Watch Out For Student Loan Scams
According to Forbes, the total US student debt was around $1.5 TRILLION in June 2018 without any sign of decreasing significantly. That $1.5 trillion was spread among nearly 45 million Americans, meaning the average American had over $30,000 in student debt alone.
That’s a lot of money. You know what that means?
Scammers. Lot’s of them.
Scammers are some of the most frustrating types of criminals on the planet. Instead of spending their days contributing something of value to society, they target innocent, hard-working citizens and intimidate or confuse these citizens into paying them cash. Many citizens don’t know any better and go along with the scam to avoid an alleged run in with the law or whatever else the scammer told them would happen.
In doing so, they not only worsen the victim’s financial standing, but can actually harm their mental health by weakening the victim’s sense of security and self-esteem.
We obviously don’t wish scammers upon anybody, but some people can at least bounce back from a scam financially if they have enough cash and act quick enough.
However, recent graduates don’t usually have a lot of spare cash on hand because they’re so deep in student loans. Also, they have to support themselves on an entry-level slightly higher salary, so every penny counts.
And since there’s so much more money to be “made” by scammers, these same victims that can least afford to get scammed are targeted at such a high rate.
This makes student loan scammers that much more sinister: they’re targeting those that can’t financially afford to be scammed and most likely don’t have the time to read about and understand how to spot a student loan scam.
Don’t lose a cent of your precious income to any of these student loan scams.
4 Types Of Student Loan Scams
1. Loan Consolidation Scam
Loan consolidation collects all your student loans into a single loan so you can more easily track your payment progress and fit student loans into your budget. Consolidation isn’t right for everyone, but many people free up time that would’ve been dedicated to ensuring everything’s paid on time.
As usual, scammers use a helpful tool against those who need it most.
They’ll tell you they can consolidate all your loans for a small “consolidation” fee of either a flat rate of a $1,000+ or somewhere between 1-5% of the loan amount.
What they won’t tell you is that they pocket the money and do nothing to help you.
What they also won’t tell you is that federal student loans can be consolidated for free at StudentLoans.gov.
Private loans can be refinanced as well through many legitimate private lenders such as banks and personal loan companies (think Credible). Refinancing is simply consolidating all your loans into a single loan with the aim of lowering your overall interest rate. You take out one loan to pay off several others, lowering your interest rate and simplifying debt payoff.
Refinancing does cost money, but you don’t pay up front. You’ll only be charged once you’re approved for the loan. They usually take their service fee directly out of your total loan amount, ensuring that you only pay when the money is sent to you.
2. Student Loan Lawsuit Scam
Getting the law involved is a surefire way to get results. In this case, scammers will pose as a student loan aid company and refer victims to a “law firm” that claims it can settle your debt for thousands less than your current balance.
Their primary method of extracting money from you is by asking you to send the full amount of your student loan balance to them so they can negotiate with your lender. If you tell them you can’t afford the full amount, they’ll tell you to send whatever you can afford to send.
But of course, the law firm doesn’t pay anything for you. The “law firm” ends up with thousands of dollars of YOUR money, yet your student loan balance stays the same. You end up defaulting on your loans, ruining your credit score.
All of this can take years or even decades to fix, so be hyper-vigilant if you’re ever seeking out legal representation for your student loans.
3. Debt Elimination Scam
Student loan debt isn’t like other debts: you must repay the full amount no matter what, barring a few federally qualifying reasons such as death, identity theft, or permanent disability.
Scammers will try to tell you they can reduce or completely eliminate your debt.
For a “small” fee, of course.
This is obviously false because like we said, only extenuating circumstances defined by the law allow for the cancellation of your student debt.
But what about loan forgiveness programs?
Nobody qualifies immediately for loan forgiveness. These programs generally require several years of on-time payments before forgiving any further debt.
You’ve probably heard of the Public Service Loan Forgiveness program. People who work full time for government agency and certain non-profit organizations can have their debt “forgiven” or cancelled if on an income-based repayment plan.
However, public servants must make 120 qualifying payments before they qualify for the program. That’s 10 years, assuming 1 qualified payment per month, before police officers, teachers, and other public employees can forget about the rest of their debt.
4. Advanced Fee Scam
Did you know it’s illegal for companies to collect up front fees for debt relief services? Such a law makes it quite easy to tell the scammers from the honest (or at least legal) companies.
Same with when you’re looking for student loans. Companies aren’t going to charge you
In general, any student debt service that charges you for things is at best a legitimate yet pushy company trying to get you to pay for legitimate services, while at worst (and often) is an outright scam.
Student Loan Scams: 6 Red Flags To Look Out For
1. They Call You In The First Place
You’ll essentially never receive correspondence regarding your student loans by phone first unless you specifically request it.
