As the cost of attending college has increased, so has the amount of debt that students take on to finance their education. In fact, it’s starting to reach astronomical levels. According to the Federal Reserve, the amount of outstanding student loan debt reached $1.56 trillion as of the third quarter of 2018.
This staggering amount of debt leaves prospective and current students, as well as recent college graduates, financially insecure and vulnerable. Unfortunately, some people are trying to take advantage of that vulnerability by running student loan scams. Typically done over the phone or online, scammers prey on people’s desire to pay off their loans, taking even more of their money in the process, all while doing nothing to actually alleviate their debt.
However, avoiding these scams is fairly simple if you are aware of scammers’ tactics and know what to look out for. To protect you from being tricked out of your hard-earned cash, here’s what you need to know about student loan scams.
Student Loan Forgiveness Scams
One of the most popular types of scams targets students who are looking for loan forgiveness. You may stumble upon this kind of scam in your own research on how to get your student loans forgiven, but often, scammers will reach out to the victim either by mail, phone, or email. They will claim to be able to help you get your loans canceled, forgiven, or settled for less than you owe — for a fee.
Scammers may claim the fee is to cover administrative costs or to pay for an “expert” to negotiate with the federal government on your behalf. However, they will simply take your money and do nothing to help you with your debt.
Legitimate Student Loan Forgiveness Companies
There are no legitimate companies that forgive student loans. The only truly legitimate student loan forgiveness programs are run by local, state, and federal governments. There are several ways you can get your loans forgiven, such as by working as a teacher or nurse, or by serving in the military. Be sure to thoroughly research your options to see what you might qualify for, but keep in mind that student loan forgiveness is very uncommon. Note that these government-run forgiveness programs are only applicable to the federal debt, and not to private student loans.
Student Loan Consolidation Scams
If you have multiple loans, refinancing or consolidating your loans is a great option to make your monthly payments more manageable. Instead of making several payments each month, you only have to make one — and it may even lower your monthly payment. However, you have to do your research and find a reputable lender if you’re considering consolidation or refinancing, as this is a popular way for people to scam students.
Scammers have taken note of this enticing option and prey upon students and graduates who are looking to consolidate their loans. Similar to the student loan forgiveness scam, they offer to consolidate loans, for which you have to pay a processing fee. However, you should never pay someone to consolidate your loans, as it can be done easily and for free through the federal government.
Student Loan Default Scams
When you fail to pay your student loans according to the terms you and the lender agreed upon, that’s called defaulting. The consequences of defaulting can damage your finances for years to come. Experts predict, though, that by the year 2023, almost 40 percent of borrowers will default on their student loans. And unfortunately, millions of students and graduates have already defaulted on their loans.
Many scammers have started to target people who have already defaulted on their loans by offering to get them out of default (after you pay them, of course). This is an impossible promise, as the only way you can get out of a default is to repay your debt, loan rehabilitation, or loan consolidation. None of these options require a middleman, and you can do them on your own.
How to Identify Student Loan Scams
Regardless of what they are trying to pull, most loan scams share common features. Here are some of the biggest red flags to look out for:
- Asking for money: Most legitimate loan relief options do not require you to pay anything, except for your debt. If a company asks for upfront or recurring payments, it is likely a scam.
- High-pressure sales tactics: Many scammers will try to put pressure on you to commit to their product before you have a chance to think about the validity of their service. Be wary of companies discussing “limited time offers,” demanding payment in a certain form, or urging you to take a very specific course of action.
- Asking for personal information: In addition to your money, some scammers may ask for your personal information, such as your Social Security Number or Federal Student Aid ID number. Never give this information out, as the scammer may be able to steal your identity or obtain power of attorney and make financial decisions on your behalf.
- An official-sounding name: Many scammers will create a name for their company that sounds official — often, they will use words like “federal” and “direct” or make logos with an eagle or tree — in an attempt to seem prestigious. They may also hope you confuse them with a legitimate government loan service or attempt to impersonate or be affiliated with a government agency.
If a company does any of these things, or you simply have a funny feeling about the situation, it’s is likely that they are trying to take advantage of you. Keep yourself informed so you don’t become another victim. In addition, be sure to report any possible scams to the Federal Trade Commission (FTC).
Student Loan Scams vs Other Illegal Student Loan Practices
It’s important to note that student loan scams differ greatly from other illegal student loan practices. While you may not fall for a scam, you may also find yourself the victim of other unlawful loan practices. For instance, a student loan service may violate your rights as a borrower, but this is not the same as being the victim of an anonymous scammer. Know your rights as a borrower and learn all you can about student loans.
The FTC has started to crack down on student loan scams, but be aware that people will always come up with new ways to take advantage of others. The best thing you can do is make yourself aware of these tactics and educate yourself as much as possible about the ins and outs of student debt. Above all, be sure to trust your instincts. As the saying goes: if you think it’s too good to be true, it probably is.