Don't Get Schooled by Student Loan Scams

​Ah, the excitement of a new college year: crisp fall air, new professors and classes, new books, new friends. But with all this excitement comes the reality of paying for college. Which is why September is also when criminals and unscrupulous businesses ramp up their efforts to prey on students and families dealing with the burden of student loans. According to one financial expert, U.S. student loans currently total almost $1.5 trillion, and almost 11 percent of that debt—$160 billion—is 90 days or more behind in payments. No wonder people are vulnerable to false promises. But it’s important to learn to spot these scams, or that college education could end up costing even more.

According to The College Investor, there are several common variations on student loan scams:

• Advanced fee scams: A student loan company promises to get you the best interest rate in return for an up-front fee. Legitimate student lenders may charge a disbursement or origination fee when a loan is paid out, but it’s illegal to charge up-front fees.
• Loan consolidation scams: A company charges up-front fees or recurring payments with promises to consolidate or refinance student loans. Often the company actually does nothing after collecting your fee.
• Debt elimination scams: A company promises to eliminate student debt in return for fees. This is a false promise: student loans always have to be repaid.
• Lawsuit scams: A law firm asks the student to make a reduced loan payment to them, and in return, they will negotiate a reduced payoff with the lender. In this case, the law firm typically withholds payments on your loan, which ruins your credit rating, then they try to renegotiate your loan on the grounds that you can’t pay your bills.

Some criminals also use student loan scams to steal personal information from their victims. One of our MyIDCare members reported being contacted by a “refinancing service” asking him to give them a pin code they had supposedly sent him in an email. It turned out this fake service had requested a password reset on his student loan account, and they used the pin code to take over his account and steal his personal information.

If you’re contacted by any company offering to reduce, consolidate, or eliminate your student loans, here are six signs that this might be a scam:

• They ask for up-front fees or promise loan cancellation or forgiveness
• They advertise through social media or pop-up ads. (Real FSA lenders typically don’t advertise on Facebook or in pop-up ads.)
• They ask for your FSA ID or password
• They say it’s a limited-time offer or try to rush you
• They ask for third-party authorization or power of attorney
• You get an authorization email or PIN that you didn’t request

We get it: when you’re drowning in seemingly endless student loan debt, the promise of a way out makes you feel hopeful for the future. College is expensive, and it would be great if there were a legal way to erase student loan debt. But, for now, the only way to eliminate that debt is to repay it. There are ways to improve your repayment status: you can consolidate or refinance federal student loans yourself for free at StudentLoans.gov. Or, if you want to find a legitimate company to help you refinance or consolidate private student loans, Credible.com is a great resource. Just don’t fall for offers that seem like an easy way out, because they could cost you even more in unnecessary fees, damaged credit, or identity theft.