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.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.23% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 6.23%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|