Student loans have pumped trillions of dollars of taxpayer funds into paying tuition, fees, and other expenses for students. With so much money moving from the federal government through so many hands, inevitably scams and student loan fraud would crop up to target the largesse. This type of fraud represents one of the fastest-growing areas of financial crime.
Student loan fraud can occur in different ways. In some cases, a person’s identity gets stolen. In others, intentional misrepresentation has occurred that leads the student to borrow when he or she might not have otherwise.
Unfortunately, the most vulnerable party, the individual, must often endure the frustration and burden of rectifying the fraud.
What Is Student Loan Fraud?
First, fraud takes place when another person opens an account in your name without your permission. They draw down funds, collect them, and then vanish. Often, the perpetrator has illegitimately borrowed thousands of dollars before anyone discovers the fraud has taken place.
Fraud can also occur even when the individual has full knowledge that he or she has taken out a student loan. If the loan itself took place under false pretenses or if someone intentionally misled the student, the loan itself can be challenged in court.
Increasingly, authorities look at colleges themselves that pressure students into taking loans for programs that do not give an adequate chance for employment and repayment.
Damage From Student Loan Fraud
For the student, fraud can be an incredibly frustrating experience. Even after reporting the fraud, it’s still possible to be stuck paying for the fraudulent loan. Fraud also costs taxpayers. Instances of student loan fraud will, according to a federal report, cost taxpayers nearly $200 million with the total cost to the economy hovering near $900 million.
Colleges themselves also lose out. Their loss comes in the form of man-hours spent processing the paperwork of students who never show, or come only one time, to class.
The biggest relative pain, however, is felt by defrauded individuals.
First, the individual must deal with a massive account balance. At best it may “only” be in the thousands. At worst, the victim could find themselves owing tens of thousands of dollars. If not caught in time, the student loan debt could put the individual in default.
When in default, the victim faces a number of problems. Any debt default harms your credit considerably. Default on debt, or even carrying an inordinate amount of it, can push your credit score down. You will definitely face problems buying a house or a car. In the worst cases, even a credit card may become difficult to obtain.
Fraud from misrepresentation leaves the individual owing large sums of money without receiving a promised value for money spent. The false pretense used by the person or people encouraging the loan can directly result in the borrower being left in circumstances where he or she cannot reasonably repay their loan.
Who Commits Student Loan Fraud
Student loan fraud can occur in a variety of ways and can be perpetrated by those whom you might be inclined to trust. Watch out for schemes that might entrap you into giving away sensitive information that might lead to fraud.
Criminals have a long list of techniques they may use to commit student loan fraud. Often times, they use fraudulently obtained information to garner ill-gotten revenues.
Most of the time, criminals use your identification information to steal your identity and open their own student loan accounts. Ironically, they may use information illegally obtained by those seeking relief on their own loans. Debtors may respond to an advertisement or a phone call that promises debt assistance and end up giving up their personal information to the wrong people.
In many cases, the scam will include sophisticated references to government agencies, such as the US Department of Education. Other times, they will cite a nonexistent program created by a recent president and warn of a false deadline for action.
In any event, once they have information from a student not in default, they can open loan or credit accounts, running up balances while the victim remains unaware.
In some cases, federal investigators uncovered rings of student loan fraud. Less than 10 years ago, a group collected personal information from willing and unwilling participants to open student loan accounts, collect money, and never repay or even attend class.
Colleges and Universities
Colleges and universities themselves have come under increased scrutiny over student loan and other aid practices in the past 10 years. Most attention has focused on for-profit higher education.
Most for-profit colleges and universities, like their non-profit colleagues, play by the rules and make student interest one of their chief priorities. Federal and state officials, however, found that ITT Tech committed misrepresentations that rose to the level of fraud.
Many who attended ITT Tech found that their student aid did not cover tuition. With the connivance of a loan company, ITT Tech offered what they called temporary credit. Students assumed that the credit would go onto their loans to be repaid after graduation. Instead, ITT Tech demanded repayment before the beginning of the next semester.
Many state attorneys general and the federal government agreed that the case rose to the level of fraud, took ITT Tech to court, and received a settlement.
Non-profit colleges and universities will continue to come under scrutiny themselves as many academic programs offered increasingly fail to lead to significant employment after graduation. Some well-known schools engage in shady practices, such as steering students to job opportunities in major metropolitan areas regardless of the effect of the cost of living. The practice boosts reports of average post-graduation salaries. Colleges then use the numbers to promote their programs.
At some point, some of these practices now considered unethical could someday be seen as fraud.
If you felt undue pressure to take out student loans and received less than promised value for the degree earned, you are eligible to take action.
