With so many changes to the student loan system, there’s plenty of opportunity for scammers to take advantage of the confusion. Student loan scams are increasingly common. In fact, the Federal Trade Commission (FTC) announced in March it was issuing more than $4.1 million in refunds to people who lost money in a student loan scam.
The problem won’t end anytime soon, but by being aware of common scams and red flags to watch out for, you can protect yourself.
The Top 4 Types of Student Loan Scams
Student loan scams can come in many forms, but scammers usually use the following approaches:
1. Student Loan Forgiveness
Chances are, you’ve received a phone call lately from a telemarketer telling you about a special, limited-time opportunity to have your loans completely forgiven right away. Unfortunately, blanket student loan forgiveness measures were blocked by the Supreme Court, so this “opportunity” isn’t a real one.
Although there are legitimate student loan forgiveness programs, they take years to qualify for, and you can apply on your own.
2. Payment Reductions
Predatory companies reach out to student loan borrowers who may be struggling to afford their payments. These companies may promise to slash your payments… in exchange for you handing over your credit card information, Federal Student Aid (FSA) ID or other personal details.
There are ways to reduce your student loan payments, including enrolling in an income-driven repayment (IDR) plan or student loan refinancing. But there’s no cost to apply for these programs, and you can do it yourself.
3. Student Loan Servicer Issues
Several student loan servicers ended their federal loan contracts, so millions of borrowers have new servicers. Once again, the changes are a prime opportunity for scammers who reach out to borrowers and pretend to be the loan servicer. They may tell you they need your personal information, including your bank account details, to set up your new online account.
Once you give them that information, they can use it to take out credit cards or loans in your name.
If your loans were switched to a new servicer, the transition happens automatically, and you’ll receive a notification in the mail about any changes.
4. Debt Settlement Programs
Some scammers will contact borrowers, promising to settle your student loans for a fraction of what you owe. Although the idea of paying just 50% of the existing balance is appealing, legitimate debt settlement companies won’t work with federal student loans, so any company offering that option is a scam.
Student Loan Warning Signs
Some scammers are incredibly sophisticated, with professional representatives with details about you and your loans and polished websites. But these red flags can alert you to potential scams:
- Uses the Department of Education logo: Some companies paste the U.S. Department of Education logo on their pages, but the Department of Education doesn’t allow third parties to use its logo.
- Asks for fee: Some companies charge fees to apply on your behalf for loan forgiveness or alternative payment plans. But these programs are free, and you can apply yourself at studentaid.gov.
- Promises immediate forgiveness: There are legitimate loan forgiveness programs like Public Service Loan Forgiveness (PSLF), but qualifying requires 10 years of work and 120 monthly payments. Any company promising immediate forgiveness is hoping you’ll fall for the scam.
- Pressures you: To prevent you from researching the company contacting you, scammers will pressure you to make a decision and hand over your payment information or other details quickly.
Student Loan Scam FAQs
Are there legitimate student loan forgiveness programs?
There are a number of legitimate student loan forgiveness programs, including:
- PSLF: Only available to federal loan programs, PSLF is a loan forgiveness program for non-profit workers who work full-time for at least 10 years and make 120 qualifying payments.
- Teacher Loan Forgiveness: Teacher Loan Forgiveness is a federal loan forgiveness program for teachers in low-income schools. It provides up to $17,500 of loan forgiveness after at least five years of teaching.
- State programs: State loan forgiveness programs vary by state, but they typically repay a portion of borrowers’ debt in exchange for working for a specific term. These programs are usually for high-need professions, such as those in healthcare or education. You can view potential programs by visiting your state education agency.
What do I do if I’m the victim of a scam?
If you’re the victim of a scam, report it to state officials, the Department of Education Office of Inspector General, and the FTC.
Where can I get secure help with my loans?
If you need help understanding your loan options, you can use the following reputable resources:
How to Protect Your Information
To protect yourself, follow these tips:
- Never give out your FSA ID: Treat your FSA ID as you would other sensitive information, give your Social Security number. Once companies have it, they can see all of your personal details, and even apply for loans in your name. Never give a company your FSA ID.
- If you get a phone call, check your credit report or contact the Federal Student Aid Information Center: When someone calls claiming to be your loan servicer, hang up. You can view your credit report at AnnualCreditReport.com or contact the Federal Student Aid Information Center to find out who your loan servicer is. Once you identify who your servicer is, contact the company yourself to ensure you’re talking to the actual servicer.
- Set up credit freeze: If you think your information has been compromised, set up a credit freeze on your credit reports. It’s free to do so, and you can set up a credit freeze online. Credit freezes prevent anyone from taking out loans or applying for credit in your name.
