“Hello! We have exciting news for you. You may qualify for a newly approved student loan forgiveness program that could reduce your payment to $0 or wipe away all of your student loans completely. If you’re interested in learning how you could be student loan free, please stay on the line as we connect you to our student loan forgiveness experts.”
The robotic woman’s voice was tempting. As a student loan holder, reducing my monthly payment to nothing seemed almost too good to be true.
For a paltry $2,000 fee, I could have my $18,000 worth of federal student loans erased almost overnight. The fee would cover my expert “negotiating” with the federal government and filing the lengthy amount of paperwork required.
As I chatted with the representative (or “expert,” as he called himself), I realized that I was two seconds away from falling victim to a student loan scam. These scams are becoming more common because recent graduates are more burdened than ever by federal student loan debt.
In order to protect at-risk borrowers, the Consumer Finance Protection Bureau and various state Attorney Generals have have begun prosecuting the more dangerous businesses.
These businesses often fly under the radar and test boundaries both legal and moral. Therefore, it is important to understand how to spot a student loan scam, the alternatives to these companies’ offerings — and how to fight back if you become a victim.
Spotting student loan scams in action
Sometimes spotting nefarious student loan related businesses can be tough. Many of them use official-sounding program names such as “Obama Student Loan Forgiveness” or use confusing, technical terminology when discussing your options.
However, there are always a few noticeable red flags that should alert you that the business you are dealing with a student loan relief scam:
1. Payment required up front
The representative on my phone call cheerfully explained that to get started, I would first need to pay a deposit of $500 to their account.
This should have alerted me immediately to what is called an “advance-fee scam.” These businesses cash in on your payment and then disappear or promise work that will never get done.
The Federal Trade Commission has deemed this practice in debt relief businesses illegal. Legitimate student loan relief businesses must not charge fees until there is a successful settlement or service and the borrower has made a payment towards their newly negotiated payment plan.
2. Consolidation application fee
When in default on a student loan or facing a financial hardship, the immediate need for relief is heightened. Student loan relief scammers jump on this by offering instant help consolidating loans and/or lowering payments.
What these businesses are actually doing is simply filling out the paperwork for an income-driven repayment plan or applying for federal consolidation on your behalf — all while charging you a fee after the process is complete.
However, there is no need to pay for this service when you can do it yourself for free. In fact, we at Student Loan Hero will still do the work for you, but we won’t charge you anything. We just love our users that much. Sign up here.
3. Total elimination in exchange for information
One of the most compelling student loan scams involves the massive promise of eliminating all your student loan debt completely. Most of the time, these businesses are either operating for the advance fee or they are trying to get your private data, such as your Social Security number or your FSA ID (what you use to apply for student loan aid).
The truth is that discharging your federal student loans is nearly impossible, except for cases such as death or total and permanent disability. There are, of course, forgiveness programs that you may qualify for (such as the Teacher Forgiveness or Public Service Loan Forgiveness). However, these are programs you can apply for yourself if you meet all the requirements.
Victims of student loan scams: what to do
Don’t panic! If you believe that you have accidentally fallen for one of these student loan scams, there are a few steps you can take to protect yourself. Being proactive and covering all of your bases will help you fight back.
The first step should be a call to the three major credit bureaus — Equifax, Experian, and TransUnion — to report possible fraud and put a freeze on your credit. While many scammers are in it for the fees and not your personal information, sensitive data such as your Social Security number or FSA ID could be at risk if that business is hacked or an employee mishandles your application.
If you gave out your FSA ID, you may also want to contact the Office of the Inspector General, where they will help you decide the best course of action. Also, consider reporting the business to the Consumer Financial Protection Bureau via their online complaint site or by calling 855-411-2372.
Finally, if the scam involves an advance fee, you may be able to contact your bank or credit card company to stop the payment. While there is no guarantee you will get your money back, you may be able to get help if the payment has not yet been processed or you can prove that it was a scam.
Surviving and preventing a student loan scam
The golden rule when it comes to unfamiliar businesses should always be: “If it’s too good to be true, it probably is.” Before giving away your money and letting these businesses go to work on your behalf, read up on how you can reduce your federal student loan payments on your own.
Empowering yourself by knowing both your rights and options is your number one defense against student loan scams.
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