It's easy to fall for student loan scams when education is so expensive. Education does not come cheap anymore, especially when you are trying to finance it yourself. Just the tuition and fees for public colleges and in-state schools can go till $10,000, and for private universities, it can be almost four times that amount every year.
On average, a person who has borrowed a student loan for financing his education has a debt of more $35,000, according to Experian. Looking at these numbers, it is no wonder that students are finding it so hard to pay back their educational debts all on their own and start finding all these student loan scams.
Sadly, some people recognize this fact, and instead of making it easier for these student loan borrowers, choose to exploit them in this situation. That is why you will find numerous student loan scams out there whose sole purpose is to take advantage of those student loan borrowers who are struggling to repay their debt.
If you also happen to have student loan debt, keep in mind these three points that are clear signs of a student loan scam:
- Monthly or upfront fees
- FSA ID requirements or power of attorney
- Claims of instant loan forgiveness
In recent years, the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) have taken action against many debt relief companies that were claiming to provide student loans with bad terms.
Of course, there are some companies out there which do provide good terms which can help you finance your education and manage your student loan debt. However, there are a few dishonest ones as well, which you can recognize by looking for these three signs.
1. Student Loans Scams: They Ask You for Monthly or Upfront Fees
It is pretty normal for any business to charge you some fees against the product or services it has provided and it’s the same case for student debt relief companies. However, it is not normal for a business to ask you for some payment before it has even done anything for you, if this happens to you, they are probably student loan scams.
Therefore, if the loan company is charging you a fee before consolidating and settling your debt, and reducing your payments, it is not legal, and a sign for you to run away.
Everything that a loan company offers to do for you is something you can do yourself as well, regardless of whether you have the professional help or not. For instance:
You can contact your student debt servicer yourself.
You can check if you qualify for loan forgiveness yourself.
You can alter your payment plan yourself.
You can talk through different options to get your debt out of default yourself.
Having said that, it is entirely okay for you to pay someone else to handle these tasks for you to make things a little easier for yourself. In fact, many people already do so. They hire other people to file their taxes, settle their loans or improve their credit scores instead of doing it themselves.
Managing your educational debt can be hard and time-consuming, but it is essentially a free task. If a student loan company is asking you for hundreds or perhaps thousands of dollars as a service fee, and that too upfront, it is probably a scam and a sign for you to get out of there as fast as you can because they are student loan scams.
2. Student Loan Scams: They Ask You to Sign a Power of Attorney or to Share Your FSA ID Requirements
All loan companies will ask for some of your personal information which they will need to access your details and process your services. That is entirely normal. However, if they ask you to share your Federal Student Aid (FSA) ID credentials, or they ask you to sign a power of attorney form, it is not normal.
Instead, it is a sign of danger that they are trying to scam you. With either of those things, the loan company can essentially take control of your debt. This means, while the debt is still yours, the loan company can make all kinds of changes to the loan terms and agreement.
Since they are scamming you, these will not be good changes. For instance, if you’re paying the loan company for them to make the payment on your behalf, they might keep the payment for themselves without showing that transaction in your loan account.
So, you’ll be out of that much money but will still have the same amount of debt, and this is only some of the many ways student loan scams work.
3. Student Loan Scams: They Claim to Get You Instant Loan Forgiveness
Loan forgiveness can sound too good to be true, and it usually is with most student loan scams. This doesn’t mean there aren’t any at all. Some state and federal programs are legit when they claim to forgive or even reduce your educational debt, for instance, Public Service Loan Forgiveness.
However, very few people are actually eligible for it, and even then, it takes them a long time to qualify for the forgiveness program. The chances are pretty slim already, and if someone claims to offer ‘instant’ loan forgiveness, well that doesn’t really exist.
Hence, it is clear that the loan company is trying to take advantage of you by tempting you with words such as ‘instant loan forgiveness.’
The salesperson will probably try to make you believe that you meet all the eligibility criteria and are even overqualified for the forgiveness program and will pressurize you to sign up. If they make it sound too easy, you'll know for sure these are a student loan scam.
What Should You Do Next?
For people who fall for such student loan scams, they have to pay the price and face the consequences for a long time. The scams can worsen your debt and your overall financial situation, which can be hard to recover from.
That’s why it is so crucial that you learn to spot these signs. If you do learn of a loan company that is trying to scam student loan borrowers, report them to your state attorney general, CFPB, or the FTC. By doing so, you can help prevent that company from scamming someone else.
Other than that, you can approach the National Foundation for Credit Counselling (NFCC) to help you locate a certified loan counselor for yourself and stop getting abused by these student loan scams.