However, scammers will try to scare you or confuse you into giving you information by phone.
If you receive a call from someone who seems to be discussing student loan options of any sort with you, DO NOT ENGAGE WITH THEM.
Scamming is the scammer’s method of income: they’ve developed clever ways you wouldn’t even think about to get information out of you and use it to harass you. For example, simply engaging with a scammer will confirm for them that you have a working number and you’re likely to pick up the phone. Certain phrases like “quit calling my house” or “why can’t you leave me alone while I’m at work” both give away critical information scammers can use to “tailor” their methods towards you.
You can’t always tell who’s a scammer, though, so if you pick up, wait for someone to speak first. Don’t give away your name or anything if they ask for it. Immediately hang up.
It might be tempting to tell that scammer off, but to them, you’re just a number. They won’t feel a single ounce of guilt for upsetting what they view as nothing more than a potential cash cow; plus, they’re just bad people. A few harsh words or curses won’t faze these criminals at all, yet in your righteous fury, you’ll still give away important information the scammer can use against you.
Here’s a tip: if you ever get a call from an unknown number, let it go to voicemail. That way, you can listen to the voicemail and have time to see if it’s a scam. Scammers will generally leave the same message, except with maybe a different greeting (“hello, this is John with __” vs. “hello, this is Jane with __”).
Anyways, if you do answer a call or are contacted by a suspicious company, here are some other red flags to watch for.
2. Hefty or Upfront Service Fees
The tool of the trade in the advanced fee scam is the just that: an up front fee. Yet it’s against the law to charge anyone money for debt relief services up front.
The only people you should be paying if in need of debt-relief are legitimate credit-counseling services or a lawyer. Companies that ask for an upfront fee to help you directly pay your loans are scamming you.
3. Requests for Sensitive Information
Your FSA ID is a scammer favorite. This ID is a username/password combination used to confirm your identity when accessing your financial and student loan information. Naturally, you don’t want this in the hands of anyone but yourself, let alone a scammer.
Same goes for other sensitive information. Your SS number, date of birth, and other stuff is for your eyes (and perhaps your parents’s) only.
4. Pushy Sales Tactics
Aggressive salespeople are a red flag for most scams, student loan scams included. Government agencies and legitimate student loan forgiveness companies will never try to push anything on you because they’re there to serve you rather than make money off you.
Urgency and scarcity have their legitimate uses in other forms of sales, but not here. Many scammers calling you might say that they have a “debt-relief” program but “funds are limited, so call us back today”.
When a scammer does this, they’re counting on you to give in to the FOMO of “debt relief”. Don’t give into the FOMO; legitimate debt relief companies won’t tell you that “funds are limited” or push anything on you.
5. Lack of Specific Company Information Provided
A glaring sign you’re being scammed is if the company is vague about company information. Oftentimes you’ll receive a call from “student loans services” or “the student loan department” regarding a loan payment being late, a bogus loan forgiveness program, or a lawsuit, among other pretenses.
We can tell you right now that a company with a name as vague as “the student loan department” isn’t a legitimate company in the student loan space.
6. Legit Legal Situations, Vague Information
Lawsuits and other things do happen in real life. Scammers still take advantage of real lawsuits to squeeze money out of innocent citizens.
For example, several student debtors and their lawyers filed a very real class-action lawsuit in October 2018. It was like blood in the water for student loan scammers. Many scammers called claiming to be from the “student loan department” (see above red flag) and informed their target of the class action suit against Navient.
Scammers go for the legal angle because they know you’re more likely to believe them when the law is involved. On top of that, if you’re “legally entitled” to some amount of money from a real or fake lawsuit, following up with the scammer can be quite tempting if you don’t know who you’re dealing with.
Oh, and most college grads don’t exactly have a high opinion of a company that makes them pay hundreds a month in loan payments, so scammers are tapping into the revenge factor here as well.
You Can’t Afford To Get Scammed
Scammers are an unfortunate reality, especially with the financial world’s increasing reliance on technology and digitalization.
But knowing that people are willing to scam broke college graduates deep in debt can really put a damper on your mood.
If you’re a broke college grad with bills to juggle and debt to pay, you can’t afford to be sending money into the scam abyss.
If you ever have any doubt about whether or not someone’s trying to scam you, ask them for more details on their company. They’ll usually back down or try to dodge any probing questions.
In addition, do your research. Government organizations and student loan services alike will contact you with official mail and provide numerous contact methods if you have any questions.
Lastly, not every company is a scammer; many are legitimate, albeit engaged in bad business practices. Some over promise and under deliver, while others try to get you to buy services you don’t need or can get for free elsewhere.