How to Spot and Avoid U.S. Student Loan Scams

Student loans can be complicated, especially when you are studying in the United States and have many financial aid and repayment options to choose from. There are many paid services that can help you find financial aid, but much of the information they provide is often available online for free.

However, beyond these paid services, there are also companies trying to deceive you. If a company offers something that sounds too good to be true, it probably is.

Below are the warning signs you should watch for to identify some of the most common student loan scams.

How to Identify the Most Common Student Loan Scams

Almost every student has some type of student loan. For that reason, students are often victims of fraud and other scams. For many students, the world of student loan applications and repayment is incredibly complex, but if you know what to look for, it is easy to avoid being tricked.

Here are some of the most common student loan scams.

Advance-Fee Scams

An advance-fee scam is when a fraudulent company promises to provide students with a large sum of money in the form of a loan. They say that, in order to receive the loan, you must pay an upfront fee. You may be told that the fee is refundable and that this is standard loan procedure. In reality, this is not standard procedure, and you definitely will not get a refund.

This is one of the most common student loan scams because the company often seems quite credible, and the request does not seem unreasonable. The company may even try to get you to pay several times before you realize you have been scammed.

If you have never heard of the company before, look it up. Make sure it has a legitimate street address, website, and direct phone line. Fraudulent companies also like to pressure you into paying immediately, so review all documents before signing any agreement.

Loan Consolidation Scams

If you are studying in the United States, once you graduate you may decide to consolidate your student loans into one large loan, called a consolidation loan. There are many advantages to doing this. For example, it can make your loans easier to manage, and you may get a longer repayment period. However, beware that many companies try to scam you.

These scam companies usually charge a consolidation fee, claiming it covers processing and administrative costs, but these fees actually do nothing.

These scams often target private student loan borrowers, because federal student loan borrowers can consolidate their loans for free on StudentLoans.gov.

Student Loan Debt Elimination Scams

Some fraudulent loan companies may promise to eliminate your student debt. Sadly, this is one of those situations that sounds too good to be true. Your student debt will not be canceled unless you have a generally qualifying reason, such as death or a college closure.

Although the federal government offers several student loan forgiveness programs, there is no such thing as quick loan forgiveness. These forgiveness programs usually involve income-driven repayment, and you may only qualify for forgiveness after a certain period of time, such as 40 years.

If in doubt, contact your student loan servicer.

Lawsuit Student Loan Scams

In this scam, you are introduced to a law firm by a fraudulent student aid company. The company will claim that the law firm can settle your student loans for far less than you owe.

The law firm will ask you to send them whatever money you can afford and say they will negotiate with your lender to settle the remaining balance. The law firm keeps the money, while your student loans go into delinquency. This also damages your credit score.

If a student aid service ever suggests something like this, be extremely cautious, and never send money to the company unless you are sure it is legitimate.

Six Ways to Avoid Student Financial Aid Scams

So what can you do to avoid these scams? While scams can never be eliminated completely, there are several things you can do to reduce your risk of becoming a victim of a student loan scam.

Find Out Which Companies Work With the U.S. Department of Education

Do not automatically trust a company that claims to have a relationship with the U.S. Department of Education. Third-party companies that offer private loans have no connection to the Department of Education.

However, if you have federal student loans, there are private companies that handle billing and other services on behalf of the U.S. Department of Education, such as repayment plans. Private collection agencies also help federal student loan borrowers by explaining their options.

Check Your Student Loan Servicer

A student loan servicer manages your student loan debt on behalf of your lender, or, if you have federal loans, possibly the U.S. Department of Education.

You can use your student loan provider to answer any questions about your loans, help you decide which repayment plan is right for you, and help you switch to a new plan for free.

It is a good idea to find out who your student loan servicer is and what their contact information is. If you have more than one student loan, perhaps a mix of federal and private student loans, you may have multiple servicers.

You can find your federal student loan servicer by visiting StudentAid.gov. If you receive an email and are not sure whether it really came from your servicer, check the portal or call your servicer to confirm.

Do Not Pay to Change Your Student Loan

As mentioned above, your student loan servicer will help you change your repayment plan for free, so you really do not need to pay anyone to help you handle this.

If you are looking for more guidance on your student loans, the federal Department of Education will provide that information for free and will help you with applications for income-driven repayment, consolidation, deferment, and forbearance. All of this is free.

Do Not Trust Companies That Say They Can Reduce or Eliminate Your Student Loan

There is no shortcut to student loan forgiveness. These companies are simply trying to take your money without making any changes to your student loan debt.

Protect Your Personal Information

Your student loan servicer, government-contracted private collection agencies, and the Department of Education will not contact you to ask for personal information.

If you are asked for your bank account number, credit card number, date of birth, FSA ID username and password, or Social Security number, the company may be trying to commit identity theft.

If you think you may have been scammed, call the service provider directly to ask any questions you have.

If Your Password Has Been Shared, Change It

If you gave personal information over the phone to someone claiming to be your student loan servicer, you should immediately change your Federal Student Aid (FSA) ID password. You can change your password here.