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There is an estimated $1.5 trillion of outstanding student loan debt. The burden is taking a toll on Americans, from preventing homeownership to delaying other major life milestones, like marriage.
Still, it’s easy for Americans to want to eliminate that debt as soon as possible — and criminals are capitalizing on the growing desire to do so.
The Federal Trade Commission (FTC) has been cracking down on scammers in recent years, claiming they’ve have been charging illegal upfront fees and misleading consumers.
While it may be tempting to go after a quick fix to eliminate student loan debt, it can have numerous and costly consequences.
Here are five warning signs to watch for when looking for student debt relief.
1. The company asks you to pay upfront fees
Companies charging upfront fees to help with consolidation is illegal. According to the Federal Student Aid website, consumers should “never have to pay for help” with student loans.
In 2017, the Federal Trade Commission started a nationwide crackdown on student loan debt relief scams called “Operation Game of Loans.” The operation was a result of scammers taking over $95 million in illegal fees from consumers over a number of years.
If you call a relief company and they ask for money before helping you, the company is participating in illegal activity; hang up and file a complaint with the FTC.
2. Think twice before signing a power of attorney
Scam companies will ask consumers to sign over a power of attorney, which will give it power to make decisions on your behalf. Often, they will use the power to put your loans in forbearance, which is a major warning sign, writes Robert Farrington on The College Investor, a blog for student loan advice.
Here’s how it works: After you sign a power of attorney, the company will put your loans in forbearance, resulting in you not having monthly payments sent directly to your servicer. Instead, the company will ask you to pay it directly.
Instead of your money going toward your loans, the company will keep it for itself, instead of putting it toward your loans.
“The problem is, these scams usually involve the company taking your money, your student loans remain in forbearance for months or years, and the borrower finds out that the forbearance has expired and that nothing was done,” Farrington writes.
This strategy capitalizes on consumers who aren’t familiar with the many different repayment options for loans.
When a loan is in forbearance, payments temporarily stop or are lowered. Under forbearance, you are still responsible for any interest incurred while not making payments; under a deferment, you might not be.
According to the Federal Student Aid website, forbearance and deferment should be considered only as temporary or short-term solutions if you’re struggling to repay your loans. Long-term solutions to high payments are income-driven repayment plans, which determine your monthly payment based on your pay.
3. The provider offers ‘quick relief’
Most scams make false promises, such as fast loan forgiveness through dispute or programs that don’t exist. These scams often promise quick relief without having specific details of individual accounts and situations.
As of now, there is no quick fix to eliminate student debt. There are loan forgiveness programs available, such as public service loan forgiveness, but even those programs require years of payments before the balance being forgiven. Additionally, student loans cannot be discharged through bankruptcy.
There is no quick fix for eliminating student debt. Those struggling with payments and can’t get relief through payment plans can consider refinancing to a lower-interest loan to make payments more manageable.
4. Think twice before paying to get on a payment plan
While it’s legal for companies to offer services to help customers navigate the student loan repayment system, the FTC says it’s an unnecessary cost.
“Consumers can apply for loan deferments, forbearance, repayment and forgiveness or discharge programs directly through the U.S. Department of Education or their loan servicer at no cost,” the FTC writes on its Game of Loans website. “These programs do not require the assistance of a third-party company or payment of application fees.”
5. Do your research
Those who are feeling unsure about a debt-relief program should do their due diligence in research before committing to or paying for any services.
Use the Better Business Bureau (BBB) search tool to determine if the business is BBB accredited. This tool will also pull up any reviews and complaints made by other consumers.
What to do if you’ve fallen victim to a debt relief scam
If you’ve given away personal information, such as your FSA ID, or have paid a company that might not be legitimate, there are steps you can take before further damage is done.
The Federal Student Aid website lists the following steps you should take:
Change your FSA ID: If you provided your FSA ID to a company, you should log in and change your username and password.
Contact your loan servicer: Be sure to revoke any power of attorney you may have signed over to the party. Review any recent changes or actions that were taken on your loans.
Block all payments: Contact your bank and block any payments to the scam company.
File a complaint: Log on to the FTC website and file a complaint. After, file a report in the FSA feedback system.
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