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Managing student loans can be tricky, especially when it comes to navigating the confusing rules around repayment and loan forgiveness programs. Unfortunately, there are scammers out there who prey on that confusion to steal borrowers’ money or even their identity. Student loan scams can wreck your finances and leave you in an even deeper financial hole. Recognizing the signs of a student loan scam can help you protect yourself and your money. Read on to find out what to be alert for.
What Is a Student Loan Scam?
There are all kinds of student loan scams. Scammers might promise to cancel your student loan debt overnight, often in exchange for an upfront fee. Others might try to get their hands on your Federal Student Aid (FSA) ID or Social Security number in an attempt at identity theft. You might also come across a student loan consolidation scam, in which you’re asked to pay a fee to have your loans consolidated. Or you might encounter companies that charge you a hefty sum to apply for an alternative repayment plan. While these services aren’t always a scam, you can accomplish these same things on your own for free. Rather than paying a third party to manage your student loan repayments for you, you might be better off finding the right student loan lender for your account — also known as your loan servicer — and contacting them for assistance instead. You can also submit forms on your own through the official Federal Student Aid website.
Methods of Student Loan Scamming
There are a number of student loan scams, but the most common are ones that falsely promise an immediate reduction or cancellation of your student loan debt. Here are some student loan scams to keep an eye out for.
Overnight student loan forgiveness
Some student loan scams promise to forgive your student loans or federal aid overnight or with an accelerated timeline. The reality is that most student loan relief programs require years of qualifying service from you before they’ll forgive your debt. With the Public Service Loan Forgiveness program, for instance, you need to work for at least 10 years in public service before your loans will be canceled. Teacher Loan Forgiveness requires five consecutive years of teaching in a low-income school or educational service agency before you can receive loan forgiveness. There are a few special circumstances in which you may get your loans discharged more quickly. For example, if you have a total and permanent disability, you may be eligible for disability student loan forgiveness. Or if you were defrauded or misled by your school, you might qualify for something called borrower defense to repayment, which may discharge some or all student loan debt to those who are approved after they apply. However, you should contact your loan servicer about any forgiveness program, rather than trust someone who reaches out to you with promises of loan cancellation that seem too good to be true.
Demand for sensitive personal information
You might encounter a student loan scammer who’s trying to get your personal information. Never share your Social Security number or bank account details with an unverified source. Also, don’t share your FSA ID. The Department of Education will never ask you for your FSA ID. So if someone does ask you for it, you know it’s likely to be a scam. If you have given your FSA ID to a third party, change your FSA password as soon as possible to protect your account.
Charging fees to fill out free forms
Another scam is companies that want to charge you hefty upfront fees to change your student loan repayment plan, consolidate your student loans, or apply for loan forgiveness programs on your behalf. In some cases, these companies may steal your money and not deliver the services they promised. In other cases, these companies may deliver on their promise but not be worth the cost. As a student loan borrower, you don’t have to pay anything to change your repayment plan, consolidate loans, or apply for loan forgiveness. You can do all of this on your own for free through the Federal Student Aid website or by contacting your loan servicer. If you’re struggling with a complicated student loan situation, it may sometimes be worth it to hire a student loan counselor or lawyer for guidance. But make sure you’re working with a legitimate service before paying out any money. Check their credentials. And remember, the individual or company you hire probably isn’t doing anything you can’t do on your own for free.
Tips to Avoid Student Loan Scams
Knowing the red flags of a student loan scam may help prevent you from becoming a victim of one. Here are some tips to avoid student loan scams and protect your finances.
Beware promises that sound too good to be true
If someone is promising to cancel your student loan debt overnight, it may be tempting to believe them. But if a promise sounds too good to be true, it probably is. Trust your instincts, and beware of anyone offering a secret fast-track to student loan relief. There isn’t one.
Never share your FSA ID
Your FSA ID is your unique ID to log into your Federal Student Aid account, where you can manage your student loans. If someone is asking for your FSA ID, don’t give out this information. According to the Education Department, it will never ask for your FSA ID, nor will any of its partners.
Be wary of someone who contacted you
The Department of Education is probably not going to reach out to you about opportunities for loan forgiveness. Instead, it’s up to you to research your options and apply. If someone is calling or texting you out of the blue about student loan relief, chances are they’re a scammer. Hang up (or ignore a text) and research the name of their company. You can also track down your loan servicer’s contact details and ask them if they can confirm the source. If they can’t confirm it, don’t respond to or engage with the company that reached out to you.The Department of Education (ED) works closely with many federal loan servicers. If you need help with your federal student loans, you can review the ED’s list of contracted federal loan servicers to make sure you are dealing with one of these companies.
Don’t feel pressured to act quickly
Scammers often try to get borrowers to act fast without thinking through the details. If you’re feeling pressured, you might be dealing with a scammer. In reality, there’s rarely any urgency around applying for loan forgiveness or repayment programs. You can apply to most programs at any time.
Avoid paying unnecessary fees
Finally, protect your hard-earned money by refusing to pay upfront fees for student loan relief. It doesn’t cost anything to apply for federal student loan repayment plans or forgiveness programs. If your loans are in default, you can apply for student loan rehabilitation or consolidation for free. Steer clear of companies that are trying to charge you for these services, especially if they’re levying an expensive fee upfront before delivering any results.
What to Do If You Are Affected By a Student Loan Scam
There are a few steps you can take if you’ve been affected by a student loan scam. First, contact your bank or credit card company to stop any payments you’ve made to the company in question. Consider freezing your credit report so no one can open a new line of credit in your name. Contact your student loan servicer, as well, to prevent any unwanted actions on your loans. If someone has access to your account, ask your loan servicer to revoke it. You can also update your login details, such as your FSA ID and passwords, to protect your online accounts. Finally, you can submit a complaint to the Office of Federal Student Aid, the Federal Trade Commission, and the Consumer Financial Protection Bureau.
The Takeaway
With nearly 43 million Americans that owe a collective $1.745 trillion in student loans, many borrowers are looking for financial relief. Unfortunately, there are scammers trying to take advantage of this financial vulnerability.To protect yourself from student loan scams, it’s important to spot the red flags and be vigilant about who you share sensitive information with. You can also protect yourself by staying up to date on student loan news, so you know which programs are legitimate and which are not. Get your information from trusted resources, such as the Federal Student Aid website, and beware anyone who’s pressuring you to act quickly. In the end, trust your instincts — if a student loan promise sounds too good to be true, it probably is.
3 Student Loan Tips
Once the pandemic-related pause on federal student loan payments ends, going back to making payments may be hard on budgets. One solution is to refinance to a lower interest rate, longer loan term, or both, depending on your situation. (The tradeoff is that you’ll be forfeiting federal benefits such as repayment programs.) Find and compare your student loan refinance options.
One pain-free way to pay down your student loan sooner: send in your tax refund to put against the principal balance. Since it’s money that has already been taken out of your pay, you won’t miss it.
If you teach full-time for five complete and consecutive academic years in a low-income school, you may be eligible for federal student loan forgiveness.
Check your rates and terms for student loan refinancing with Lantern.
Frequently Asked Questions
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About the Author
Rebecca Safier
Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).
