If you have student loans, chances are you've probably received a letter in the mail, saw an advertisement, or got a phone call from a company that claims they can get rid of your student loan debt, or at least negotiate on your behalf and significantly reduce your debt. It sounds too good to be true, right?
Before you sign up, these companies promise you the world. Then you start to get doubts. You may be getting letters in the mail or calls from your student loan servicer, and suddenly you realize that the unthinkable has happened- you may have been scammed.
As the expression goes “if it is too good to be true, it probably is.” And sadly, we receive countless complaints from victims every year on our student loan forums or posted in the comments of our student loan articles.
The student loan debt relief industry is known for making big promises that are short on delivering, and many of them charge a service fee for something you could have done by yourself at no cost. The rising rate of student loan aid scams has also earned the attention of the Federal Trade Commission (FTC), the Consumer Finance Protection Bureau (CFPB), the Department of Education, and the attorney generals of almost every state.
While there are endless free resources for saving on your student loan payments, some people might still find value in paying a third-party company for assistance with their student loans. But most people have no idea that they could consolidate their student loans or enroll in income-based repayment plans without the assistance of such companies.
Before you give your trust and money to student loan aid companies to work on your behalf, set aside some time to research how you can reduce your federal student loan payments on your own (and free of charge)!
What To Look For In A Possible Scam
Scams come in different varieties, but here are some of the most common ways student aid companies make promises that fail to deliver:
1. Promises To Eliminate All Student Loan Debt
Typically, you will receive a phone call or email, but you may also see online ads claiming that the company can erase all student loan debt. Many falsely claim that this option is now made available by a new government program or policy sponsored by U.S. President Barak Obama (read about what Obama Student Loan Forgiveness really is).
In reality, with the exception of death or total and permanent disability, discharging your student loans is near impossible. As such, any company claiming they can eliminate your student loan debt may be selling false promises.
2. The Company Requires Payment Up Front
The company will ask you for a fee up front, and they will claim they got great results for other clients. The Federal Trade Commission has deemed this practice in debt relief businesses illegal. Legitimate student loan relief businesses must not charge fees until the borrower has made a payment towards their newly negotiated payment plan, or a successful settlement has been reached.
That's why we recommend Ameritech Financial for the few people who do want to pay for student loan assistance. This company places all payments made by clients into a third-party escrow account, and the company itself only gets paid when the work is completed.
3. The Company Claims To Be Working With The Department Of Education
Despite numerous claims and statements, rest assured that none of these companies work with the Department of Education, and the Department of Education will never call you. All correspondence with the Department of Education will be via mail or via the secure mailbox of your loan servicer, so don't fall victim to a phone call asking you for your personal information or credit card information.
If you don't know who your loan servicing company is, check out our list of approved Federal Loan Servicing companies.
4. They Charge An Application Fee For Student Loan Consolidation
Student loan relief scammers offer instant help by consolidating loans and/or lowering payments. What these companies do is fill out paperwork for an income-driven repayment plan or apply for federal consolidation on your behalf, and charge you a fee even though you could do this for free.
Other companies may move your loans to a private lender with a higher interest rate. Many scammers will take your fee and then disappear. Save yourself the headache and money, and do it yourself.
Remember, you can consolidate your student loans or apply for an income-driven repayment plan for free at StudentLoans.gov. Just remember, if you're not careful, consolidating your student loans could be a problem down the road.
5. They Offer To Make Payments On Your Behalf
You shouldn't ever have a third-party company offer to make payments on your behalf - especially if they say something like "stop making payments to your lender and make your payments to us. Meanwhile, we'll negotiate with your lender."
What typically happens here is that borrowers stop making payments on their student loans, go into default, and ruin their credit. Meanwhile, the company that promised to help them has taken the funds and hasn't helped resolve the student loan repayment issues.
6. They Tell You To Stop Making Your Student Loan Payments
This is a common red flag when it comes to private student loans. A company might tell you to stop making payments on your loans, so that they can negotiate with your lender. What they're not telling you is that they want you to go into default, because it gives more leverage to negotiate.
However, there is no guarantee this will work. In fact, what typically happens is that the student loan borrower see their loan balance grow, has paid a fee to this company, and has ruined their credit score.
Did You Ignore Some of The Warning Signs?
