When you're struggling to pay off tens of thousands of dollars in student loan debt, a company that claims it will reduce your monthly payments or eliminate your debt completely can sound like a dream come true. But if you pay the company or hand over any personal information, that dream could quickly become a nightmare.
Best case, they reduce your monthly payments like they said, but at an unexpected cost. Worst case, they just take your money and don't help you at all. In either case, you're better off staying away from them altogether. Here are three of the most common student loan scams to watch for, along with advice on what to do if you've fallen victim to a scam.
1. Complete or immediate student loan forgiveness
There are ways to have your student loans discharged, but most borrowers won't qualify for them. Death, permanent disability, or in rare cases, bankruptcy can rid you of your student loans, but given the choice, most students would probably rather keep the debt than suffer any of those.
There are also student loan forgiveness programs for federal student loans, including Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness. But neither of these programs work instantly. You have to work for a qualifying employer for several years and make regular, on-time student loan payments during that period in order to qualify. Then, once you've met all the requirements, the government will forgive any outstanding student loan debt. Private student loans usually don't have any type of forgiveness program, so you will have to continue paying off these loans on your own.
If you come across a person or company claiming to get your student loan debt forgiven immediately and in full, you're dealing with a scam. If you're one of those rare students who meets one of the qualifications for student loan discharge listed above, you don't need any help from a third party. Just contact your student loan servicer and they'll tell you about the next steps.
2. Your student loan forgiveness program is about to end
When President Trump was elected, many scammers used the impending change in administration as a way to stir up panic among student loan borrowers, claiming that the student loan forgiveness programs that were in place were about to disappear. However, this is not the case and the federal government isn't going to abruptly end these programs with only a few weeks' notice.
If you receive a letter or other notice in the mail saying that your student loan forgiveness program may be ending soon, resist the urge to contact the company issuing the letter. In the event of any changes to the program, you'd receive an official notice from the Department of Education or your student loan servicer, not a third party.
Reach out to your student loan servicer or the Department of Education if you have any questions about your student loans or any student loan forgiveness programs you may qualify for.
3. Student loan debt relief companies
Student loan debt relief companies aren't a scam in the sense that they're just looking to take your money and run. They can actually help you lower your monthly payments, consolidate your loans, or get you out of default. But you can do all of that on your own for free by reaching out to your student loan servicer or the Department of Education.
Student loan debt relief companies charge for the services, though legally they're not allowed to ask for upfront fees. They may ask you to quit paying your student loan servicer and pay them instead. They'll keep your money in a savings account and when there's enough, they'll begin negotiating with your student loan servicer on your behalf. However, this approach results in a number of late payments on your record, which can tank your credit score and leave you worse off than before.
These companies may ask for your federal student aid ID password so they can access your online information and sign documents for you. Or they may ask you to sign a third-party authorization form or power of attorney so they can make decisions on your behalf. But giving up this much control is dangerous. The debt relief company may change your repayment plan or agree to terms that you don't personally agree with and it can be difficult to undo all of this later.
If you'd like to change your student loan terms, contact your loan servicer directly. It will be able to help you figure out the best repayment plan moving forward and it won't charge any fees for its assistance.
What to do if you think you've come across a student loan scam
If you doubt the legitimacy of any letters, emails, or phone calls you see regarding your student debt, reach out to your loan servicer for more information. Look up its phone number or email online yourself. Don't use any links or numbers provided in the letter, email, or phone call even if they claim to be from the Department of Education or your loan servicer. Those could go to the scammers instead. If you discover the correspondence was a fake, report the scam to the Federal Trade Commission (FTC) and don't respond to the scammer.
If a student loan debt relief company reaches out to you, check to see if they appear in the FTC's list of companies and people banned from debt relief. If they are, stay away from them and report them to the FTC. But just because they're not on the list doesn't mean they're alright. Banned scammers may start a new company under a new name.
You're better off negotiating with your student loan servicers yourself, but if you want help, ask a lot of questions of the debt relief company so you understand exactly what they're going to do and how it will affect your payments and your credit score. You should also ask about cost. Whatever you do, never share your federal student aid ID password with anyone or give the debt relief company the power to make decisions on your behalf without consulting you.
What to do if you're a victim of a student loan scam
Do what you can to sever all ties with the fraudulent company immediately. Change your federal student aid ID password and contact your student loan servicer to revoke any third-party authorization or power of attorney forms the company made you sign so it could make decisions on your behalf. If you're making regular payments to the company, contact your bank or credit card issuer and request the recurring payments be stopped.
Next, file a complaint with the FTC and report the company's suspicious activity through the Federal Student Aid Feedback System. You may not be able to undo the damage that the scammer has already done, but you can stop the company from wreaking any more havoc.
As long as there's a student loan debt crisis, there will be student loan scammers. They can be crafty, but as long as you understand the common red flags and where you can go for legitimate assistance, you can avoid falling into one of their traps.