5 Ways To Spot Student Loan Scams

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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.

7 ways to improve your credit score

The journey to improving your credit score is a marathon, not a sprint.

An excellent score can help you qualify for low-interest loans and premium rewards credit cards, but the process takes time.

You can get started by checking your credit score to see where you currently stand.

Once you have an idea of how much room you have to grow, use these tips to begin building better credit.

7 steps to raise your credit score

1. Stay on top of payments.
2. Keep tabs on your credit utilization rate.
3. Leave old debts on your report.
4. Take advantage of score-boosting programs.
5. Time your applications carefully.
6. Be patient.
7. Monitor your credit.

1. Stay on top of payments

Keep your debts in the green to show lenders you’re responsible with credit.

According to Experian, payment history is the most influential factor for both FICO and VantageScore, the most common scoring systems.

Your credit score is essentially a reflection of your ability to pay back debts effectively. From a lender’s perspective, an established history of timely payments is a good indicator you’ll handle future debts responsibly, too.

“You want to avoid things like late payments, defaults, repossessions, foreclosures and third party collections,” says John Ulzheimer, credit expert, formerly of FICO and Equifax. “And filing bankruptcy is a horrible idea. Anything that would indicate non-performance of a liability is going to harm your credit score.”

2. Keep tabs on your credit utilization rate

Weigh your balances relative to your credit limit to ensure you’re not using too much available credit, a practice which can indicate risk.

“The higher that ratio, the fewer points you’re going to earn in that category and your scores are absolutely going to suffer,” Ulzheimer says.

Credit utilization is one of the most influential categories that influence your score. Your ideal rate may vary depending on the scoring system used.

“In FICO’s systems, less than 10 percent is the optimal target,” Ulzheimer says. “In fact, people who have the highest average FICO scores have a utilization of 7 percent.” VantageScore, on the other hand, looks for a target utilization of 30 percent or below.

“I always default to 10 percent because that’s going to keep you in the good zone for both of the scoring platforms,” Ulzheimer says.

The date your revolving credit issuer reports your information to the credit bureaus may also impact your utilization rate.

According to Ulzheimer, FICO’s scoring systems don’t differentiate between those who pay in full each month and those who carry a balance; the utilization that appears when your issuer reports your account information is the rate scored. VantageScore, though, does consider whether you pay in full or carry your balance month to month.

If you struggle with high balances and mounting interest payments on your cards, consider consolidating with a zero percent introductory rate balance transfer credit card.

3. Leave old debts on your report

Once you finally get rid of student debt or pay off your auto loan, you may be impatient to get any trace of it wiped from your report.

But as long as your payments were timely and complete, those debt records may actually help your credit score. The same is true for you credit card accounts.

“An account that’s paid in full is a good thing; however, closing an account isn’t something that consumers should automatically do in the hopes that it will positively impact their credit score,” says Nancy Bistritz-Balkan, vice president of communications and consumer education at Equifax. “Having an account with a long history and solid track record of paying bills on time, every time, are the types of responsible habits lenders and creditors look for.”

Any bad debts that can impact your score negatively are automatically removed over time.

“Bankruptcies can stay on your report no longer than 10 years,” Ulzheimer says. “Late payments and similar delinquencies like collections, repossessions, foreclosures and settlements, those are capped at seven years.”

4. Take advantage of score-boosting programs

The number and average age of your accounts are both important factors in helping lenders determine how well you handle debt, which can leave those with a limited credit history at a disadvantage.

Experian Boost and UltraFICO are two programs that allow consumers to boost a thin credit profile with other financial information.

After opting into Experian Boost, you can connect your online banking data and allow the credit bureau add telecommunications and utility payment history to your report. UltraFICO allows you to give permission for your banking data, like checking and savings accounts, to be considered alongside your report when calculating your score.

5. Time your applications carefully

Every time you apply for a new line of credit, a hard inquiry is pulled on your report. This type of inquiry lowers your score temporarily.

“In general, the effects of a hard inquiry last anywhere from 6 to 12 months,” a TransUnion representative tells Bankrate. “And that inquiry is only on your credit report for up to 24 months.”

Research your likelihood of approval to ensure you’re a good candidate before applying for a new credit card. You don’t want to risk lowering your score for a denied application.

You should also refrain from applying for several credit cards within a short time frame or before taking out a large loan like a mortgage.

When you shop for a mortgage, auto or personal loan, you can keep hard inquiries to a minimum by making rate comparisons within a short time period.

Applications for the same type of loan within a designated time frame will only appear as a single hard inquiry. According to FICO, this span can vary from 14 to 45 days.

6. Be patient

You won’t raise your credit score overnight, which is why one of the best ways to achieve an excellent score is to develop good long-term credit habits.

According to Ulzheimer, two influential factors that go into your score are the average age of information and the oldest account on your report.

“You’re really going to need to have credit for a couple of decades before you max out those categories,” Ulzheimer says. “It takes a really, really long time to improve a bad score and it takes a really short amount of time to trash a good score.”

Establish good habits, like paying your balances on time, keeping a low utilization rate and applying for credit only when you need it, and you should see those practices reflected in your score over time.

7. Monitor your credit

When you view your own credit, a soft inquiry is pulled, which doesn’t affect your credit temporarily the way hard inquiries do.

“The information in the credit reports will not only enable you to see all of your financial accounts in one place, but reviewing them may also help you spot signs of identity theft,” Bisritz-Balkan says.

Monitoring your score’s fluctuations every few months can help you understand how well you’re managing your credit and whether you should make any changes.

According to Ulzheimer, “As long as you pay your bills on time and as long as you keep your credit card balances modest and as long as you only apply for credit when you need it, then you really have no choice but to have a good score.”