June 16, 2024

Image credits: BrianAJackson / Getty Images/iStockphoto

Welcome to America, where the collective student debt surpasses $1.76 trillion, according to figures from the Education Data Initiative. This vast magnitude of wealth makes for a tempting target for fraudsters.

Indeed, as highlighted by Forbes and RoboKiller, an anti-spam and scam platform, Americans parted with a staggering $5 billion in 2022 due to student loan scams. Borrowers received about 700 million robocalls each month, many of which were fraudulent, and these calls usually fall into one of three distinct categories.

Scams Related to Student Loan Forgiveness and Elimination

The student loan cancellation plan suggested by President Biden has been stymied by a federal court order. However, the president issued a once-off waiver simplifying the process to apply for the Public Service Loan Forgiveness (PSLF). While the waiver is no longer in effect, many eligible borrowers are still awaiting their applications to be processed.

This clumsy handling of the issue has resulted in a fertile breeding ground for scammers who exploit the misinformation in circulation. According to the U.S. Federal Student Aid (FSA) office, these con artists approach their victims with seemingly urgent messages, promising full loan discharge and using a ‘first come, first served’ or expiring program as bait. All they ask is a fee to expedite the application process and some confidential data, such as your FSA ID – something the Department of Education and its affiliates would never do.

Student Loan Consolidation Fraud

According to the Texas Attorney General’s Office, any company that demands an upfront payment to consolidate your federal student loans is fraudulent. The enduring popularity of this scam, which involves charging a ‘processing fee’ for loan consolidation, is due to the potential benefits of consolidation.

The remedy to this scam is simple – consolidate your federal loans yourself at StudentLoans.gov free of charge. FSA emphasizes that the process of securing a direct consolidation loan does not carry a fee, and private entities offering such services for a charge have no affiliation with the U.S. Department of Education or any of its federal loan servicers.

Debt Negotiation Scam Relating to Student Loans

Averaging between debt elimination and consolidation is debt negotiation, a profitable arena for impostors who claim to negotiate with your lenders for better terms. However, FSA clarifies that third-party entities do not have the authority to secure special offers on your behalf, and there is typically nothing to negotiate due to federal regulations dictating income-driven repayment plans.

These fraudsters borrow tactically from their peers involved in the credit card and auto loan sectors. They contact borrowers, claiming to represent financial service companies, and offer to negotiate lower debt amounts, better loan terms, or reduce interest rates. Promising a convenient lump sum repayment plan, these criminals vanish after receiving the ‘negotiated’ amount.

As highlighted by the Student Loan Planner, this scam finds patronage even among unethical lawyers and law firms.

Recognizing the Red Flags and Safeguarding Your Interests

Being aware is the first step towards not allowing your hard-earned money to add to the $5 billion lost to student loan fraud in the last year. Remember the golden rule when it comes to scams – if it sounds unrealistic, it probably is.

According to Federal Student Aid, innocent individuals are often caught off-guard by scammers because they believe the false promises of reduced interests, extended deadlines, debt reduction, or even complete debt forgiveness. Also, pay attention to the following:

  • Charges: While borrowing fees are standard, they are usually part of the principal for genuine loans. You should not be paying extra for loan servicing, loan applications, filling out a FAFSA form, or switching to a new plan.
  • Requests for confidential information: Legitimate loan providers or the Department of Education will never ask for your FSA ID or password. Be cautious if anyone claiming to be a finance expert asks you to disclose such confidential details.
  • Urgency: A key feature of most student loan scams is the element of pressure. Be suspicious of anyone who urges you to act fast.

Finally, always conduct thorough research. The reason scammers resort to pressure tactics is to deter the victim from verifying their claims. Despite their seemingly professional websites and social media profiles, remember anyone can build an internet presence – don’t blindly accept their statements. Be critical of any individual or organization who contacts you, and question official-sounding terms like “Department of Education partner”, “consumer advocacy group”, or “pandemic grant”, which are now more prevalent in scams.

Frequently Asked Questions

What is the student debt situation in America?

America’s student borrowers owe a combined $1.76 trillion to their lenders, according to the Education Data Initiative. This large sum of money often attracts criminals performing student loan-related scams.

What are common student loan scams?

The most common student loan scams involve purported student loan forgiveness and elimination, student loan consolidation and student loan negotiation. Scammers often take advantage of misinformation or confusion around student loans, persuading their victims with urgent messages and false promises.

How can I protect myself from student loan scams?

You can keep yourself safe by keeping an eye out for red flags like upfront fees, requests for personal information, and a sense of urgency. Always remember to conduct thorough research before acting on any offers or promises. It’s important not to blindly trust professional-looking websites or social media profiles, as anyone can create an online presence. Be suspicious of seemingly official terms like “Department of Education partner”, “consumer advocacy group”, or “pandemic grant”, which are often used in scams.