According to the latest statistics from the Federal Reserve Bank of New York, Americans have over $1.5 trillion in student loan debt. With so many Americans carrying such a heavy load of student loan debt, student loan scams have continued to come out of the woodwork looking to take advantage and prey on vulnerable consumers.
Legitimate forms of student debt help do exist — but how do you really tell the good from the bad and keep yourself from getting scammed?
Common Student Loan Scams
One of the most common student loan scams is the consolidation scam. Companies may claim that they can consolidate your loans for a lower monthly payment to save you money. The truth is that if you have federal student loans, those loans can be consolidated for free through the federal student aid website.
Scammers can target private student loan debt holders too, with companies claiming to consolidate the debt only to charge extensive fees that are hidden in the new loan. These also often have variable interest rates that can skyrocket.
Scammers may also refinance your federal loans to private loans without notifying you of the change in the type of loan, and you’d forgo all of the benefits of federal loans.
Debt Elimination Scams
A third-party company cannot completely eliminate your debt or even settle all student loan debt. However, circumstances do exist in which your debt can be reduced and even eliminated.
For example, you may be eligible for loan discharge if you went to a school that has now closed or if you have experienced extenuating circumstances, such as a life-altering disability or the death of a relative.
However, in these cases, the federal government will make the determination as to whether your debt will be discharged. Therefore, it’s best to know your loans and your options to avoid being a victim of a scam.
Student loan forgiveness has been a hot button topic of late. So of course scammers are looking to capitalize on it. Any company claiming they can quickly and easily make you eligible for student loan forgiveness may be a scam.
Once again, only the government can grant student loan forgiveness on federal student loans.
Plus, the process is far from quick and easy. It’s best to find out from the servicer if your loans qualify for loan forgiveness and to be aware of qualification criteria and application timelines.
In most cases, only your current servicer will be able to help you with this determination, rather than an outside company claiming they can sign you up for a cost.
Another scam that has been more common recently involves someone calling claiming to be an IRS agent, saying you owe a “federal student tax” and threatening you for immediate payment.
First of all, there is no such thing as a federal student loan tax. Beyond that, the IRS typically does not contact you first by phone. You will always receive a written notice if you owe anything to the IRS, and the IRS will never demand immediate payment — especially over the phone.
How to Avoid Student Loan Scamms
The thought of being scammed is scary, but you can take steps to protect yourself. The first step is knowing your loans well. They may not feel like a friend to you right now when you’re struggling to pay them. Getting to know the details of your loans can help you avoid being told what’s best for you by a scam student loan company.
Keep an eye out for red flags or anything that just doesn’t feel right. Any company that reaches out to you first, including by phone or mail, is likely a scam.
If the pitch to help you seems grandiose with unrealistic promises or a claim that the company can save you a certain amount of money or take care of your debt in a certain amount of time, it’s likely a scam.
Because every individual’s student loan situation is different, it’s impossible to make specific blanket statements about debt solutions that include specific amounts or time frames.
Additionally, if a company asks for too much personal information, especially your FAFSA ID, there’s a good chance it’s a scam. Having your FAFSA ID allows the company to take control of your student loans, which may end badly for you.
Also beware of companies claiming to have ties to the government or Department of Education, even if they have a legitimate-looking logo or website.
How to Find Legitimate Student Loan Help
Legitimate companies offering help for student loan debt typically have a real office denoted by a business address on the website. Usually a legitimate company will not demand upfront payment before they’ve performed any services, other than perhaps a small consultation fee to review your loans.
Finally, do your research. Find out how long the company has been in business and the background of those working on your case. Dealing with experienced people will be a benefit to you. While online reviews are not always reliable, they are a starting point and one method of checking on the legitimacy of a program.
Talking to others you might know who have dealt with student loan resolution companies or attorneys who can help you find a trustworthy resource can be beneficial as well. The Department of Education also offers information about what can legally be done for student loans and of course your servicer or school.
Legitimate student loan help is out there. It can certainly be worth looking into if you’re struggling or if you simply want to understand your options. The key to not being scammed is knowing what to look for. If something sounds too good to be true, it probably is.