If you’re among the estimated 44 million Americans with student loan debt (a collective $1.4 trillion of it), this information is critical.
That staggering national figure has, not surprisingly, attracted scammers who have swindled borrowers out of some $95 million in illegal fees, according to the Federal Trade Commission. The problem is so bad, in fact, that in October the FTC, along with 11 states and the District of Columbia, initiated a crackdown on student loan debt-relief schemes dubbed “Operation Game of Loans.”
“Their unique selling point,” says Matt Ribe, a student loan counseling expert with the nonprofit National Foundation for Credit Counseling (NFCC), “is that they seem to offer a unique solution to an intractable problem.”
Here are a few things Ribe and other experts say should get your spidey senses tingling if you receive an offer for student loan relief.
Red Flag No. 1: High Upfront Fees
If a company says they can significantly lower monthly payments or loan forgiveness in exchange for a high upfront fee, that’s a warning sign. “You see a lot of these companies asking for $700 to $800 or more,” Ribe says.
But truth is, these companies don’t have any sort of special insider access to getting rid of student loans. If you’re willing to put in the effort, you can take steps toward solving your student debt yourself for free, says Lauren Zangardi Haynes, CFP®, of Evolution Advisers in Midlothian, Virginia. And while it’s not illegal for debt relief companies to charge you for their help (for instance, enrolling you in a different federal repayment plan), it is illegal to demand payment before they’ve actually done anything.
Without spending a dime, you can go directly to your student loan servicer or to the Federal Student Aid (FSA) website to learn about options for lowering your payments, deferment or forbearance, or loan consolidation. And if you have federal loans and work for the government, a 501(c)3 organization, or you’re a teacher, you can learn more about qualifying for public service loan forgiveness programs. The FSA site also has a calculator to help you visualize what your loan payments would look like under different repayment plans.
Red Flag No. 2: Asking for Your FSA ID
You should never give anyone your FSA ID (the personal username and password that logs you into the FSA site) or allow someone else to sign into your account to make decisions for you. If a company asks for this or other personally identifiable information like a Social Security number, or disrupts the relationship between you and your loan servicer, “that’s an indication this operation is not flying above-board,” Ribe says.
Legitimate student loan help agencies will never ask for this information. Also, don’t seek assistance from any company claiming to be affiliated with the Department of Education — those don’t exist.
Red Flag No. 3: Promising Fast Forgiveness
Something else to be wary of: A guarantee of fast loan forgiveness.
“You see a trend with many of the for-profit companies: They say you’re ‘pre-approved,’ or you’re ‘guaranteed’ to qualify,” Ribe says. “They’re putting the cart before the horse. They're saying, ‘Here is a universal solution that will apply to you.’ ”
But there is no such thing as a one-size-fits-all solution when it comes to student loans. Yes, there are multiple federal student loan repayment programs intended to offer relief for borrowers, but they don’t provide quick fixes, Ribe explains. “So, these guys, their entry point is to come in and make an offer that's too good to be true.”
Red Flag No. 4: Piling On the Pressure
“Sign up for this limited-time offer before it’s too late!”
You’re probably used to hearing this screamed at you on a used car lot, but some student-debt companies are resorting to these types of tactics in order to pressure you into making an abrupt decision over the phone. “Anyone who pressures you to make a decision right away always raises an alarm in my mind,” Haynes says. “Take it home, double-check it, call your student loan servicer. Research online and see if what they're saying checks out. If they're really pushing you to make a decision upfront, or they’re really hounding you, be very cautious.”
However, say you’ve suddenly lost your job or you’re facing a short-term hardship that’s drained your emergency fund, leaving you unable to pay your monthly bills, let alone make payments on your student loans. You may be feeling that sense of urgency. In that case, check out the FSA website to see if you qualify for deferment or forbearance. But just know those are temporary solutions, Ribe says.
“These are tools that allow you to pause making payments, but they certainly don't make the loan go away … because interest is still accruing,” he explains. “It’s really kicking the can down the road.”
The best way to lower or manage your debt is to do your research and devise a long-term plan that works for your particular financial situation. That may mean enrolling in an income-driven repayment plan or, if you have private loans, refinancing them to get a lower interest rate. Reaching out to a non-profit counselor or even a financial adviser you trust can help.
“You went to school and got an education as a way of investing in yourself,” says Ribe. “Formulating a plan [to pay down debt] is really the next step.”
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.