10 Ways to Spot and Avoid Student Loan Scams

10 Ways to Spot and Avoid Student Loan Scams

By Mary Jo Terry, Managing Partner at Yrefy

With student loan debt totaling nearly $1.75 trillion in the U.S., you can bet that it’s an issue that will attract its fair share of fraudsters and shady characters. Unfortunately, the number of student loan scams is reported to be on the rise, and the situation with COVID-19 isn’t making things any easier.

In 2020, the White House began pausing federal student loan payments and extended this freeze six times. Additionally, there has also been a lot of talk from President Biden as well as several members of Congress about possible student loan forgiveness. All of this has created confusion for the general public about where these issues stand, and its set the stage for scammers to prey upon those in need of help.

While some legitimate companies are authorized to help students navigate their loans, it’s difficult for most consumers to tell the difference between what’s real and what’s not. To make matters worse, many of the more scrupulous companies even claim to be associated with the U.S. Department of Education or consumer advocacy groups, but they are in fact not. That’s why in this post, we’d like to offer you ten tips on how to spot and avoid student loan scams.

How to Spot a Student Loan Scam

Not sure if someone you’re considering working with is the real deal? Here’s how to tell if they’re a scam.

  1. Asking for Money Upfront

If anyone associated with loans or debt ever asks you to pay for their services before they assist you, then they’re not who you think they are. The Federal Trade Commission (FTC) has made it very clear that it’s illegal for any debt relief company to collect fees from a customer before they’ve actually settled or otherwise resolved the consumer’s debts.

The government and the private companies that they’ve approved to service student loans will never charge you for what they do. The forms and applications that these scam companies claim to file on your behalf can be done on your own for free, such as:

  • Free Application for Federal Student Aid (FAFSA)
  • Income-Driven Repayment Plans
  • Public Service Loan Forgiveness (PSLF)
  • Scholarship forms
  • Debt consolidation
  1. Pressuring You to Act

Anytime someone urges you to work with them or tells you that you’ve got limited time to act, they’re using old-school sales tactics. And most likely, they need you more than you need them.

Agents of for-profit companies often work on commission, meaning the more people they get to sign with them, the more money they make. Businesses that operate under this model will not put your best interests forward.

  1. Asking for Your Personal Information

Whenever someone asks for your personal information such as your Federal Student Aid (FSA) ID or password, hang up the phone. Under no circumstances should this information ever be given out to anyone because it would allow them to enter your account, lock you out by changing your password, and then make agreements that you didn’t authorize.

The same thing could happen when you update your bank or demographic information. Service providers may have changed over the past few years since the CARES Act and the federal payment you’ve made, so it’s possible you might be unfamiliar with the new loan servicer. That’s a perfect opportunity for theft.

A major red flag is to never give out your Social Security number (SSN). With your SSN, a scammer can do all kinds of damage from opening credit cards and taking out loans … even a mortgage! Never give anyone your SSN unless you’re absolutely sure about who you’re working with.

  1. Offering Student Loan Forgiveness or Cancellation

Over the past two years, there have been several actions from the White House that have resulted in nearly $20 billion in student loan forgiveness. However, these were very specific situations or borrowers who met certain criteria.

Scammers might try to make you believe that they somehow have the inside track and can get you to also qualify. For example, they might tell you they can get your loan charged-off or forgiven for an upfront credit card payment of $399. However, this is all nonsense.

In extreme situations, they can even make things worse. They might try to convince you into strategies like missing payments or filing bankruptcy. But make no mistake … you’ll still not only owe in addition to now also having late fees and penalties to deal with.

  1. Promising Quick Relief

Another line scammers will use is that they can provide you with “quick” relief. No offense to the government, but being quick is not what they’re known for.

Again, no one has power over the government. Filling out the proper forms for debt consolidation or changing your payment terms based on income will take time to process. Be patient while you await a response from the government.

  1. Advertisements

How did you find the company or offer that you’re considering? Was it at the top of a Google search or in one of the sidebars of a website? If so, then it was most likely a paid advertisement.

Companies regularly pay to be at the top of search engines. And while their listing is clearly marked “Ad”, some people miss this detail and click on it anyways.

Although there’s nothing wrong with advertising, think about it logically. These companies are paying for advertising because they want to boost their revenue. That means they may be more financially motivated than interested in providing you with honest help.

  1. Direct Contact

Did someone contact you directly about refinancing your student loan or offering to get your payments reduced? Unfortunately, many of these agents will cold-call or spam potential customers using lists they purchased from marketing companies. They often have little or no information about your exact situation, and no basis for any of the claims they’ll make.

  1. Website URL

Check the address (URL) of the website that’s contacting you. Unless it says “.gov”, then it’s a for-profit company and most likely a scam. A lot of companies will create their websites with a “.us” URL to make it seem like an official government entity, but the reality is that anyone can register a .us domain … including criminals.

  1. Fake Endorsements

Another trick that fraudsters will use is to add the Department of Education’s official seal or other organization logos to make it seem as though they’re affiliated or endorsed. However, these companies most likely have no actual connection to the government and are most likely using these images illegally to trick consumers.

  1. Seems Too Good to Be True

As the old saying goes, any time someone makes you an offer that’s too good to be true, then it probably is. As much as you’d like to have someone tell you there’s a way out of your student loans, the truth is that the only real way is by paying them off.

Everything you need to know about your options is right on the Department of Education’s website. The best way to keep up with the latest news and programs is to check their official website.

What to Do If You’re the Victim of a Student Loan Scam

If you read any of these tips and believe you may have been or are currently being scammed, the first thing to do is not to panic. Check online for any negative reviews or with the Better Business Bureau to see if anyone else has reported trouble with this company in the past.

To take action, report your case immediately to the following:

  • The Federal Trade Commission (FTC) at ReportFraud.ftc.gov. Additionally, if someone has stolen your identity, then you can also report it to the FTC at identitytheft.gov.
  • Local state attorney general’s office
  • The college or university’s financial aid or admissions office
  • The loan service provider

To further stop the scam, take the actions:

  • Alert your financial institution
  • Stop payment with your credit card company

It will be helpful to collect any emails, documents, or financial transactions that might help build your case.

Protect Yourself from Scams

Don’t allow yourself to become the victim of a student loan scam. Criminals know there’s a lot of misinformation out there, and they’ll use every chance they can to spin it into an offer to defraud customers of their money or personal information.

We all want our student loans to be paid off and behind us. But we also have to be patient as we repay them off just like any other money we’ve borrowed. Remember this and keep yourself informed by staying up to date on the latest official information.

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