Student Loan Forgiveness Scams

It Guarantees Immediate Attention, But It’s a Hoax

For a recent college grad who now has to worry about coming up with hundreds of dollars a month (or even more) to repay a federal government-backed tuition loan, the very mention that there’s an opportunity to have it all written off for good is guaranteed to attract immediate attention.  The problem is that there is no such opportunity.  It’s a hoax.

Over most of the past decade, a plague of spam emails and aggressive online ads has been circulating in cyberspace informing holders of outstanding student loans that procedures initiated by former president Obama now enable them to apply for one or more types of forgiveness plans.  The applicants are directed to web sites where they register for a fee, usually between 1%-5% of the existing principal, or at a fixed rate of as much as $1,000.  Usually the applicant is also asked to provide the scammers with power of attorney, which is what allows them to make their money.  Assuming they just don’t pocket the application fee and disappear, they will use the power of attorney, for example, to consolidate the student debt to higher interest rate loans and pocket the difference, while you’ll wind up paying for it.  For as long as it takes until the loan is paid off.

Loan Forgiveness and Loan Forgiveness Scams

One of the reasons why the scam is so believable is because legislation was indeed enacted during the Obama presidency that expanded certain existing programs to allow repayments to be capped at 10% to 15% of discretionary income in the event of a proven financial hardship.  In such a case, assuming all payments are made on time, the balance will be forgiven after 20 to 25 years.  So, when the scam began, people who searched the internet for “Obama” and “loan forgiveness” did find a reason to believe that the offer that they received was indeed legitimate.  Once the scam began to take a toll, articles about it began to proliferate.

There Are Plenty of Variations on the Theme

One of them is disguised as an offer from a “student aid company” to direct you to a law firm that claims to be able to reduce a student loan debt by thousands of dollars.  Should you agree, you will be asked to redirect your loan payments to the law firm itself, which promises to then negotiate a settlement for you with the lender.  What they will do, however, is pocket the money you will be sending them every month until you to default, which is what will inevitably happen when you fail to repay your monthly payments for 270 days straight.  Once you default, the law firm will attempt to negotiate a deal based on your impending bankruptcy.  Neat trick.  But as a result, your credit score will plummet, which will prevent you from obtaining additional loans, overdraft protection, mortgages, credit cards, even from being approved to rent an apartment from a private landlord.  In the meanwhile, the law firm has pocketed your change, there is no guarantee that your loan can be successfully re-negotiated and you’ll still have to pay it off or settle it one way or another.

When you are victimized by fraud, you are generally entitled to receive a refund or, in certain circumstances, apply for a chargeback.

Legitimate Loan Repayment Options Do Exist

It should be noted that various legitimate federal student loan repayment options do exist, and there is no fee for submitting an application.  The URL to consult is Of course, there are also legitimate, outside financial professionals who do provide consulting services to holders of student loans who seek to refinance them.  If you want to select one, confirm in advance that he or she is properly licensed to provide the service that you seek.  As a rule, if a web site you consult about federal student loans does not use .gov as its URL suffix, it cannot be considered authoritative and, at the very worst, may prove to be a scam.

If you think you’ve been the victim of a student loan forgiveness scam, contact the fund recovery experts at MyChargeBack