Friends and Family
Statistics indicate that students are four times more likely to be victimized by a family member or close friend rather than strangers. Too many find that siblings, cousins, and even parents will steal confidential information and familiar details about the person to engage in student loan fraud.
What to Do If You Suspect Fraud
As soon as the victim suspects that they have become a victim of fraud, they should take action. Those who feel that they experienced misrepresentation from an institution of higher learning should first contact their state attorney general’s office for guidance on how to proceed. Most likely, the next step for these victims would lie in contacting a reputable lawyer experienced in student loan fraud resolution.
Victims of identity theft should perform the following steps to contain and roll back the damage done to them by the fraud.
Review Account Statements
Check your account statements first. In cases where the loan money went to a third party and conferred no benefit onto the victim, he or she has a reasonable chance of resolving the issue.
If the money deposited into the victim’s account and was used for his or her benefit, it will be more challenging to avoid the obligation. It is vital to understand that if a loan check was deposited into your account fraudulently and without your knowledge, you must not use that account until you consult a legal expert.
Contact the Lender
In any case of loan fraud, first contact the lender. If the loan was taken from a private sector lender, such as a bank or other credit business, let them know immediately. They will freeze the account and conduct an investigation.
File Reports With the Federal Government
In most student loan cases, however, the federal government itself, specifically the US Department of Education, serves as the lender.
The Office of the Inspector General handles all investigations of federal student loan fraud. Those victimized by any practice that they consider fraudulent should reach out to the OIG as soon as possible. Those seeking anonymity can file a special report guaranteeing the privacy of the victim.
You may also call the borrower defense hotline to keep track of your case. If you believe that your case has not received attention in an appropriate or promised time frame, contact your US Congressman’s district office or US Senator’s state office. Both will have case workers that can help you work with federal agencies.
In addition to the Department of Education, you should file a report with the Federal Trade Commission if your fraud came from identity theft. The FTC has an easy portal to both handle reports of identity theft fraud and to offer helpful tips on how to recover.
Review Credit Reports
Those claiming that they have suffered from fraud have the legal right to a free credit report from the major credit scoring agencies, Experian, TransUnion, and Equifax. Review these reports carefully once in hand.
In cases of identity theft, you may have to contend with multiple cases of fraud. You will want to immediately review your credit record, score, and history to search for fraudulent activity. If necessary, ask an accountant or another expert to help you work through the reports and find fraudulent transactions or applications.
Check for unfamiliar credit applications, especially credit cards.
Officially Dispute Fraudulent Information on Your Credit Report
Once you discover evidence of fraud in terms of unfamiliar citations on your credit report, make sure to submit a dispute of charges to the reporting agency. This helps you to identify on the record which loans and charges did not originate with you. It also serves as an initial step toward resolution.
Submit a Fraud Alert
Contact all three major credit reporting agencies and have a 90-day fraud alert added to your credit report. Since the three agencies have different methods of gathering reports and do so at different times, it is vital that you report to all three.
A fraud alert will not freeze your identity completely. You can still apply for credit. Financial institutions will have more stringent requirements for application.
File a Criminal Complaint With the Local Police
Defrauding anyone is a criminal act, usually a felony. Once you have evidence that a criminal has defrauded you, file a report with local law enforcement. Police have advanced forensic computer techniques that can assist in tracking down the perpetrator. Cyber criminals and fraud artists have grown into one of law enforcement’s top priorities and they may be able to offer help.
The police report will also come in handy when trying to resolve the financial issue. The three credit reporting agencies will request a copy. The lender might as well.
Apply for a Student Loan Discharge
Although no formal process for discharge for any reason exists, you may put in a request for one due to identity theft.
To qualify for a discharge, be prepared to prove that you did not personally benefit from the loan monies dispersed. You will also need six handwriting samples, including multiple examples from the time frame of the identity theft, to prove that you yourself did not sign the paperwork.
Finally, you will need a judgment that clearly names you as the victim and another as the perpetrator. It must include an official statement that funds were borrowed fraudulently under your name. A police report will not suffice.
If you submit the information and do not receive an answer in a timely fashion, reach out to your Congressional district or US Senator’s state office for assistance.
Get a Lawyer
Financial fraud cases, especially those involving student loan fraud, can tangle up your personal finances for years. They can force you to put your entire life on hold while restoring your financial position and your credit.
You will likely need experienced legal help from a law firm that specializes in student loan issues, especially in cases of scams and fraud.
Iron Fist legal
We specialize in providing an affordable, attorney-based student loan modification service for individuals facing more than 30K in student loan debt.
Reach out today to learn more about how Iron Fist Legal can help and see if you are eligible for a student loan modification. Our friendly and expert staff understand your fears and frustrations and can answer any questions that you may have. Schedule a complimentary consultation today.