How to Avoid Student Loan Scams

Written by: Kristyn Pilgrim
Updated: 7/28/20

Money scams pop up everywhere and can affect everyone, regardless of age, sex, race, or financial status. In 2019, over 3 million people reported fraud to the Federal Trade Commission (FTC). Among these fraud reports are many cases of imposter scams, in which an individual or a business pretends to be someone of importance, such as the government, a bank, or even a family member or friend, in an attempt to get personal information from the victim. These deceivers will attempt to get you to disclose things like your Social Security number, bank account information, and other details that would grant them access to your finances.  

There are people out there who will also prey on those who may be unfamiliar with certain financial situations like student loans. Searching and applying for student loans is not always an easy or straightforward path. You may become confused or overwhelmed as you go through the application and approval process. This is precisely the time when an imposter will swoop in and exploit student loan borrowers who are doing their due diligence to pay for their college education. 

You might not believe that someone would take advantage of your situation like this, and because of the imposter’s knowledge of the subject that makes them seem legitimate, you may have no reason to suspect any foul play.

How Can You Tell If It’s a Scam?

A student loan scammer is going to tempt you with an easy way out of paying for your student loans, such as offering a service that will get you a reduced payment plan, debt relief, or forgiveness. The imposter may pose as a loan counselor or counseling service and charge a high price for their services and advice that will not only hurt your wallet but could also potentially hurt your credit score and make it difficult for you to be approved for future loans. The expensive price tag on loan counseling should be the first red flag, as there is free student loan guidance available from the federal government at, as well as the lender you are using for your student loan. 

These con artists will come on strong, often using intense sales tactics and attractive-sounding promises and end results to pressure you into signing up for a service before you realize what you are actually signing up for. Their goal is not to rid you of the weight that student loan debt puts on your shoulder – it is solely for personal monetary gain. If the offer sounds too good to be true, it probably is. If there is a doubt in your mind about whether the person has your best interest at heart, they likely do not.

There are certain things to look out for that will keep you from becoming a victim and allow you to protect yourself from these scammers. Follow these tips to help avoid student loan scams.

Never Pay for Anything Upfront

As mentioned, there is plenty of free student loan guidance and advice available to you from the government and your private lender. There is no reason you should be paying for any counseling. One of the first signs you are being faced with a student loan scam is if there is an upfront fee for whatever the service may be. A common example of this is seen with student loan forgiveness. A company will claim to offer a service that can give you student loan forgiveness if you pay a fee. This is simply not true. No company can forgive your student loans; this can only be done through specific government-run programs that can forgive your federal student loans if you meet certain qualifications.

Keep this in mind: The moment that a supposed student loan relief business asks for payment upfront, you know it’s a scam. You will end up losing your money to someone who will take it and run, disappearing without doing the work that you thought you were paying them to do. It is illegal for a debt relief business to charge an upfront cost, as per the Federal Trade Commission (FTC). A real and legitimate student loan relief business is legally not allowed to charge you anything until a settlement or service has successfully taken place, and the borrower has started paying into their new plan. 

Another example of an unnecessary service to pay for is loan consolidation, as this is also something offered for free. If you are in jeopardy of defaulting on your student loans or having a hard time paying them back, a fraudulent company will take advantage of your need for help and offer to consolidate your loans and/or offer lower monthly payments. Think about it: Why should you need to spend money when you are trying to save it?

Don’t Believe False Claims

Scammers will try to make you believe something untrue to get your money. A good example of this is the IRS scam phone calls that have cost over 4,500 victims more than $23 million. Do not become one of them. Remember, the IRS will always send its initial communication via mail. The IRS will never make demands for payment over the phone, threaten arrest for not making those payments, or send emails asking for personal or financial information. 

If you receive a call from someone claiming to be an IRS agent who says you owe federal student loan taxes, hang up – this is a scam. If the phone call has made you uneasy about whether you do owe student loan taxes, you can always contact the IRS directly.

Another example is a fraudulent company that recommends you stop making payments so they can negotiate your loan for you. A company cannot do this for you, nor will a legitimate company tell you to stop paying your loan, as this can cause you to default on your loan. 

Don’t be fooled by things that merely seem legitimate. Just because a company claims to be associated or affiliated with the Department of Education, or uses specific wording or logos on their website to make it look official, does not mean it is worthy of your trust. Con artists know that the more legitimate they look, the more people will be inclined to believe their tricks.

Always Do Your Research 

The best way to avoid student loan scams is to educate yourself on the subject so you cannot be tricked into believing something that is not true. Be aware of all the options for student loan repayment, understand the requirements for student loan forgiveness, and familiarize yourself with the various protections and benefits that come with your federal student loans. It’s also a good idea to study up on student loan scams, so you can easily recognize if and when it happens to you. 

If you suspect you’ve been approached by a scammer, report the fraud to the Consumer Financial Protection Bureau (CFPB) or file a complaint with the FTC. If you suspect that you may have accidentally fallen for a scam, you may be able to save yourself if you act fast. 

If you made a payment to the scammer, contact your bank or credit card company immediately and try to stop the payment before it’s been processed. If it has already gone through, you may be able to get your money back if you can prove it was a scam. You also can report the fraud and put a freeze on your credit by calling the three major credit bureaus, Equifax, Experian, and TransUnion.

You’ve invested so much in your college education that you don’t want to risk losing it by becoming a victim of a student loan scam. Never give out personal information in a situation that seems skeptical, and don’t assume that this can’t and won’t happen to you. It’s important to take every precaution to save yourself from becoming a victim. 

Knowledge is power, and in this particular situation, it can ultimately save you and your finances. When you need assistance with your student loan and financial decisions, however, College Finance can provide all the information and resources you need.