Loan scams preying on students

Don't fall for student loan scams when looking for ways to fund your education

With the back-to-school season upon us, and as the cost of a college education skyrockets, many consumers are looking to student loans to help them pay for school. Unfortunately, fraudsters know that student borrowers are often unfamiliar with the ins and outs of loans and take advantage of unsuspecting students by tricking them into crooked schemes.

In many cases, victims are not only cheated out of their money, but other damaging repercussions follow as well. Although student loan guidance on federal loans is available for free from loan servicers and the federal government, con artists posing as loan counseling services advertise online and hire telemarketers to pitch immediate debt relief, reduced payments, and debt forgiveness. These “counselors” often charge hundreds of dollars for services that the government and loan servicers already offer for free. Even worse, consumers who follow the expensive “advice” can severely harm their credit scores, which affects their ability to receive loans in the future.

Phony loan counselors often persuade students to sign up for their services by using high pressure sales tactics and promising to qualify them for loan forgiveness. One ploy a scammer uses to attract victims is by placing ads encouraging consumers to take advantage of actually legitimate loan forgiveness programs, such as the one created through President Obama’s Student Loan Forgiveness Bill.

In a student debt fraud complaint received by Fraud.org, an Illinois teacher in a low-income district saw an ad for a company promising loan forgiveness on Facebook. The teacher filled out an online form, talked to a representative of the counseling organization, and signed up for the program after being assured that he qualified for loan forgiveness. After paying the initial counseling fee of $650 and giving the organization his Social Security Number, he was told to stop making payments to his loan servicer while the “counseling group” worked with him to pay off his student loans. A month later, his loan servicer called to ask why he had fallen behind on his payments, and that is when he realized that he was tricked by the fake counseling group. Unfortunately, situations like this are all too common.

To avoid becoming a victim of student debt fraud, savvy consumers should follow these tips:

  1. Never pay for student loan advice. Legitimate loan servicers receive money from the federal government to provide you with free counseling. In addition, the government has created several official websites such as studentloans.gov and studentaid.ed.gov to provide guidance for repaying student loans.

  2. Keep in contact with your loan servicer. Scammers often tell victims to stop payments so that they can “negotiate a better rate.” No legitimate organization will ever tell you to stop paying your loans or to stop communicating with your loan servicer. Doing so can cause you to default on your loans, which negatively affects your credit.

  3. Don’t be tricked by legitimate-looking websites. Having the Department of Education seal on a website, or official sounding words like “national” in a loan counselor’s name does not mean an organization is trustworthy. Scammers know that if they can make their websites look legitimate, they will be able to ensnare more victims.

  4. Take time to educate yourself on potential loan repayment options. If you are having trouble paying your loans, take advantage of free loan counseling by calling your loan servicer to learn about your options.  Federal loans come with many protections such as: income-based repayment, which can lower your monthly payments; forbearance, which allows you to temporarily stop payments in times of financial hardship; and even loan forgiveness in some cases.  

  5. “Guarantees” of debt relief are too good to be true. Many fraudulent counselors will promise immediate debt relief or forgiveness even before they know the particulars of your loans. If you come across a counselor or a bank that promises you debt forgiveness before knowing your circumstances, chances are, you are talking to a scammer.  

  6. Report suspected fraud. If you believe that you have spotted a student loan repayment scam, report it! You can file a complaint at Fraud.org via our secure online complaint form. We’ll share your complaint with our network of more than 90 law enforcement and consumer protection agency partners who can help put fraudsters behind bars.