As student loan repayments kick off this month, warnings abound regarding scammers using the pressure of these loans to deceive unexpected borrowers.
The Federal Trade Commission (FTC) reported a spike in student loan debt relief fraud complaints since last year, with a particular jump observed when the loan forgiveness application became active during October and after Biden’s loan forgiveness scheme was dismissed by the Supreme Court last June.
Multiple entities spreading scammy promises of loan forgiveness have been pursued by the FTC too.
It might be more challenging for borrowers, especially those either settling a loan for the first time or being serviced by a new loan provider, to separate legit companies from scammers due to the reinstatement of loan repayments this month.
It’s crucial for student loan borrowers to cross-verify before making any financial move, especially when someone is offering seemingly silver bullet solutions to their loan burdens.
More details on filing for complaints on student loan mishaps are available here.
According to New York Secretary of State Robert Rodriguez, there is an unfortunate rise in the number of scammers using the moment to trick borrowers who are seeking relief into falling for their scams. He advises all student loan borrowers to maintain vigilance and to follow their tips to avoid becoming a victim of such scams, you may read about Rodriguez’s advice here.
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Harassed by Ameritech Financial, Borrowers Find Respite
The FTC disclosed, together with the Department of Justice (DOJ), last August that a settlement of $9 million would be paid out to more than 22,000 borrowers who were victims of a deceptive student loan relief scheme run by Brandon Frere, under his company Ameritech Financial, until 2018.
Frere manipulated public servants who were eligible for the Public Service Loan Forgiveness program by pretending to associate with the Department of Education.
Charges included up to $800 in illegal introductory fees, advance fees ranging from $100 to $1,200 for admission into a so-called “financial education” program, and up to $99 in monthly payments alleged to manage student loan balances. Overall, Frere’s services swindled borrowers out of $28 million.
Last August, the FTC also ordered a shutdown on similar scam operations, which falsely assured refuge or complete relief from loan repayments under the “Biden Loan Forgiveness” scheme, although this proposal offering debt relief of per borrower $20,000 by the president had already been turned down by the Supreme Court the previous June.
Scammers also falsely maintained a Department of Education affiliation, telling borrowers to cease communication with their federal loan services.
Conflicts of New Loan Services for Borrowers
Identifying potential scams can be a challenge for many borrowers who may not know who should be servicing their loans.
The Consumer Financial Protection Bureau reports that about 44% of federal student loan borrowers who began their repayment this month are working with a new loan service provider, following the non-renewal of contracts by three loan service providers in 2021.
This implies that the loan service provider which represented a borrower prior to the pandemic has most likely changed, and this change offers scammers the opportunity to intercept if borrowers have not confirmed their current service provider.
Plegg share some advice for borrowers to protect themselves. He suggests borrowers visit StudentAid.gov to verify who their lender is, learn about their options, and remember that no pressure to sign up or initial fees should apply. Beware of upfront fees, prequalification notices or cheques, and anyone claiming federal affiliation or being related to the Department of Education.
He also warns about scammers using the Better Business Bureau’s logo in mailers. There’s never a fee for any federal student loan discharge or forgiveness program, he asserts.
If you spot a scam, file a complaint with the Federal Trade Commission or at the Federal Student Aid website.
FAQ Section
What are common examples of student loan forgiveness scams?
Fraudsters often falsely claim federal affiliations or connections to the Department of Education. They may promote “guaranteed” loan forgiveness, demand payment for access to government programs, charge upfront or monthly “service” fees or manipulate official-looking logos or branding to convince borrowers.
How can student loan borrowers protect themselves from potential scams?
Borrowers can shield themselves by verifying their loan service provider, being suspicious of entities offering immediate loan forgiveness, and avoiding services that demand upfront or monthly fees. Borrowers should also be cautious of services demanding sensitive personal information upfront like social security numbers, and FAFSA ID.
What should student loan borrowers do if they suspect a scam?
Borrowers should report potential scams to authorities like the FTC or the Federal Student Aid website, a part of the U.S. Department of Education.
