Ever since President Biden announced his student forgiveness plan in August, which would erase $10,000 of debt for low- and middle-income borrowers, student debt scams overall have been on the rise. According to the Better Business Bureau's (BBB) Scam Tracker, there was an increase in reports of student debt scams shortly after the announcement. Furthermore, according to the Federal Trade Commission (FTC), in 2020 there was a grand total of nearly 25,000 fraud reports on federal student loans, an 88% uptick from the year prior.
Digging a bit deeper, some types of older scams are decreasing in frequency—thanks to better enforcement, points out Mark Kantrowitz, a student loan expert and author of How to Appeal for More College Financial Aid. On the flip side, there's been a spike in scams around—you guessed it—loan forgiveness programs.
Below are some common student loan scams, what to watch out for, and how to avoid falling victim to them, from myFICO.
For more loan and credit education, visit myFICO’s blog at https://www.myfico.com/credit-education/blog
Federal Student Loan Forgiveness Program Imposters
This scam is the newest — and most likely — the most prevalent one. Thieves are pretending to be from the new federal debt cancellation program. They'll probably try to get a hold of you by way of an unsolicited phone call or via snail mail.
To get a hold of your banking and personal info, these imposters ask you to fill out a simple form to see if you might qualify for the loan forgiveness program. They might ask you to cover an upfront fee, or they might say they can help you redirect your current student loan payments to them.
Help to Find Money for School
This is one that my mom and I sadly fell for, many moons ago. These scammers operate under the guise of financial aid advice services and claim they can help you find "free money" for school by way of scholarships and grants.
They might reach out to you via email, phone call, or mail, and invite you to a free seminar, replete with free lunch. While there are legitimate companies that charge to help you hunt down scholarships, the fraudulent ones take your money — we're talking well in the range of $1,000—and don't deliver on their promises. These companies might target those who are the first in the family to go to college.
These imposters usually make you a "too good to be true" offer. For instance, they provide a 100% guarantee that you'll get some form of aid. All you need to do is provide your credit card or banking info.
Help with the FAFSA Form
There are several sketchy companies that say they can help you fill out the FAFSA form. All you need to do is pay a fee. These companies are in no way affiliated by the U.S. Department of Education, and they'll ask you for your credit card information.
The thing is that you can probably get help with the FAFSA for free through a school counselor or a college's financial aid office. You can also find info on the FAFSA website.
Student Debt Relief Companies
Another common student debt scam are student loan debt relief companies that ask you to pay a fee in return for student loan debt relief. However, you can get the same type of help from federal loan servicers and providers.
Advance Fee Loan Scam
While there has been a decrease in what's known as a "game of loans," an advance fee loan scam that requires upfront payment for credit repair services, this scam is now being used for student loans. This scam might charge you for loan forgiveness programs, switching repayment plans, consolidating or refinancing loans, changing payment amounts, or applying for deferment or forbearance, explains Kantrowitz.
Telltale Signs of Student Loan Debt Scams
Tone of urgency. A common sign of scams is that the imposters create a tone of urgency by trying to get you to feel concerned, worried, or scared. They want you to act quickly and send money promptly.
Asking for money upfront. "If you have to pay money to get money, it's probably a scam," says Kantrowitz. In turn, beware of anybody who asks you to pay a fee to apply for forgiveness or to modify your student loans. "Never give out a credit card or bank account number unless you know the organization you are giving it to is legitimate," says Kantrowitz.
Someone asks for your FSA ID. With your FSA ID, someone can log in to government websites posing as you, explains Kantrowitz. They can take out loans in your name, or they can change the address to which student loan bills are sent. Your FSA ID is an electronic signature and should not be given to anyone.
Guarantees. A company could claim it fulfilled its promise if you were offered student loans or a $20 scholarship. "Is that worth a fee of $1,000 or more?" says Kantrowitz.
Remember: A lot of the services these scammers are peddling are things you can do for free on StudentAid.gov, the government's student loan website. There you can:
- Consolidate loans
- Switch repayment plans
- Apply for a deferment or forbearance
You can get free help about federal student aid, from the following:
- Federal Student Aid Information Center (FSAIC)
- Government contractor
- Calling 1-800-4-FED-AID (1-800-433-3243)
While student loan debt scams abound, being aware and looking out for telltale signs can help you from becoming a victim.
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