When you were still in college, you might remember going through entrance counseling when taking out your first student loans, and exit counseling before graduation to prepare for repaying them.
But if it’s been a few years since receiving your degree, and you’ve struggled to make those student loan payments, there’s a different type of counseling that many borrowers pursue, though not always wisely.
“Student loan counseling” can mean a few things — and can either help you save or lose money. On one hand, there are services legitimately vested in helping borrowers eliminate debt; on the other, ripoffs in disguise as honest programs.
Find out if student loan debt counseling is right for you and how to spot a scam.
When to choose student loan repayment counseling
Do you need student loan counseling? First, examine your financial situation.
Is it a matter of stretching your budget or making some small changes to better fit your payments into your monthly expenses? Or has your debt mounted so high that it’s placed you on the brink of bankruptcy?
If it’s the latter, a professional student loan counseling program may help. Some of the issues and questions they may be able to troubleshoot include:
Exploring financial goals. Where do you see yourself financially in a few years? When is your target date for paying off your loans?
Building a budget. One reason many people struggle with debt is because they don’t have a budget. On the simplest level, counseling is a great resource for learning how to save, cut back on spending, and prioritize your expenses — not just your loans.
Simplifying difficult information. A specialized loan counselor can help break down confusing loan lingo, educate you on interest rates and lending practices, and teach you about how your loans affect your credit score.
Organizing your loans. One reason you may be saddled with debt is a lack of knowledge of the types of loans you have. Student loan counseling can help you delineate the differences between federal loans, private loans, and the like, as well as how to juggle multiple payments.
Understanding your options. Instead of a never-ending cycle of debt, counseling can be a great asset for looking into repayment plans with your provider, refinancing, and other options you may be eligible for.
Assessing alternatives. If repayment is simply not possible, a skilled counselor will brainstorm some ideas to keep you financially healthy without going into further debt. Are there ways to reduce your interest rate, forgive or manage your debt, or try a loan rehab program?
Developing a plan. Moving forward from counseling, you’ll have an actionable plan to pay down your debt.
In order to find a genuine student loan counseling program, try checking with your loan provider first; they may be the first and last place you’ll need to look for some consultation (usually free of charge).
You can also contact the U.S. Department of Education for free federal student loan counseling.
However, some of the best and most valuable resources are not-for-profit credit counseling agencies, which often have their own student loan counseling divisions. Many representatives are also certified as credit counselors.
Avoiding Student Loan Counseling Scams
Not everyone purporting to be a student loan counselor is on the level. It makes sense that with all the money you’re putting into paying down your debt, scammers will do their best to get their hands on that cash.
Don’t take on the services of just anyone. Here are some warning signs to be cautious of when searching for a student loan counselor:
1. High fees early on
One of the differences between nonprofit counseling services and scammers operating on a for-profit platform are the fees they charge.
If you find a service that charges high fees from the get-go, there’s a chance your money will be pocketed without much done in the way of helping you with your debt. Some scam victims have reported that they’ve paid exorbitant monthly or annual fees for services they could have done themselves for free.
2. Results and promises that sound too good to be true
Proper student loan counseling should include some of the examples we listed above: it should be made up of actionable solutions that require you to be proactive about your debt.
So if you connect with a company that promises to cancel your loans, forgive your debt, rescue you from default, or make payments for you, don’t believe any of it.
And no, it doesn’t matter who’s going to the White House next year; there is no such thing as the “Obama Student Loan Forgiveness Program.”
3. Marketing, name, or logo closely resembles a government source
To gain trust in unassuming, vulnerable people struggling with debt, many illegitimate companies may use words like “national” or “federal” in their titles to sound more official.
However, if they’re not linked to the Department of Education or don’t have a .gov URL extension, be wary. Your best bet is to work directly with your loan provider and keep looking for a real student loan counselor.
4. You’re asked for sensitive personal and financial info
If you’ve hooked up with a student loan debt counselor and they ask for your Social Security number, Federal Student Aid PIN number, bank account info, or any other sensitive personal or financial information, you’re likely opening yourself up to a scam (and potential identity theft.)
An accredited counselor is here to counsel you, not troll through your finances. Be particularly alarmed if you’re asked to sign a third party authorization or power of attorney to one of these organizations; you could be signing over everything you have to these scammers.
5. They advertise heavily on TV, radio, social media, etc.
Though one would think that social media, online, TV, or radio outreach signifies a bona fide service, it couldn’t be farther from the truth.
Abundant, widespread advertising methods indicate a for-profit business, and sometimes, predatory practices. At the very least, look them up online. Do they seem like an honest company? Address your doubts by reading reviews and seeing what services they offer.
But, as mentioned above, give preference to the .govs and .orgs over the .coms.
In the end, the most important thing is not to be ashamed or embarrassed to pursue a student loan counseling service. Seeking help is always preferable to drowning in debt, but it’s important to work with the right organization with your needs — not their profits — in mind. Remember to look for the warning signs of a scam.
If you believe you’ve been a victim of any type of student loan scam, experts recommend contacting the Consumer Financial Protection Bureau.
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