College students may learn a lot, but even a summa cum laude grad can be taught the lessons of loan fraud the hard way.
Every year, borrowers struggling to cover federal college loans are tricked into paying fees to companies offering to help manage their debt, even improve credit ratings. NerdWallet has counted more than 130 student loan debt relief entities that borrowers should be wary of.1 One company alone has been charged with allegedly collecting $3.5 million in illegal fees from 2015 to 2019.2 Others may use deceptive practices to trick students and parents into paying fees for help applying for financial aid.3
With the average student loan balance at nearly $30,000,4 there is no shortages of opportunists. Fortunately, common sense and level-headed thinking are all that’s needed to throw the book at a fraudster. Here are four ways to spot a loan cheat, offered by Federal Student Aid (FSA) and others.
The servicer asks for an up-front payment. This fee is to cover the “cost” of reviewing and determining loan payments. But here’s the thing: A provided loan servicer – a company already assigned to take care of billing and servicing financial aid – will do that for free. The FSA’s free online repayment estimator can help determine the best loan repayment plan, including for those struggling to make payments.
The servicer asks for identifying information. Giving an FSA password to a stranger is like handing over a blank check. An FSA ID entry has the same legal status as a written signature and can be used to sign legally binding documents electronically. This could enable the debt-relief source to act on behalf of the loan holder, including to make decisions about the loans. If servicer makes no payments, the loan holder is still responsible for all debt – plus interest and late fees.
They promise to make it go away now. Immediate loan forgiveness, or cancellation, is not a thing. Most government forgiveness programs require years of payments and/or employment in certain fields before forgiving the debt. A loan servicer can help determine if someone qualifies for forgiveness due to a job, disability, or if a school closes.5
They make it urgent. The sales representatives at companies offering student loan relief are usually paid on commission, so they apply pressure. A sales rep might say the offer is only available for a limited time. Don’t bite: A legitimate loan program is never available for “only a limited time.”
If you or someone you know has signed up with a third-party student loan relief organization, there are options for protection.
Life is full of lessons, and we should build on them. Those trying to pay off student loans can get help without paying fees: The U.S. Department of Education offers loan forgiveness programs and ways to reduce student loan payments. Application is free through an official loan servicer.
One of the smartest ways to reduce college loan debt is to save in advance. If you or someone you know would benefit from a student savings plan now, First Financial has multiple choices.
Interested in some first-student tips on how to financially prepare for college? Learn more, here.
1 "How to Spot Student Loan Repayment Scams,” by Anna Helhoski, NerdWallet, May 5, 2021, https://www.nerdwallet.com/article/loans/student-loans/how-to-spot-student-loan-scam
2 “Scammers are promising to get your student loans forgiven. Be wary,” by Annie Nova, CNBC, March 17,2021, https://www.cnbc.com/2021/03/17/dont-fall-for-these-student-loan-scams-.html
3 “CFPB Takes Action Against Nationwide Student Financial Aid Scam,” Press Release, Consumer Financial Services Bureau, Oct. 29, 2015, https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-nationwide-student-financial-aid-scam/
4 “Scammers are promising to get your student loans forgiven. Be wary,” by Annie Nova, CNBC, March 17,2021, https://www.cnbc.com/2021/03/17/dont-fall-for-these-student-loan-scams-.html
5 “Student Loan Forgiveness,” Federal Student Aid, https://studentaid.gov/manage-loans/forgiveness-cancellation
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