Some college graduates collect an overwhelming amount of student loan debt and become desperate to find solutions. Money-hungry scam companies know people are looking for a quick fix, and they prey on student borrowers using tactics that sell “too good to be true” dreams.
What is a Student Loan Forgiveness Scam?
When it comes to student loan forgiveness, a scam typically involves charging a fee for a service without providing any service, or it involves making a payment for a service that could easily be done for free. The aforementioned services usually involve offers to enroll in a forgiveness program, offers of complete, unwarranted debt relief, or even making contact on one’s behalf to inquire about student loan forgiveness. Typically, the borrower or victim is out on money after receiving no help or redundant advice from whatever company is involved. In worse scenarios, a victim may have his or her identity stolen.
Spotting these student loan scams should be easy. If anything, any sort of contact made with a random company that offers a service should be regarded suspiciously. Just know as a rule of thumb that companies offering student loan forgiveness through cold emails or unwarranted calls fit directly into that category.
Detecting a Student Loan Forgiveness Scam
Though the promise of complete loan forgiveness may appear to be the solution for college graduates bogged down with student loan debt, accidentally getting scammed can create far more trouble. Be on the lookout for the following warning signs that suggest an offer may be a student loan scam.
Payment is Required for Services
Be suspicious if, at any time, a company reaches out to you offering a service for a fee. A company that asks to receive money prior to conducting financial services is more interested in making a profit for itself than providing solid financial services, scam or not. If the representative becomes insistent regarding payment prior to loan consolidation services, it is best to refrain from providing any further information and to walk away.
Immediate Loan Forgiveness is Being Offered
It takes time to straighten out financial matters in a way that leaves the loan holder in the best possible financial standing. Absolving all student loan debt right away is an unrealistic and often dishonest promise that many companies use to lure college graduates into their student loan scams. The only loan forgiveness program is offered by the federal government, and any promise from a third party should be ignored.
Loan Holder is Told What to Do With Debt
A company involved with student loan forgiveness scams often pressures loan holders into believing they desperately need their “services.” It is up to the loan holders to make every decision regarding their finances. Legitimate companies do not try to convince loan holders that they are in desperate need of extreme financial services. If a company is pressuring you to enroll or provide information, then it is safer to ignore the requests. Instead, contact a qualified customer service representative with your student loan servicer.
How to Avoid Forgiveness Scams
Don’t Pay for Something You Can Do for Free
While some companies that offer to consolidate student loans may be legit and actually consolidate your loans, this is not something you should pay for. Federal loans can be consolidated for free with the federal government. The process is straightforward and easy to follow for most people. Do not pay anyone to do it for you.
Know What You Are Actually Getting
For example, if the company is advertising consolidation, is it refinancing all of your federal and private student loans, or is it only consolidating your federal loans? Consolidation is a process you can complete on your own at no charge. Now, if the company is advertising loan forgiveness, how is it really eliminating your monthly payment? Some companies are only putting your loans in forbearance. If a company does suggest putting your loans in forbearance, make sure you understand why it wants to use forbearance, how long the forbearance period will be, and any additional actions you may need to do, such as providing proof of income, to complete the process. If you do not understand what a company might actually be doing for you, then you should walk away.
Avoid Advance Fee Scams
Many student loan scam companies will make tempting claims to erase your debt or dramatically reduce your debt for just six easy payments (or less). However, like most things, if it sounds too good to be true, it probably is. Many times, these companies take your money, no work is done, and eventually the company “skips town” and is nowhere to be found. A legit company will set a fee for its services, which should include helping you understand your options and the best solution for your situation. The fee should be held in a third-party account until the agreed-upon work has been completed successfully.
While searching for ways to reduce student loan debt, loan holders should be careful to read the fine print so they know what to expect. Be wary of any company that makes promises that sound too good to be true. If you do have concerns about a company, check with the Consumer Financial Protection Bureau or Better Business Bureau for reliable reviews. Make sure the service is reliable and worth the payment being requested. Use a third-party escrow-type account to hold payment until the work has been completed. One final note: ALWAYS PROTECT YOUR PERSONAL INFORMATION.