The tidal wave of student loan debt and defaults has created a seamy scam industry: student debt relief companies promising to renegotiate student loan debts. Many of these companies promise renegotiate lower student loan payments, “forgiveness” or even eliminate your student loans completely. AVOID THEM! They are breaking the law. These scam artists are charging for federal loan assistance programs that borrowers can enroll in on their own, without any fees. And don’t believe it if these sites imply they are affiliated with the federal Department of Education. They aren’t.
Many of the services offered by these companies are simply government programs that you can apply for yourself. For example, many companies will offer to assist you with student loan consolidation, when in fact you can obtain easy-to-understand documents to consolidate your loans on your own from your servicer or debt collector. Additionally, when companies offer to lower your student loan payments or principle, they usually just help you apply for long established government student loan repayment programs, which you can apply for on your own. Unfortunately, one of these scammers were based in San Diego; the Student Aid Institute. Recently, the Consumer Financial Protection Bureau acted to stop them from illegally tricking borrowers into paying fees for federal benefits. It was the latest in a series of actions against debt relief firms over the last two years. This particular company charged borrowers hundreds of dollars upfront — as much as $495 — in violation of federal law, which requires that at least one debt must be renegotiated or reduced before a fee can be collected for debt relief services, the bureau said. The company also charged maintenance fees of $39 a month. Many other student loan debt relief agencies will force you into signing long term contracts to make monthly payments to them. This is often to “assist” you in paying their high fees by allowing you to pay on a monthly basis. By doing so, they often hide the true cost of their services. For example, $150 a month for student loan assistance may seem reasonable. But if you sign a two-year agreement, the $3,600 total you will pay is an extraordinary amount for the services they are providing to you, and more than most attorneys will charge you for the same service.
Also, beware of any “loan forgiveness” company that asks you for your federal ID and Pin or ask you to sign over Power of Attorney. You should never provide your federal log in information to anyone.
The scammers claim to be providing “application preparation” services to borrowers who are often frustrated in dealings with the Department of Education, just like tax preparation firms help you file your taxes. However, they ignore the fact that the forms are straight-forward and it is illegal to charge for such services. If you were victimized by Student Aid Institute or a similar scammer, you should call your loan servicer right away, to make sure you are enrolled in the plan that is best for you. (To find your loan servicer, look it up on the Education Department’s website or call the department at 1-800-4-FEDAID.) Consolidating your federal student loans requires no up-front payment and your servicer is required to help you complete the application.
If you are having trouble making student loan payments, you may be eligible for various programs that calculate monthly payments as a percentage of the borrower’s income.The Institute for College Access and Success summarizes the options on its income-based repayment website, or you can visit the Education Department’s student loan estimator. The Education Department advises borrowers to consult their loan servicers before choosing a plan. The Student Loan Borrower Assistance program also offers information on its website. There are legitimate programs out there to assist student loan borrowers such as loan consolidation, Income Based Repayment programs and Public Service Loan Forgiveness, however, you should never pay anyone to apply for any of them.
If you have private student loans, your options may be limited, but you can still contact your loan servicer to discuss the situation. But don’t pay any money for student debt relief — it’s an illegal business and you’ll pay big time for nothing. If you believe you’ve been scammed, we urge you to file a complaint with the bureau on the Consumer Finance Department website so that you can get your money back.