Think back to your first contact with the student aid company. Did they reach out to you? How did they get your information? Where did you first hear about them? Did you see an ad on social media? Chances are, there were some red flags along the way.
If you were contacted through an auto-dialing system (also known as a “robo-calls”), there is a good chance the company is not observing ethical business practices.
Also, be on guard if these companies send you emails or direct mail with government seals that contains your specific financial information (for example, statements like your student loan of $85,000 has been prequalified for loan forgiveness).
These companies are not associated with the government, and they are falsely giving the impression that the mail comes from the government.
What To Do If You Don't Want To Work With A Student Aid Company Any Longer?
After reading this, maybe you want to cancel and not work with a student loan assistance company any longer. If that's the case, you need to work with the student loan aid company to stop work and stop payments.
Not all hope is lost. The company may do the right thing and process your cancellation. Call the company and ask them what the process is for canceling their services, which usually requires a written request. Sometimes, they will process your cancellation over the phone.
Be ready for the aggressive tactics you will experience with the customer service representative. Be firm, yet polite, and make sure that ALL fees are canceled, including monthly fees, maintenance fees, or enrollment fees. Write down the name of the representative as well as the date and time you called, and ask for written confirmation of your cancellation.
Also, if you gave the company your FSA ID or StudentLoans.gov password, change it immediately.
What To Do If You Believe You Have Paid Money To Scammers
If you are certain that you have paid money to scammers, you may need to take immediate steps to protect your credit card or bank account.
Contact The Credit Bureaus: The first step should be a call to the three major credit bureaus - Equifax, Experian, and TransUnion. Report possible fraud and put a freeze on your credit. Student aid scammers are usually more interested in the fees, but your personal information is still at risk of misuse if it falls into the wrong hands.
Contact Your Loan Servicing Company: You need to contact your lender and tell them what happened. Ensure they change any account passwords and information, and remove any power of attorney paperwork that may have been filed on your behalf. You should also discuss with them directly the best steps to move forward with your loan repayment.
Bank Issued Stop Payment For The Fees: If the scam involves an advance fee, you can try to get your money back or prevent losing more money by contacting your bank or credit card to stop the payment. You can report the transaction as fraudulent and it should prevent you from having to pay it. This is also one of the biggest reasons why we always recommend people to use credit cards, not debit cards.
FSA ID Protection: If you gave the company your FSA ID, you need to change your password immediately. You may also want to contact the Office of the Inspector General. You may also report the business to the Consumer Financial Protection Bureau via their online complaint site or by calling 855-411-2372. If you believe you are a victim of a student loan aid scam, you can also contact the Federal Trade Commission (FTC) and file a complaint with the FTC.
File A Complaint With The CFPB: You can report the company to the Consumer Finance Protection Bureau and they might be able to investigate the claims. Chances are this might not help with your individual case, but it could shut down a real scam company. You can file a complaint here: https://www.consumerfinance.gov/complaint/
File A Complaint With Your State Attorney General: Most state attorney generals have taken an aggressive approach towards student loan repayment assistance scams. Consider contacting your state attorney general and filing a complaint with the specific information.
It's important to note that you might not get your money back. And nothing might have been done with your student loans.
As such, you need to also get your student loan repayment back on track by calling your loan servicing company and setting up a repayment plan you can afford.
Where To Get Help
The first step is to learn about your student loan options, including consolidation, repayment plans, and forgiveness. StudentLoans.gov. the government’s website for student loans is one of the best resources to learn about your student loans.
If you want to pay someone for help, make sure you thoroughly research the company, their service, their history, and what people are saying about them. If you want to pay for help with your student loan debt, I recommend Ameritech Financial. You can call them 24 hours a day and talk to them for free: 1-866-863-3870. You can also get information on their website here: Ameritech Financial. We have vetted this company and can verify that they are a legitimate student loan repayment assistance firm.
To get free and valuable guidance about your student debt, read some of our most helpful blog posts here and check out our free Definitive Guide to Student Loan Debt to fully understand all of your options. Share your experiences and questions in the comments section below.
If you have been scammed, explore all avenues possible and report the offending company to stop them from preying on borrowers just like you who are trying to get on the right path.
Do you think you've been scammed by a student loan aid company before? What steps have you taken to avoid falling for these student loan scams?