Anyone who’s been on this Earth in recent years is likely no stranger to scams. They’re everywhere – from phone calls claiming to be from a company and demanding personal information to emails phishing for passwords.
The student loan industry is just one place among many where scams can be found. Scammers like to use your fears and worries about your student debt to take advantage of you. After all, you don’t want to make bad financial decisions, pay money you shouldn’t have to, or get into trouble with your student loans, so if someone is claiming they can help you or prevent problems, it’s difficult not to listen further.
In this article, we outline several common scams related to federal student loans so that you can stay informed and be prepared if anyone ever tries to scam you. By knowing how to distinguish between genuine student loan assistance and scammers, you can avoid being taken advantage of.
1. Imposter Scams
An imposter scam involves someone contacting you, either by phone, email, or mail, claiming to be someone or something they are not. They might have a very official-sounding name and present themselves as though they are connected with the government.
The U.S. government reports that scammers sometimes call people to tell them they qualify for student grants, and all they need to do is pay a processing fee or give their account information.
Imposter scams may come in the form of an email with a very official-looking Department of Education logo on it. Perhaps they are reaching out to you to let you know about student loan forgiveness.
The key thing to keep in mind is that the Department of Education generally does not attempt to contact you for any reason. In fact, any federal student loans taken out are serviced by a third-party servicer.
And while student loan forgiveness programs and loan consolidation options exist, the information about these programs is on the department’s website, and they do not make a habit of contacting people directly to let them know. Understanding your federal loans, changing your payment plan, or qualifying for forgiveness is completely free and never a service you should pay for.
2. We Can Help for a Fee of …
If any company offers to help you with your federal student loans, be particularly wary if they ask for an upfront fee. Any help or services you might need in regards to your federal loans should be completely free and available to you through the Department of Education or your loan servicer.
There are few situations in which you might legitimately need outside assistance for some aspect of your federal student loans. For example, if you are entering credit counseling or filing bankruptcy, you would possibly discuss these loans with the counselor or a lawyer. But even those types of services are not likely going to ask for an upfront fee.
3. Loan Consolidation Scam
Beware of any place saying they can help you consolidate your federal student loans. Again, this is a service that is free through the government. Anyone who has taken out federal student loans can consolidate them at no additional cost.
Be particularly wary if a company is offering to take care of this consolidation for you and if they ask you to start sending your loan payments to them. Many scams have been performed in this way. What happens is that the illegitimate company pockets the money while your actual debt goes unpaid.
You can go months or years without knowing that your student loan debt isn’t being paid if the scammer got your Federal Student Aid (FSA) ID number and changed your contact information with the loan servicer.
Sometimes, borrowers desire to refinance their federal student loans. In this case, you would work with a company not associated with the federal government. A private lender can offer you student loan refinancing, where your loan debt is moved over to them, and you pay at a new interest rate.
Make sure you check that a company is legitimate before working with them. This can be done by looking for online reviews and looking them up on the Better Business Bureau website.
4. Debt Elimination Scam
If a company tells you they can help eliminate your federal student loan debt, run the other way. Federal student loan debt cannot be eliminated. While there are student loan forgiveness programs, and in rare circumstances, federal student loan debt has been dismissed in bankruptcy hearings, there are no legitimate companies out there who can make good on this claim.
Legitimate federal student loan forgiveness programs can be researched and applied for on the Federal Student Aid website for free. And even then, nothing is instant. These plans require years of service in certain professions and consistent payments made on specific payment plans before the remainder of the loan is forgiven.
As a general rule, your federal student loan balance cannot magically be eliminated. That said, there are numerous repayment options and ways to apply for temporary deferment or forbearance during times of financial hardship.
5. CARES Act Scam
In March of 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law to provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.
This means that all interest and payment for federal student loan holders are suspended through the end of September. Your interest rate is effectively 0% during this time, and no payments are due.
Enter scammers: If anyone contacts you or suggests they can help you take advantage of this act for a price, they are trying to scam you. The suspended loan payments and interest are automatic to all borrowers of these loans. You don’t need to do a thing to make it happen, and you certainly don’t need someone offering to do it for you.
There are several red flags to look for when it comes to your federal student loans and scams. If you encounter a business making any of the following claims, demands, or promises, they are not likely to be trustworthy:
- Asking for upfront fees
- Promising immediate loan forgiveness
- Asking for your Federal Student Aid (FSA) ID number or your Social Security number
- Making demands and pressuring you to act now
- Claiming to be associated with the government (the government does not generally proactively contact people)
- Require you to make payments to them instead of your loan servicer
Also, never underestimate the power of trusting your gut. If something doesn’t feel right, check into it or walk away. As far as federal student loans are concerned, you can always visit the Federal Student Aid website for details and assistance.
What to Do About Scams
If you come across a scam or end up being taken advantage of by one, you do have recourse. Contact the Federal Trade Commission (FTC) and report it. Their goal is to protect consumers by preventing unfair business practices and illegal activity, including actively working on abolishing student loan debt relief scams.
In fact, in 2017, the FTC announced a coordinated initiative called “Operation Game of Loans” to do just that and have filed several cases against fraudulent businesses since then.
If your federal student loans have gone unpaid due to a scam, contact your loan servicer immediately so that you can work with them and get your loan payments back on track.
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