Beware of Student Loan Relief Scams — 4 Tips on How to Spot Them

Last updated 03/19/2024 by

Today’s college graduates have an average student loan balance of $32,731, according to the Federal Reserve. For some, that’s higher than their starting salary, making it nigh impossible to make the minimum monthly payments.

If you feel like the pressure of your student loans is becoming too much, you might be open to any opportunity to get some relief.

The problem is that scammers are banking on your desperation to get you to fall for their fraud. So, you need to learn how to spot these student loan relief scams before someone tries to pull one of them on you.

Student loan relief scams and empty promises

“Student loan relief” companies target people who are struggling to make do with their student loan payments. They often approach you by phone or online advertisements promising a chance to lower your monthly payments or get instant forgiveness.

Some agree to take over your loans while you pay them a fraction of the payment. Others might ask for payment to sign you up for one of the Department of Education’s income-driven repayment plans — which are free, by the way.

But, when all is said and done, they run off with your money and leave you with nothing to show for it, other than possibly student loans in default.

To avoid getting tricked by student loan scammers, consider these four tips on how to spot them:

1. They ask for money upfront

There are several legitimate debt relief companies out there that charge fees for their services. What separates them from the scammers is that they don’t charge any fees until after they’ve lowered your payments or settled your loan for you.

If you’re getting calls from a so-called student debt relief company that wants payment before rendering any services — which is illegal — that’s a sign that you’re dealing with a fraudster.

Another thing to keep in mind is that debt relief companies, in general, don’t perform any services that you couldn’t do yourself. Consider all your options before working with one.

2. They guarantee student loan forgiveness

Fortunately, student loan forgiveness is a real thing. The Public Service Loan Forgiveness program (PSLF) is designed to help certain government and other public servants get relief from their loans.

But there’s no guarantee that you’ll qualify, and there’s certainly no way of shortening the program’s 10-year term. So, if someone promises you immediate student loan forgiveness or tells you that they can guarantee it, run in the other direction.

3. They use pressure tactics

In any setting, a salesman will tell you to “act now before it’s too late” because they want your money. In the context of student loans, it’s especially frightening because there’s no such thing as a promotion for student loan relief.

Neither the Department of Education nor private student loan companies offer “act now” debt relief programs.

If you ever feel pressured by a debt relief company, it’s your signal to take a step back. Be sure to thoroughly research all your alternatives before making a decision.

4. They ask for personal information

You should never give your Federal Student Aid ID or Social Security Number to a debt relief company. Legitimate ones simply don’t need that information to provide the services that they offer.

If you do give them this information, you’ll give fraudsters a way to access and wreak havoc on your student loans and other personal accounts.

If you’ve already given your Federal Student Aid ID or Social Security Number to a supposed debt relief company, contact your student loan servicer immediately to make sure you still have control of your account.

Also, contact the three main credit bureaus — Experian, Equifax, and TransUnion — to make sure there’s no other fraud going on.

What to do instead

If you’re looking for student loan relief, there are legitimate options available. For example, the Department of Education offers income-driven repayment plans to help lower your monthly payment to a manageable level.

You can also consolidate your federal student loans to simplify your payments and make your loans eligible for the PSLF program.

Refinancing can help you adjust the repayment schedule to fit the monthly payments to your current budget”

Several private student loan companies offer to refinance your loans to make things easier.

“Refinancing can help you adjust the repayment schedule to fit the monthly payments to your current budget,” says Joe DePaulo, CEO and co-founder of College Ave Student Loans. And, depending on your credit and financial profile, you might be able to get a lower interest rate than what you’re currently paying.

Before you decide to refinance, though, DePaulo suggests that you consider any benefits you might lose in the process. “Federal loans carry special benefits, such as public service forgiveness and income-driven repayment options, that are not typically available on private loans,” he adds.

Also, compare multiple student loan companies to make sure you’re getting the best terms to refinance your loans.

If you’re not sure you want to make any major changes to your loans, you still have options. “If you’re having difficulty repaying your student loans, don’t ignore the problem or assume that you can’t resolve the issue,” says DePaulo. “Reach out to your loan servicers directly to discuss your situation and try to find a plan to get back on track.”

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