Federal and state officials in the past few years have ramped up their efforts to educate people about student loan forgiveness scams. As holders of student loan debt grow more desperate to find ways to unload it, predators increasingly find ways to use it to their own advantage.
As West Virginia State Attorney General Patrick Morrissey relates, “It’s not surprising that so many students seek financial assistance in order to accrue as little student debt as possible.” Students get bogged down in the often overwhelming debt that adds up easily, then seek ways to lessen the burden. While a number of legitimate student loan relief programs exist, differentiating between them and scams gets more difficult all the time.
Government agencies at all levels work to both combat scammers and educate the public, but this so far has not eliminated the problem.
Why Are Student Loan Forgiveness Scams Increasing?
According to a Forbes contributor, student loan numbers have hit their highest points yet in 2019. Total debt edges close to $1.6 trillion. If the total number of those holding student loan debt formed their own state, it would outstrip the population of California by nearly five million people.
Over $100 billion of loans currently fall under default status while an approximately equal number rests in forbearance status.
The staggering numbers of individuals in debt, forbearance, and default serve to attract the unscrupulous and the criminal. Criminals and legal fraudsters understand that with such a large population seeking help, they can fool many into handing over money or personal information.
Many Scams Are Technically Legal
Unfortunately, many scams operate completely legally. They offer certain kinds of assistance for an upfront fee. Many also include references to the US Department of Education, which hints at affiliations that do not exist. Sadly, the most effective scammers work with unscrupulous lawyers who advise them on how to skirt legal protections for those in debt.
Sometimes law firms themselves cook up the scam. A victim receives a bogus referral from a “student loan aid company” to join a lawsuit conducted by a firm. The law firm claims that it is filing a class-action lawsuit that can reduce debt by thousands. It often convinces debtors to pay student loans back through the firm. They then pocket the cash while not paying the loan, leaving their victims with bad credit and still unpaid loans.
Again, the most skilled of the scammers understand how to milk you out of money without technically breaking the law.
How to Spot the Most Common Scams
The most common scams sport a common theme. They hook victims with claims that should sound too good to be true. Many recent college graduates, however, have limited life experience. They do not fully understand the real world of finance and scams. For many, the context of their knowledge has not advanced enough to inform them when a deal is “too good to be true.”
Scammers have gauged the level of desperation and naivete. Both have enabled them to prey on already financially desperate individuals unwisely seeking help from any corner.
The best way to combat scams lies in education. When people know the red flags and understand better how scams work, they can avoid them. Below, we provide a list of red flags and common scam techniques. Please feel free to spread this information to any friends, family, or others who feel the burden of student loan debt.
You Are Contacted by “Student Loan Debt Relief” Companies or Organizations
Scammers have found that aggressive cold calls to people in debt have resulted in rich harvests of ill-gotten gains. Such calls work even better when they claim to represent an arm of the United States government.
For years, federal officials have warned those with tax problems to avoid speaking with anyone purporting to call from the IRS or a company working with the IRS. Most trick victims into turning over personal information or into paying fees. Student loan scammers have learned how to use the same tricks on an equally vulnerable population.
They Use Deadline-Based Advertisements
Scammers have also grown savvy in using time-sensitive messaging to lure in victims. The tactic here lies in threatening that a soon approaching deadline will restrict access to certain relief programs. Interestingly, fraudsters divide their efforts along ideological lines. For example, those with home loans today may get hit with hints that a Trump sponsored program will soon end, leaving them with less lucrative refinancing opportunities.
College student debt holders more often hear that an Obama Administration program for debt relief will soon expire. Some may even use a photo or caricature of the former president to enhance the connection and to make it look more official. Not meeting the deadline will put debtors at risk of not qualifying for relief and reduction programs.
Any relief program that features the name of a president popular with a certain market niche and that claims a program which that president sponsored will soon end should be seen as a major red flag. The scammers try to use political affiliation and respect for certain elected officials to enhance their ability to separate victims from their money.
They Ask for Sensitive Personal Information
Never give sensitive personal information over the phone unless you trust the recipient completely. If a company promising student loan debt relief calls, assuring you that they work with the federal government, and then asks for personal information, assume it is a scam.
Any third-party organization working with the federal government would not need your social security number or other personal information. Those truly partnering with the Department of Education, if such a partnership existed, would already have access to that info and would only ask minimally invasive and safe questions to confirm your identity.
