Many private companies make false promises to struggling borrowers with student debt relief. But all they do is charge them to enroll in loan forgiveness programs that are actually free. Of course, not all these companies are frauds, but there are a lot of them.
And even besides that, student loans can also feel like a scam. Here’s what we mean:
Navient agreed to a $1.85 billion settlement with 39 states in January 2022 after facing a lawsuit that it had created predatory student loans.
The agreement will provide $1.7 billion in private student loan cancellations and $95 million in reimbursements to 66,000 borrowers across 39 states and the District of Columbia.
If you can know the warning signs from certain harmful companies, you can save hundreds of dollars. This guide will show you the most common scams you need to watch out for.
Scam #1 – The Firm Promises Quick Loan Forgiveness
Companies that claim to assist you in getting student loan forgiveness should be avoided. There are genuine government programs that can reduce or eliminate federal student loans after a specified period, such as PSLF.
However, only a few people are eligible for the programs.
For example, to qualify for PSLF forgiveness, you must work full-time for the government or a nonprofit organization and make monthly payments for at least ten years. Then, your remaining balance gets forgiven after 20 or 25 years, depending on the IDR plan you’re enrolled in.
So make sure you grasp the details of Public Service Loan Forgiveness if you work in the public sector. If you decide to go for it, start by filling out a PSLF employment certification form to make sure your job qualifies.
Scam #2 – The Advanced Fee Scam
Student loan repayment scammers might appear alongside legitimate firms when you search online. And usually, these companies go to great lengths to appear authentic, promising to assist you with your debt repayments.
Scammers may use a variety of methods to defraud struggling and stressed borrowers.
One of the most common scams is paying a fee upfront or advanced payments. This is where a debt relief company claims they can offer you the best interest rate and student loan terms only if you pay a “small” upfront fee.
Of course, the “small” fee here can be as high as $1,000. Usually, the charge ranges from 1% to 5% of the total loan amount.
However, according to FTC guidelines, it is against the law for companies to charge customers before assisting with a loan.
Understand The Details Of Your Loan Servicers
Many scam companies will try to charge for services currently provided for free by a student loan servicer. So you must understand the ins and outs of your loan providers.
The easiest place to start is to create online accounts with loan providers so that you can track your progress and communications. Then, if an email or letter appears to be shady, you can use the online portal to verify the legitimacy of the information.
Here’s something else you should know:
- Legitimate lenders won’t guarantee you a loan or other credit without first obtaining information about your credit history and will require you to pay them first.
- Before considering your loan application, legit lenders can charge an appraisal or application fee. However, no one would tell you that paying a fee ensures you get a student loan.
In recent years, a new version of this scam has evolved. Rather than imposing a direct advance fee, some companies offer a second personal loan, which is a fee disguised as a loan. Unfortunately, most borrowers who get caught up in this don’t realize they’ve taken out a new loan, and there are consequences if you cancel or don’t pay it back, like collection fees and interest.
So if you employ a third-party service, be sure you thoroughly understand the payment structure and pricing.
If you’re having trouble repaying your student loans, talk to your loan servicer first to:
- Put your payments on hold for the time being.
- Then, talk about your alternatives for repayment.
- Finally, lower your monthly payments for the time being.
If you’re not getting the help you need from your loan lender, look for a legitimate student loan counseling agency. They can give you the support you need. However, even though some organizations offer free advice, you may need to pay a fee for other firms.
So do your research and find the ones that best fit your situation.