or disclaimer. Many student loan companies opt for this because the other option is to be a bonafide licensed debt relief company (which provides advice), but that requires special licensing in most states.
Here's an example of the fine print where a company admits to not providing financial advice and only act as a document processor:
Finally, trust your instincts. Student loans are very regulated and all of the possible ways to get help are specifically outlined by the Department of Education. There isn’t anything over the top special that any company can do for you, except a little education and convenience. If something sounds too good to be true, it most likely is.
Where To Get Real Help
If you want to get help for your student loans, make sure you’re taking the smart steps forward. The first and best resource available is StudentLoans.gov. This is the government’s website for student loans, and it’s where you can begin to educate yourself on everything from loan consolidation to repayment plans.
Next, you can call your student loan servicing company and see if they can assist you. If you feel like you're not getting anywhere with your loan servicer, you can file a complaint with the Consumer Finance Protect Bureau.
Third, as a last resort, you can consider enlisting the help of a student loan lawyer to look over your situation and see if they can help. Learn more about finding a student loan lawyer here.
You can also consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.
If you have private student loans, refinancing is typically your best option (As a reminder – we don’t usually think it’s a good idea to refinance Federal loans). We recommend Credible to compare different lenders and find the best rate and payment for you. It’s free to compare and only takes about 2 minutes. As a bonus, College Investor readers will get a $200 bonus when they refinance with Credible!
Beyond that, post a question on our Student Loan Debt forum, where myself or a member of the community will answer your question.