Student loan forgiveness panaceas target young people who are already in a tight financial position.
An upward trend of student loan forgiveness scams has been noticed over the last several years. The rise in student loan scams became so prevalent that the Federal Trade Commission initiated a project named “Operation Game of Loans” in 2017 to tackle scammers in the United States. The extensive operation included 36 actions by the FTC and the state attorneys-general. At least $95 million in illegal upfront fees were levied by scammers over several years according to the FTC.
Unfortunately, the actions undertaken by the FTC were not enough to discourage scammers and student loan scams continue with impunity. According to Investopedia, this type of debt hit an all time high in 2019 reaching $1.41 trillion. With the numbers of student debt projected to increase through 2020, we can expect the number of student loan scams to follow suit.
Five Student Loan Scams to Avoid
Advance Fee Scam
The federal government has various programs that offer this type of credit for free. Scammers enter the scene and offer lower negotiated interest rates or better terms for a charge.
It’s not uncommon for fees to be attached to loans, both private and federal. The problem with this scam is not the fact that a fee is charged, rather that the fee is charged upfront before a service is rendered.
This is not the way repayment works. Federal advances, for instance, have origination fees. This amount, however, is added to the total amount borrowed and not required to be paid in advance. Private credit advances also have an origination fee which is also added to the total sum borrowed. In short, tread carefully if anyone requires an upfront fee to cover borrowing money.
Debt Elimination Scam
Anyone who approaches you and offers quick debt elimination should be treated with extreme skepticism as it does not exist. A scammer may claim that because you are attending a particular school or college that closed down, you are eligible to have your debt erased for a fee.
Although the federal government may allow this under certain circumstances, such as disability, death or school closure, it is not a good idea to go through a company that more than often turns out to be a scam.
In this morally corrupt endeavor, law firms will call students and offer to settle their debts for a fee. The idea is that the law firm will negotiate a settlement with the lender with payments made via the legal firm.
The law firm in this instance however, does not make the payments, which results in a default. Once that happens, the law firm would argue that since payments cannot be made, a negotiated settlement with the lender is required.
The fact that a law firm could be involved in such a scam is shameful. It is best to ensure you do all the necessary due diligence before contracting with one..
Loan Consolidation Scam
Most would argue that it is a good decision to consolidate your debt. If you have federal loans however, this can be done for free on the Federal Student Aid website. You also have the option to consolidate private debt or a combination of private and federal loans.
Scammers take advantage of these services by charging what they call a processing, administrative or consolidation fee. Students are often taken advantage of and end up paying an excessive amount of money for a relatively simple job that can be done for free.
Student Loan Forgiveness Scams
Loan forgiveness is a major trending topic and buzzword these days. And with any major news, hot topic or natural disaster, it brings the corrupt scammers looking to make some quick cash.
Qualifying for student loan forgiveness is not easy and is based on certain circumstances such as career choice, place of employment and position in a company. As an example, public service debt forgiveness can take up to 10 years of qualifying debt payments before one can apply. Other options can take as long as 20 to 25 years for approval. Anyone who claims to assist with quick and easy debt forgiveness must be assumed to be connected to a scam and should be ignored.
Other Red Flags
Fraud today is a very common and real threat. Students are often defrauded out of millions of dollars each year. In addition to what has been cited above, there are always clues to spot when the person on the other end of the line is trying to scam you out of your money. Keep a close eye on the signs below that should raise a red flag:
- High-pressure sales tactics
- Businesses that only offer debt consolidation and no other options
- Customer service with limited knowledge of student debt repayment options
- Use of terms such as “document preparation service” in their marketing
- Aggressive advertising with outrageous claims
- Customer service that asks for your student ID
- Official-sounding names and logos that make them seem connected to or part of the federal government
- High, upfront fees that don’t match up to the services they are providing
The above are warning signs of businesses and scam artists that are looking to take advantage of your situation and don’t have your best interests at heart.
How to Report Student Loan Scams
If you have unfortunately been involved in a student loan scam, you can file a complaint with the U.S. Department of Education by calling them on 1-877-577-2575. You can also write to the U.S. Department of Education, FSA Ombudsman Group, P.O. Box 1843, Monticello, KY 42633. Complaints can also be submitted to the Department of Education online.
In addition, if you are looking to recover stolen funds, contact MyChargeBack today for a free consultation. We are an American financial services firm with a global reach. Working with over 800 banks worldwide, we have assisted clients on every continent recover millions of dollars in assets that they thought they lost for good.