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By Dori Zinn and Mike Cetera: 03/15/2021

Imagine being anxious about affording your federal student loan payments. And then you receive a phone call from someone who says he’s affiliated with the U.S. Department of Education. His company can help you qualify for federal programs to permanently reduce your monthly payments.

All you have to do is pay an advance fee of about $1,000, make monthly loan payments directly to this company instead of your servicer and promise to ignore future phone calls and emails from your servicer or the Department of Education. Desperate to get out from under your debt, you sign up.

This is what a student loan scam looks like, according to the Federal Trade Commission, which in February 2021 announced a $1.7 million settlement with one company alleged to have bilked student loan borrowers out of millions of dollars by falsely promising to help them seek debt relief.

These types of student loan scams are not uncommon. Read our guide to learn what to look for, the biggest known scams to avoid and what to do if you’ve been victimized.

Student Loan Scam Red Flags

Student loan forgiveness scams aren’t always easy to pick out, but there are some clear warning signs you should look for when someone claims to be able to help you with your debt. Here are the five red flags you should be aware of.

1. The Company Charges Upfront Fees

A student loan service provider shouldn’t demand payment for something it hasn’t yet done. What’s more, most student loan relief and basic services are free. For instance, all your federal loans handled through the U.S. Department of Education offer income-driven repayment (IDR) plans and consolidation loans you can apply for—all at no charge.

You also can ask the Department of Education or your loan servicer for help with applying for student loan forgiveness programsforbearance or deferment. They even can help you get your loans out of default.

If you’re considering debt relief, talk to a certified student loan counselor at the National Foundation for Credit Counseling (NFCC) or another accredited nonprofit organization.

2. They Seek Your Personal Information

Unless you’ve signed a loan contract, you should keep your private information private. In some instances, you might need to share your Social Security number or your Federal Student Aid ID (FSA ID). This gives companies access to log into and manage your account on your behalf. Only do this if you’ve vetted the company you’re sharing this information with.

3. You’re Given Forgiveness Promises

With total outstanding student loan debt well into the trillions of dollars, many borrowers are drowning with no way out. It’s no wonder they turn to forgiveness options with whomever offers it.

But student loan forgiveness is only offered by the federal government through programs like income-driven repayment or Public Service Loan Forgiveness (PSLF). While you might qualify for a modified repayment plan—through the federal government or by refinancing with a private lender—that doesn’t necessarily mean you’re on track for PSLF. And remember, if you refinance your student loans through a private company, you lose out on any chance to qualify for PSLF.

4. The Sales Staff Seems Pushy

If you’ve ever been told you need to sign something right away without reviewing a contract or application first, you should be on the defensive. For one thing, it’s not likely you’ll find any “deals” on student loan assistance programs. If you’re browsing student loan refinancing options, you might qualify for the lowest interest rate, which has nothing to do with a limited-time deal and everything to do with your stellar credit score.

5. They Claim to Be Connected with the Government

The only company that handles your student loan is your student loan servicer. The federal government contracts those companies, like Navient FedLoan Servicing, but they don’t work with other companies to handle forgiveness or relief.

Be careful with scammers that use language and logos from the federal government. If you’re unsure if there’s a legitimate affiliation, reach out to your loan servicer or the U.S. Department of Education for the truth.

5 Student Loan Scams to Avoid

The good news, if there is any, is that most student loan and student loan forgiveness scams fall into a few recognizable buckets. The top student loan scams to avoid include:

  1. Student loan consolidation scams. You can consolidate your loans through the federal government for free. If a company charges you money to consolidate your loans, it’s not a real program.
  2. Student loan debt elimination scams. The only way you can eliminate your debt is to pay it off yourself—or to qualify for forgiveness through your payoff plan or by meeting certain eligibility criteria. Beware of a company that promises fast debt relief through forgiveness or other means.
  3. Advance fee scams. This is when a company charges an upfront fee to refinance your loan. You shouldn’t pay a company to refinance your loan before it gets refinanced. If there are fees, like a loan origination fee, it’s typically rolled into your loan payments once you’ve applied and been approved.
  4. Lawsuit scams. Many big-time student loan servicers have millions of clients and sometimes various pending or recently settled lawsuits. Navient, for example, has 10 million customers. If a company reaches out to you about a recent lawsuit through a big loan servicer and requests a fee promising loan forgiveness, it’s not real.
  5. Student loan forgiveness scams. This can be a standalone scam or tacked on to another one listed above. Only the Department of Education offers forgiveness programs to federal student loan borrowers. If any company reaches out to you about forgiveness, beware. Private student loan forgiveness is extremely rare, so you shouldn’t let a company convince you otherwise.

I’ve Been Scammed. What Do I Do Next?

If you believe you’ve fallen victim to a student loan scam, you need to take immediate action by:

  • Filing a complaint. If you’ve already turned over sensitive information or otherwise been scammed, you can file a complaint with the Federal Trade Commission, your state Attorney General, the Consumer Financial Protection Bureau or your lender.
  • Changing your login information. If you have FSA ID information that you passed along, immediately log in and change your information. Don’t share your new login with anyone.
  • Contacting your loan servicer. You’ll need to tell them that you want to revoke any power of attorney or authorization you gave to a third party. Review your loan activity to make sure nothing suspicious has happened yet. If it has, make sure your loan servicer is aware.
  • Checking your bank. Review your recent transactions to see if any payments have been made. You might need to contact your bank or credit card lender to stop payments to the student loan debt relief company.

Bottom Line

Paying off student loans is a major burden on millions of Americans. If you’re looking for help, talk to an accredited student loan counselor or your student loan servicer to see what options you have. For instance, if your monthly payments are too high, you might be eligible for an income-driven repayment plan. If you work in public service, you might qualify for forgiveness. Don’t fall for a telemarketer’s pitch to help save you from student loan debt.