Note that many student loan lenders and servicers are offering relief options during the coronavirus outbreak, so be sure to also check out our Student Loan Hero Coronavirus Information Center for additional news and details.
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It’s not unusual for student loan borrowers to receive letters promising debt relief. Some may be desperate enough over their debt to respond — but student loan borrowers beware: Some college debt relief offers could be scams, eager to charge you outrageous fees or worse.
If you’ve received a student loan debt relief letter (or text, email or phone call), here are some red flags to look for as you determine whether the offer is legitimate, as well as what to do if it’s too late and how to get help.
Signs your student loan debt relief letter might be a scam
Caution is a good watchword to have when evaluating promises of student debt relief. Consider these seven signs of danger — if any of them show up in an offer you’re looking at, it could be worth doing some deeper research to avoid problems down the road.
- You’ve never heard of the company or program
- You’re pressured to ‘act fast’ because of new laws or limited-time offers
- You’re asked to pay a fee upfront for services
- You’re told your student loan balance can be canceled or reduced
- The email or letter looks like an advertisement
- You’re unable to find reviews of the company and its services
- You’re asked to give them power of attorney or your FSA ID
1. You’ve never heard of the company or program
When it comes to federal loans, you should be dealing with your student loan servicer and viewing your account details via the Federal Student Aid website, run by the Department of Education.
For private loans, meanwhile, you should be dealing directly with your lender or servicer regarding any programs they have available — all of which should be clearly explained on the servicer’s website.
If the communication is from a third-party company that you’ve never heard of, or if it references a program you’re unfamiliar with, be suspicious of their student loan relief offers.
2. You’re pressured to ‘act fast’ because of new laws or limited-time offers
Since a new administration has taken office, scammers may tell you a benefit like Public Service Loan Forgiveness (PSLF) is going away and you need to act fast to take advantage of it. Be wary and do your own research — in the case of PSLF, for example, the program is still open to eligible applicants, and you can apply for free without forking over cash to a third-party company.
While there are some deadlines associated with federal student loan programs where you do need to “act now” — for example, recertifying income-driven repayments on an annual basis — you would likely be made aware of these deadlines well in advance.
Legitimate programs should always be open to those who qualify. Companies that contact you to say that an offer will only be available for a limited time are often scams.
3. You’re asked to pay a fee upfront for services
There is no-cost to apply to consolidate your federal loans. Any company that attempts to have you pay for this service is not legitimate.
While some private companies may charge you to refinance your student loan debt, many do not — and those that do will charge any fees at closing, not during the application process.
4. You’re told your student loan balance can be canceled or reduced
The only way to reduce your student loan balances is to make payments on your loans.
While some federal loans may be eligible for student loan forgiveness programs, there are strict criteria for participating, and the balance is forgiven once those criteria have been met — not at the time of refinancing. Any company that promises that they can reduce the amount you owe is almost certainly lying.
5. The email or letter looks like an advertisement
A legitimate letter will come in an envelope, have a letterhead and clearly outline terms of eligibility without any pressure sales or fancy gimmicks. The use of postcards, excessive exclamation points and hyperbolic language are all potential red flags.
Likewise, if you receive an email, make sure to check where it comes from. Emails sent from free online services like Hotmail, Gmail and Yahoo — or anywhere other than the organization offering the debt relief — are suspect and should be treated cautiously.
The same can be said if you’re receiving student loan robocalls and texts.
6. You’re unable to find reviews of the company and its services
Student Loan Hero offers reviews of student loan companies that are reputable. Similar reviews are also available from other sources.
If you’re considering refinancing your student loan debt, you should be able to easily obtain as much information about the company as you need to feel comfortable entrusting it with your financial information. Determining whether a company has Better Business Bureau (BBB) accreditation is another way to put your mind at ease regarding an organization’s legitimacy.
7. You’re asked to give them power of attorney or your FSA ID
Your FSA ID is akin to a written signature. The Department of Education and its affiliates will not ask for this ID. Don’t give it to a third party, even if they promise to wipe your slate clean of student loans. With this ID and your password, changes can be made to your account.
Debt relief scammers may also ask for the power of attorney, which gives them permission to make account changes on your behalf. Rather than doing what they promise to do (like pay off your bill), they may change the contact information on your account so you don’t get unpaid bill notices. This is bad news — you think they’ve gotten your loan forgiven because bills aren’t showing up, but in actuality, your account is in default.
What if you’re already a victim of a debt relief scam?
Don’t panic. Change the passwords to your accounts so the company can no longer log in. Contact your loan servicer to remove any power of attorney documents in your file. Revoking power of attorney will take away their ability to make decisions for you.
If possible, order a stop payment on checks or wire transactions and dispute credit card purchases with the fraudsters.
Don’t wait until you’re desperate to seek help
One of the reasons companies running student loan debt relief scams are able to stay in business is that they approach those who are scared or desperate for relief from student loan debt.
If you’re overwhelmed, one of the best things you can do is to be proactive. This means contacting your student loan servicer as soon as you are experiencing challenges with the repayment process. Often, there is a lot that your servicer can do to help you get your payments under control without having to resort to another entity, particularly if you have federal loans.
Even if your current servicer does not have a program that’s a good fit for you, the sooner you know that, the sooner you can begin to compare and contrast the offerings of legitimate student loan refinancing companies so you can seek relief from student loan debt.
Rather than waiting for a company to contact you, you stand a better chance of ending up with a legitimate student loan debt relief company by initiating the process yourself and conducting your own research. You will also likely find a program that will address your current financial needs.
Andrew Pentis and Taylor Gordon contributed to this report.