Americans are shouldering more student loan debt than ever, so it’s no wonder that student loan scams are soaring, as well.
Almost 70% of the Class of 2018 took out student loans, graduating with an average of $29,800 in private and federal debts, according to a Student Loan Hero analysis. Student loan scams are rampant, preying on borrowers seeking relief from loan payments. Promotional posts on social media advertise loan forgiveness programs that claim to reduce student loan debt to zero.
Borrowers then share these posts in the hope a program could magically eliminate their loans — not knowing these are scams or companies that take advantage of those in debt. A 2018 report from the Federal Trade Commission shows that millennials are especially susceptible: Despite their high level of tech-savvy, they are more likely to lose money to fraud than older generations.
Many of the claims look real and sound professional, so it can be challenging to identify student loan scams. Fraud-debunking website Snopes can help consumers evaluate legitimate offers from fraudulent ones.
Student loan scams, according to Snopes
Snopes specializes in researching and evaluating prevalent internet claims, from urban legends to alleged weight-loss miracles.
Here are three of the biggest ongoing student loan hoaxes and misconceptions identified by Snopes — and how you can spot student loan scams for yourself.
1. Former President Obama created a program to forgive all student loans
While this story is more than five years old, it remains prevalent in student loan mythology.
In 2014, Empire News ran an article that said then-President Barack Obama had signed a bill forgiving all student loans taken out over the past 10 years. According to the story, the program would also forgive all loans taken out in the future.
The article went viral and took on a life of its own, leading many borrowers to believe they could become debt-free overnight.
However, Empire News is a satirical site that posts hoax stories and parody content. While it’s not true that Obama founded such a program, several student-loan repayment programs — such as income-driven repayment plans and Public Service Loan Forgiveness — were created during George W. Bush’s and Obama’s presidencies.
Bottom line: This myth continues to pop up on social media, but no bill eliminates all past and current student loans. You should never pay upfront or monthly fees to any company that wants to enroll you in an “Obama Student Loan Forgiveness Program.” Your student loan servicer can provide information about loan repayment and forgiveness plans for free, and you may be able to get forgiveness or repayment assistance through state or federal programs. The Federal Student Aid Information Center, which you can reach by calling 800-433-3243, can also provide information about loan repayment programs.
2. Have a disability? Call this number to get your loans discharged
Another faux news story in 2016 claimed that hundreds of thousands of student loan borrowers could get their loans forgiven if they had a disability. At the time, it even featured an image from the U.S. Department of Education about how many people might be eligible.
The article directed borrowers to call a phone number that sent them to a private company not affiliated with the U.S. Department of Education. When customers were connected with a representative, they were told they had to pay high fees to process the discharge.
Bottom line: Many companies pose as a federal entity or pretend to be contracted by the government to attract customers. While you actually can get your loans discharged if you live with a disability, you don’t need to pay for that service.
If you have a permanent disability that prevents you from working, you may be eligible for total and permanent disability discharge for your federal student loans. You can apply for loan discharge by submitting your application directly to the Department of Education, not an external company. It’s free to do so.
Get more information about the discharge process and how to apply on the Department of Education’s website.
3. You’ll get arrested for falling behind on student loan payments
In 2016, a story circulated on social media alleging that a man named Paul Aker was arrested for defaulting on his student loan payments. The story led to rumors that federal agents were tracking people down and arresting them for not paying back their student loans.
But that’s not what really happened. Aker was arrested — but for failing to appear in court, not for falling behind on his student loan payments. The government had sued Aker in 2007 for his unpaid loans, and when he didn’t show up in court, the judge ordered him to repay the full balance.
Aker did not make the required payment, so after failing to appear in court again despite multiple attempts to contact him, the judge issued a warrant for his arrest.
Bottom line: You can’t be arrested for merely missing your loan payments, but you can be arrested for your unpaid student loans if you don’t show up for a required court appearance. Defaulting on your loans has serious consequences: Your credit could be ruined, and the lender can sue you for the unpaid balance or even garnish your wages if you have federal loans.
How to identify student loan scams
Many companies claim they can help you with student loans. But many of them charge fees for help with applications you can submit yourself. It’s important to know how to check if a loan company is legitimate.
If you are looking to consolidate or refinance your loans, for example, there are two legitimate ways to do so. You can apply for a Direct Consolidation Loan with the federal government or apply for private refinancing with an independent company. Neither will charge you upfront fees.
To verify whether you’ve found a legitimate loan company, ask yourself these questions:
- Are they asking for money? Some services will apply for refinancing or consolidation on your behalf but charge a commission to do so. In some cases, the cost can add hundreds or even thousands of dollars to the cost of your loan. That’s a waste of money, since you can do those things for free.
- Is there an application fee? Neither the federal government nor legitimate private banks charge an application fee for consolidating your loans.
- Does it sound too good to be true? If a service promises to eliminate your loans or cut your balance in half, trust your gut. If it seems too good to be true, it probably is.
- Are they asking for personal information? Some student loan scams aim to collect personal information, which may result in identity theft. They’ll promise to reduce or eliminate your loans in exchange for your Social Security number or Federal Student Aid ID. If a company asks for this type of information, move on.
Avoiding student loan debt relief scams and managing your loan
Social media is filled with student loan offers and viral posts promising debt forgiveness. However, these programs often do not exist. Before handing over your credit card or personal information, do your research to avoid becoming a victim.
If you need help signing up for an income-driven repayment plan or federal student loan consolidation, or you want to refinance your loans, there are plenty of free resources that explain how to do it yourself. With proper research, you can take charge of your debt — and stay away from student loan scams.
Marty Minchin contributed to this report.