Are Student Loan Scams for Real?
Student loan debt is climbing with seven out of 10 graduates owing an average of $28,400 upon graduation as published by the Project on Student Debt. Scammers are looking to take advantage of this highly vulnerable and potentially lucrative market. Scams are popping up all over the place, and it can be difficult to navigate through the confusing arena of the student loan repayment process. There are companies out there that can help you, but student loans are complicated, and you may not fully understand your rights and responsibilities. If you need help paying off student loans, it is important to understand the difference between a scam and a legitimate source of aid.
Types of Student Loan Scams
After graduation, student loans usually enter into a six-month grace period before the first payment is due. Desperation may set in as the weight of your debt and the looming and possibly unmanageable payments creep closer. This is often the time that scam artists will target unsuspecting borrowers. Knowledge is power, and knowing what types of scams exist is the first step toward avoiding being sucked in. Possible student loan scams include:
- Debt consolidation programs
- Programs promising to lower your interest rates
- Loan reduction or elimination programs
- Student loan giveaways
You may have borrowed money from multiple sources, resulting in more than one loan, and consolidation programs may be appealing. Programs offering to consolidate your debt may be legit; however, they may not be in your best interest, as you will forfeit your original loan benefits. In addition, it is important to note that if you have federal student loans, they can only be consolidated through the Federal Direct Consolidation Program, which costs nothing up front. Scams essentially ask you to pay a fee for a service you can accomplish easily on your own in about 20 minutes for free.
Legitimate loan forgiveness and lower payment options do exist; however, they are heavily regulated, and you must meet specific eligibility requirements. Your loan holder or lender will offer you the best rates and options possible. Companies asking for money up front to negotiate the elimination or reduction of your loan are generally running scams. Companies offering to lower your payments by lowering your interest rates through a refinance may not be scamming you, but doing so is often not in your best interest. Variable interest rates may be lower than fixed ones to begin with, but they have the potential to rise higher and are dependent on your credit score.
Student loan sweepstakes have popped up on social media outlets offering a contest that absolves a certain amount of student loan debt. While Sallie Mae, a big name in the student loan business, did offer a Facebook contest for real, many scams appeared to mirror this contest, which only had four actual winners. These scams asked for personal information including access to your email account that provided them unfettered and untracked admittance to your life, opening up the door for identity theft.
Spotting a Scam
Many times, companies ask you to pay a fee to reduce your interest or help get you out of default. While this is not always a scam, it often is, as scams will take your money and not provide the services they promised. Those legitimately offering this service should have reasonable fees, and you should be well aware of the terms of service and expected outcome ahead of time. Additionally, legitimate lenders will not ask for a fee up front, but rather the fees are paid upon the closing of your loan. The fees are usually rolled into the cost and not an expected out-of-pocket expense.
Loan providers or lenders will never charge you for a consultation either, so any company requiring an upfront fee in order determine if you qualify for their program is likely a scam. Most private loan holders as well as federal loan holders also do not charge you for applying for a loan consolidation, deferment, or lower payments.
- Deal directly with your loan provider or lender.
- Do not give anyone legal authority or power of attorney to negotiate on your behalf.
- Never pay fees up front.
- Keep track of your credit scores and information.
- Do not give out your personal information, including your email address, without being positive the company is legitimate.
- Look at a company’s reviews from independent sources and previous clients.
- Be aware of your rights and responsibilities as a borrower.
- Know what type of loan you have, your repayment schedule, and what your options are.
- Remain vigilant.
Con artists are becoming increasingly sophisticated, and student loans can be difficult to understand. A great resource is the Consumer Financial Protection Bureau (CFPB), which can help you determine your legitimate options and protect you from scams. When in doubt, contact your loan provider, lender, or loan servicer directly. They are best able to advise you on potential options to keep you from defaulting on your loans and make your payments manageable, and they won’t charge you for information.
Types of Student Loans
- Student Loans Home
- 911 GI Bill
- Alternative Schools
- Flight School
- For Bad Credit
- For Community College
- Funding Graduate School
- GI Bill
- Interest Free
- Low Interest
- Medical School
- No Co-signer
- No Credit Check
- Parent PLUS
- Part-Time Students
- Post 911 GI Bill
- Private Loans with No Co-signer
- Private School
- Subsidized Loans