With Americans owing $1.48 trillion in student loans, many borrowers are looking for any kind of help they can get as they try to dig themselves out of debt.
In the process, they might encounter shady companies that prey on student loan borrowers. The scammers often claim they can offer reduced payments — or even complete student loan discharge — in exchange for your hard-earned dollars. And while you’re at it, they gladly will take your Social Security number, too.
Once they have your money or sensitive information, they drop out of touch, leaving you in a worse position than before. In October 2017, the Federal Trade Commission accused student loan debt relief scammers of taking more than $95 million in illegal upfront fees from unsuspecting borrowers.
I spoke with three borrowers who fell victim to the scams. Here are their stories, along with the red flags you can watch out for to make sure this doesn’t happen to you.
1. Falling for a student loan forgiveness scam
In 2014, rumors started circulating on social media about a new “Obama student loan forgiveness program,” which turned out to be a scam.
However, when Jessica Mendoza got a call from a company called Student Loan Relief Group (SLRG) saying she was on a list of student loan recipients eligible for Obama loan forgiveness, she wanted to believe it was true.
Since she had paid off the small loans she took for college, she connected the callers with her mom, who had $100,000 in education debt that she had taken out to cover Mendoza’s education.
“We went on a series of back-and-forth communications and they seemed to be really helpful and generous about providing information back to us,” said Mendoza.
After collecting her mom’s information, the company told the Mendozas that the debt would be cleared — for a monthly fee.
“I had to make monthly $29 payments for the service [and for] making sure that the government understands that we were exempted from regular loan payments because we met the requirements to qualify for this relief program,” said Mendoza.
Although her mom’s loan balance did appear to go down to zero on the company-provided platform, Mendoza and her mom soon received a letter from the federal government saying it was filing a lawsuit against SLRG. Regulators accused the company of deceiving student loan borrowers under the SLRG name as well as an alternate name, Student Debt Relief Group.
“The government had filed a lawsuit [against] the company that had hooked us in and told us to cancel all payments and not do business with them,” said Mendoza.
Mendoza managed to stop the monthly charges of $29, but her mom still owes the $100,000 debt.
2. Buying into a parent loan discharge scam
After borrowing more than $20,000 in Parent PLUS Loans on behalf of his son, Michael Benner faced payments of about $200 per month. With limited income during retirement, Benner had trouble keeping up with these bills.
That’s when Consumer Advisory called him claiming to be a student loan relief company. Benner doesn’t know how the company representatives got his name or number, but he was interested when they promised to make his student debt go away.
“[They] promised to make student debt go away for $599,” Benner said. “I didn’t have that kind of money so [they] broke it down into payments.”
After paying the fee, Benner waited for his Parent PLUS Loans to be forgiven. Seven months later, he’s still waiting.
Every time Benner calls the company, he says he reaches a new person who doesn’t give him any answers. Now, he has given up on seeing student loan relief or getting his money back. He has fallen $1,400 behind in payments and his debt still hovers around $20,000.
“They charged me $599 and haven’t done anything in seven months,” said Benner. “Are there such crooks out there? They promised the moon and did little more than pretend to work and then dropped me with no communication.”
3. Spending $700 on a student loan forgiveness scam
After graduating from college, Jhoana DeSantiago faced steep monthly payments on her student loans. She struggled to pay the debt while covering rent, car payments, and other living expenses.
That’s when she started looking for help and came across a company called Doc HU, which promised debt relief.
“I contacted Doc HU trying to get help with my student loans,” said DeSantiago. “They said all I would need was $700 and they would clear my student loans or basically help me go back to monthly payments.”
After DeSantiago paid the $700 “fee,” she didn’t hear anything from the company. “It’s been two years and they never helped me,” she said. The company stopped responding to emails or answering her calls.
“I was desperate, and they took advantage of me,” DeSantiago said. Now, in addition to her high monthly payments, she’s lost $700 she couldn’t afford to spare.
Watch out for these student loan scam red flags
Paying back student loans can be a struggle. If you’re seeking debt relief, you should be wary of scammers. Look out for these red flags so you don’t fall prey to a scam.
- Charging upfront fees: Most legitimate companies won’t charge you fees upfront for their services. One exception is student loan counselors, who might charge a fee for financial counseling. But remember that these counselors don’t have any secret information you can’t find out on your own for free.
- Fees for loan consolidation or income-driven repayment (IDR) plans: Beware if a company wants to charge you to consolidate your federal or private student loans or sign up for IDR plans for your federal loans. You can sign up for IDR plans for free through the Federal Student Aid office. You can also consolidate your federal loans for free via a Direct Consolidation Loan from the U.S. Department of Education. If you have federal and private loans, you can consolidate them on your own via student loan refinancing lenders.
- Promises of fast loan forgiveness or discharge: There are ways to pursue student loan forgiveness or debt discharge, but most methods require years of public service or repayment. And you don’t have to pay a fee to qualify for these programs.
- Collecting sensitive information: Be careful about giving out sensitive information to an unverified company, especially if it contacted you out of the blue. Protect your data so you don’t become a victim of identity theft.
If you aren’t sure about a company’s credentials, check to see if it’s accredited by the Better Business Bureau. You also might want to do a simple Google search of “[company name] + scam” to see if anything comes up.
Besides doing your due diligence, remember to trust your instincts. If an offer sounds too good to be true, it probably is.
For more warning signs, check out these four surefire ways to spot a student loan forgiveness scam.
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