Six Signs of a Student Loan Scam
Student loan scams have become much more common over the past few years. Federal and state consumer protection agencies are starting to take action against these scams.
There are several types of student loan scams. Some occur when you are initially borrowing a student loan. Others occur when you are repaying your student loans. Often, student loan scams charge a fee to obtain a student loan, consolidate or refinance federal and/or private student loans, reduce the monthly loan payment, reduce the interest rate, apply for loan forgiveness, end wage garnishment or get student loans out of default.
Such services are available for free on the federal government’s student loans website. They are easy to do on your own, without paid assistance.
Beware of these six warning signs of a student loan scam:
- Borrowers must pay a fee for student loan help. If you have to pay money to get money, it’s probably a scam. Most scams are run for profit, so charging a fee is a sign of a scam.
- Advance-fee loan scams. It is illegal for debt relief and credit repair services to charge a fee before providing assistance. If they charge an up-front fee, they are violating federal law, such as the Credit Repair Organizations Act of 1996 (CROA), as well as many state laws. Also, federal and private student loans do not require borrowers to pay a fee before obtaining a loan. Instead, the origination fees, default/guarantee fees and other loan fees are deducted from the disbursements.
- Charges monthly fees. Help obtaining or repaying student loans usually involves a one-time event, so there is no legitimate justification for charging a recurring fee. Often, student loan scams fail to adequately disclose that the fees are charged every month. If the service asks you to send your monthly student loan payment to them, the money might not ever be paid to the lender or might be paid late, ruining your credit. Be wary if a loan assistance company asks for your bank account information or your credit card number.
- Asks for your FSA ID. The FSA ID is an electronic signature, used to apply for financial aid and sign loan promissory notes. Never give anyone your FSA ID, no more than you would give them a blank check. Also, never sign a power of attorney for your student loans. Another red flag is if a company asks for your Social Security Number and date of birth, since they can use this information to apply for a FSA ID. Your name, Social Security Number and date of birth are all someone needs to steal your identity.
- False claims of affiliation with the U.S. Department of Education or the federal government’s Direct Loan program. Some companies have falsely claimed that they are the only source of financial relief for struggling student loan borrowers or that they are providing assistance to get a tax write-off. Beware of any company that discourages you from using official government web sites or other sources of information and advice.
- Company names and logos that seem official. Common examples include the words "federal,” “direct” and “national” in the company name or use a tree or an eagle in the logo.
Never pay for help. The U.S. Department of Education provides help for free. Just call the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243) or visit vist the government's student loans website.