Read this if you want to be able to spot a student loan scam from a mile away. Estimated read time 5 min.

 

The FTC estimates that repayers have lost over $95 million to student loan scams. Scam student loan companies trick people into thinking they can provide the student loan debt relief the repayer so desperately desires. Then the fraudster walks away with the money and giving borrowers nothing in return.

 

Student loan scams are modeled after real & legitimate student loan options. So today’s post is going to highlight four popular types of scams along with the legitimate options so you can avoid student loan scams.

 

Student loan forgiveness scams

 

These scams promise to get your loans cancelled or forgiven if you pay the company a fee. There are two important things to know to keep you away from this one. #1 There’s no loan forgiveness for private loans. #2 Federal student loans can only be cancelled in very specific situations (death, permanent disability, and school closing). All other loan forgiveness options take time and have no fees associated with them whatsoever.

 

What you should do instead:

Apply for federal loan forgiveness directly online the applications for these can be completed on the federal student aid website for free! You can learn about different types of forgiveness in this post (link loan forgiveness post)

 

Lower your monthly payment scam

This scam promises to negotiate with your loan servicer or lender on your behalf to get your monthly payments lowered. Some of these scams and steal your information and money and give you nothing. Some companies are ripping you off at best. Basically these companies offer to take your money and work with the loan servicer to negotiate a reduced payment amount. The thing is your loan servicer doesn’t have to do anything different and often they don’t. Meanwhile, the company you’re paying will take your money but not make your monthly student loan payments, putting you into default.

 

What you should do instead:

Contact your loan servicer directly. Applications for federal income-based repayment plans are free and can be easily completed online. Your payments can be as low as $0 per month.

 

Refinancing/Consolidation scams

 

These scams promise to consolidate your student loans to a lower interest rate. Refinancing and consolidation are both legitimate options but unfortunately there are also scam companies that have cropped up. You should never pay any type of fee for refinancing or consolidating your loans. There are no processing fees, application fees, or any other kind of fee. This process is free. If there’s a fee, it’s a scam.

 

What you should do instead

If you want to consolidate your federal student loans you can complete the free application here. If you want to refinance your student loans check out this post on the best refinancing companies. All the companies listed are legitimate refinancing companies.

 

Get your student loans out of default scams

 

This scam promises that if you pay them some amount of money (typically a few hundred dollars) they will get your student loans back in good standing. Most of these companies will just take your money and run. They don’t do anything to get your loans out of default.

 

What you should do instead:

Call your loan servicer and work to rehabilitate or consolidate your federal loans. Loan rehabilitation and consolidation are free and don’t require an upfront payment. A new monthly payment will be set up and you must make these payments on time to get your loan back in good standing.

 

Resources

Avoiding Student Loan Scams (Federal Student Aid)

Department of Ed’s Trusted Collections Agencies

Department of Education Default Resolution Services 1-800-621-3115