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5 tips to avoid student loan payment and forgiveness scams – Forbes Advisor

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Imagine that you are anxious about paying off your federal student loans. And then you get a phone call from someone saying they’re affiliated with the US Department of Education. His company can help you qualify for federal programs to permanently lower your monthly payments.

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

Here’s what a student loan scam looks like, according to the Federal Trade Commission, which in February 2021 announced a $ 1.7 million settlement with a company that allegedly defrauded student borrowers millions of dollars by falsely promising them to help them get debt relief.

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

Red flags on student loan scams

Student loan cancellation scams aren’t always easy to spot, 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 need to know.

1. The company charges an initial fee

A student loan service provider shouldn’t demand payment for something they haven’t yet done. Plus, most student loan reliefs and basic services are free. For example, all of your federal loans managed by the US Department of Education have Income-Based Repayment Plans (IDRs) and consolidation loans that you can apply for, all at no cost.

You can also ask the Department of Education or your loan officer to help you apply for student loan waiver, forbearance, or deferral programs. They can even help you clear your loans.

If you are considering debt relief, talk to a certified student loan counselor at National Foundation for Credit Counseling (NFCC) or other accredited non-profit organization.

2. They are looking for your personal information

Unless you have signed a loan agreement, you should keep your private information private. In some cases, you may need to share your Social Security number or Federal Student Aid ID (FSA ID). This allows businesses to log in and manage your account on your behalf. Only do this if you’ve verified the company you’re sharing this information with.

3. You are given promises of forgiveness

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

But student loan cancellation is only offered by the federal government under programs such as Income-Based Repayment or Public Service Loan Cancellation (PSLF). While you may be eligible for a modified repayment plan, through the federal government or by refinancing with a private lender, that doesn’t necessarily mean you’re on the right track for the PSLF. And remember, if you refinance your student loans through a private company, you lose any chance of qualifying for the PSLF.

4. The sales staff seem arrogant

If you’ve ever been told that you need to sign something right away without first reviewing a contract or application, you should be on the defensive. For one thing, you are unlikely to find “deals” on student loan assistance programs. If you browse student loan refinancing options, you might qualify for the lowest interest rate, which has nothing to do with a limited term agreement and everything to do with your great credit rating.

5. They claim to be linked to the government

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

Be careful with scammers who use federal government language and logos. If you are not sure whether there is a legitimate affiliation, contact your loan officer or the US Department of Education to find out the truth.

5 student loan scams to avoid

The good news, if there is any, is that most student loan and student loan cancellation scams fall into a few recognizable categories. 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 business asks you for money to consolidate your loans, that’s not a real program.
  2. Student Loan Debt Elimination Scams. The only way to get rid of your debt is to pay it off yourself or qualify for forgiveness through your repayment plan or by meeting certain eligibility criteria. Beware of a company that promises quick debt relief through forgiveness or other means.
  3. Advance fee scams. This is when a business charges an upfront fee to refinance your loan. You shouldn’t be paying a company to refinance your loan before it is refinanced. If there are any fees, like a loan origination fee, they’re usually built into your loan payments after you’ve applied and been approved.
  4. Legal scams. Many large student loan administrators have millions of clients and sometimes various pending or recently settled lawsuits. Navient, for example, has 10 million customers. If a business contacts you about a recent lawsuit through a major loan manager and asks for a loan forgiveness promising a fee, it’s not real.
  5. Student loan forgiveness scams. This can be a standalone scam or added to another one listed above. Only the Department of Education offers forgiveness programs for federal student loan borrowers. If a business asks you to forgive, beware. Canceling a private student loan is extremely rare, so you shouldn’t let a company convince you otherwise.

I was the victim of a scam. What should I do next?

If you believe you have been the victim of a student loan scam, you should take immediate action by:

  • Filing of a complaint. If you have already transmitted sensitive information or if you have been the victim of a scam, 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 credentials that you passed, log in immediately and change your information. Don’t share your new connection with anyone.
  • Communicate with your loan manager. You will need to tell them that you want to revoke any power of attorney or authorization you have given to a third party. Review your lending activity to make sure nothing suspicious has happened yet. If so, make sure your loan officer is aware of it.
  • Checking your bank. Review your recent transactions to see if any payments have been made. You may need to contact your bank or your credit card lender to stop payments to the student loan debt relief company.

Final result

Paying off student loans is a major burden on millions of Americans. If you’re looking for help, talk to a licensed student loan advisor or your student loan manager to find out what options are available to you. For example, if your monthly payments are too high, you might be eligible for an income-based repayment plan. If you work in the public service, you may be entitled to forgiveness. Don’t fall for a telemarketer to help you save on a student loan.