Scammers look for personal information seeing it as the gift that keeps on giving. They can use your social security number and other identifying information to open up a fraudulent credit card, health insurance, and other accounts. They may also steal your earned airline miles. Hackers may also intercept federal and state tax refunds and open utility accounts.
Finally, never reveal to anyone your Federal Student Aid (FSA) ID and password information. This allows them to unlock your records and use the information contained within.
Scammers Ask for Fees for Services You Can Access for Free
Another common across-the-board scam tactic lies in tricking victims into paying fees for services typically rendered for free or at a relatively low cost. Traditionally, scammers trick those trying to obtain government documents with this ruse. They offer title acquisition services to new car owners who could do this service for themselves by going to their state’s department of motor vehicles. Others tack on extra fees to obtain birth and death records for individuals.
Most of these kinds of scams, unfortunately, are completely legal.
Never pay an upfront fee to a company to “help” you with government services. Taxpayers pay for government agencies to provide the assistance themselves. If the agency itself has difficulty resolving the issue, others can help. Assistance in dealing with a federal agency can be sought at no charge from your US Congressional or Senate office.
Other Typical Scam Tactics
Scammers understand the terminology of student loan relief and they use tried and true tactics to get your attention. They use legal, financial, and bureaucratic buzzwords to fool victims into thinking that they can qualify for a deal. When action is taken, it usually ends up more costly for the victim.
Many individuals find that they can save money and simplify their debt repayment by consolidating their student loans. Indeed, many have done so and have benefited from this program in the past. Some who have gone this route may find that the process resets monthly payments, sometimes at a higher rate.
What all holders of student loan debt need to understand is that the federal government can do this for free. Even if some of the loans came from private sources, you may still qualify for consolidation.
Scammers rope in debt holders who inquire about qualifying for consolidation. They trick victims into paying an upfront fee to process a consolidation application. Remember that the government charges nothing for this easy to access service.
Everyone should be weary of companies promising to have student debt erased. Any promises to eliminate debt represent a 100 percent falsehood. If anyone promising this service reaches out, you should pass on their information to your state’s attorney general’s office.
Most criminals using this scam target those who graduated from for-profit colleges and universities that lost their accreditation under an Obama Administration initiative. While Congress has started discussions on relief for these debt holders, no legislation is currently underway to address it.
Unlike elimination, student loan forgiveness is actually possible for many. Some can take advantage of public employment programs which eliminate debt if you work for the government for 10 years and pay regularly each month. Other programs can forgive part of your debt for teaching school in underprivileged areas.
Forgiveness often requires between 10 and 25 or more years to accomplish for those not using the Montgomery G.I. Bill. Some kind of public service is often required to qualify for it.
Anyone promising quick and easy forgiveness almost certainly seeks to defraud you.
Watch Out for These Other Scam Tactics
If student loan debt relief companies employ any of these techniques, consider them a red flag against moving forward with them. They include, but are not limited to:
- High pressure sales tactics that make you feel rushed to make an immediate decision
- Companies that solely offer loan consolidation services
- When the phone salesperson has limited or no knowledge of federal student loan programs or details about legitimate relief offerings
- Marketing includes the phrase “document preparation services”
- Too good to be true” claims of results
- Any request for FSA ID, social security number, or other sensitive information
- Official names or logos that insinuate partnership with the federal government
Where Can You Find Legitimate Help?
First, contact the Department of Education directly. Their representatives can help you to establish a payment plan to get you back on track. Additionally, they will explain how to apply for a forbearance or escape default.
A legitimate and accredited financial planner or certified public accountant can also work with you. They can take a look at your earnings, your bills, and other obligations to determine how you can create a repayment plan and stick to it.
Legitimate law firms can help you to explore legal options to reduce student debt, particularly in cases where the college or university no longer exists. Those who legitimately and legally perform student debt relief work will take care to explain upfront that not every debt holder or student will qualify for programs or relief.
Attorney-Based Services such as Iron Fist Legal can review your circumstances and see if you are eligible for loan modification or complete cancelation of your debt. We have a well defined process for helping individuals suffering from more than 30k in debt and meet the eligibility requirements.
Reach out today to for a complimentary consultation from a compassionate and knowledgeable team member.