Scammers Find Fertile Ground in Student Loans

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With $1.7 trillion of debt, student loans have become a growing burden in the U.S. in recent years. And, as the debt has grown, so has the opportunity for scammers.

Student loan repayment is a fertile ground for scammers because of the complexity of the student loan system in the U.S., said Michelle Grajales, a staff attorney who works on student loan scam cases at the Federal Trade Commission.

Scammers know the system is confusing. They know borrowers often feel vulnerable due to their debt. And they know how to take advantage of it, Grajales said.

Now, with the pandemic putting added stress on personal finances, student loan borrowers are particularly vulnerable to taking offers that might be too good to be true.

Pandemic-related scams will become increasingly common in the coming months, Grajales said, with federal student loan relief programs set to expire at the end of September and an ongoing discussion about offering broad forgiveness of federal student loan debt in the news. 

Scammers often use current events as a hook. When Donald Trump was elected president in November 2016, for example, the FTC saw an uptick in scams where a telemarketer would claim a person’s loan benefits were about to expire due to the change in administrations. To remedy the situation, the scam went, the consumer had to hire the propositioning company to apply for loan forgiveness before the inauguration in January.

It had all the ingredients of a typical student debt relief scam, Grajales said. It involved information that's true to create an air of legitimacy and build trust, while using false details to create a sense of urgency and scare the borrower into signing up with the company—and maybe even parting with money upfront.

Given people’s financial vulnerabilities right now and the conversations about debt happening in the government, people with student loans should be extra vigilant. Here are some tips for spotting and getting out of student loan scams:

Signs That You Might Be Dealing With a Scammer

They claim to be affiliated with the federal government

Any company that claims to work with the Department of Education, or that it is vetted or approved by the department, likely isn’t telling the truth, Grajales said.

“The Department of Education does not hire private companies to call you, trying to get you into their debt relief program,” she said.

Other tactics include mailers that look like they're from a federal loan servicer, the IRS, or another government entity, but are actually solicitations. The goal is to appear authentic and credible to earn your trust.

“It can be a while before people even realize that they're not dealing with an actual federal loan servicer or that they’ve been scammed,” Grajales said.

They ask you to pay upfront for debt-relief services

Nearly every case the FTC has pursued involves a company allegedly taking money in advance of providing debt-relief services, which is unlawful under the FTC’s telemarketing sales rule.

“That's a huge red flag,” Grajales said. “If the company wants you to pay upfront for consolidation or debt forgiveness or to get you into a repayment plan, that's likely unlawful conduct.”

The FTC specifically looks for unlawful deception or unfairness like this, Grajales said. It is not unlawful for a company to charge people for helping them enroll in a program that could provide loan forgiveness, but federal loan borrowers can do this (and more) for free themselves. You can enter such a repayment plan by calling your student loan servicer, the company that handles the billing on your loan.

They require that you take out a loan to pay them

Scammers increasingly have attempted to skirt the rules prohibiting upfront payment by requesting potential clients to get a loan to finance an upfront fee or by giving a third-party the power to pay the soliciting company on your behalf. That’s another major red flag, Grajales said.

They ask for your Federal Student Aid information or Social Security number

An unscrupulous actor could use that information to apply for changes, like altering your contact information or the terms of your loan, without your knowledge or approval.

They promise a low payment or a fast payoff

The federal government actually offers student loan forgiveness, through programs like income-driven repayment plans that give qualified borrowers monthly loan payments based on how much they earn. At the end of a certain number of years making payments in the program, the government forgives the remaining loan balance. Income-driven repayment is a long, often complicated process, and payments change with the borrower’s income.

A frequent scam, Grajales said, is to promise borrowers low fixed payments or debt forgiveness after a short period of time. Anyone promising faster forgiveness or low payments for an extended period should raise suspicion, she said.

What to Do if You Think You’re Being Scammed

If you have federal student debt, call your federal loan servicer

If you’ve been paying a third-party company for a while or you begin to have concerns that something isn’t right with how you’re repaying loans, call your loan servicing company.

Make sure your loans are being repaid and that you are in a repayment program that makes sense for your situation, Grajales said. Also, make sure your servicer has the correct contact information for you and has you listed as the contact person on your loan.

Grajales recommends calling your servicer to find out the exact status of your loan.

“You want to know if your loans are going into default,” Grajales said. “You want your loan servicer to be able to reach you.”

People often get confused about who their loan servicer is, and sometimes scammers even falsely claim to be the loan servicer. If you don’t know who your servicer is or you have any doubts, you can call the Federal Student Aid Information Center (FSAIC) at 1-800-433-3243.

If you have a private student loan, get a free copy of your credit report

Most student loans are owned or serviced by the federal government. Just 8.13% of all student loans are private.

If you have private student loans, the Department of Education and other federal student lenders won’t be able to help you much. But you still have options. If you don't know what's going on with your loan, how many loans you have, or who your lenders are, you can get a free copy of your credit report that will list out all your creditors.

“It's always good advice to go through your credit report, and make sure you understand every entry on there,” Grajales said. “But if nothing else, it will identify credit lenders if you have private student loans.”

Stop unauthorized payments

If you are being scammed or a company is taking money they shouldn’t, attempt to stop payment on those charges, Grajales said. Call the bank or credit card company and tell them you may be a victim of fraud. The bank or credit card company can tell you how to stop payments and may even help you get your money back.

Visit ReportFraud.ftc.gov

The FTC has a web page, ReportFraud.ftc.gov, where consumers can report a scam, a company, or an unwanted call. It also features a section with frequently asked questions.

Consumer complaints are the major sources the FTC uses as leads for cases, and the FTC shares each report with law enforcement across the country. Even if you think your specific situation isn’t that interesting, the FTC may feel differently.

“We do encourage people to complain,” Grajales said.