How To Spot Student Loan Forgiveness Scams
Updated : September 23rd, 2022
For many Americans, especially those who haven’t yet purchased a home, student loans are the biggest source of debt. It’s easy to understand why graduates would seek some immediate debt relief. While some student loan forgiveness programs are genuine, it’s important to watch out for student loan scams.
7 Ways To Spot a Student Loan Forgiveness Scam
- Asks for sensitive information
- Promises immediate loan forgiveness
- Asks you to pay upfront fees
- Claims to be affiliated with your loan officer
- Urges you to cut off communication with your loan officer
- Pressures you to sign up
- They look and seem unprofessional
Around 34% of all student loan debt is owned by adults under 30, totaling around $578 billion in debt. One out of every three adults under thirty is part of this statistic. A significant number of young people who aren’t experts at personal finance are carrying a huge debt burden. Unfortunately, they become easy targets for unscrupulous scammers.
Of course, student debt is still held by older demographics other than millennials. Members of Generation X are also carrying student debt, with 13% of the debt being paid by adults aged 40 to 50. Despite a few additional decades of experience making a monthly payment on their auto loan or home loan, these adults can also fall prey to financial scams. But no matter what your age, there are a few easy ways to tell if a student loan forgiveness plan is legit or not.
1. Asks for sensitive information
This first red flag is something that must be assessed in conjunction with the other red flags outlined below, because even a traditional lender or loan officer is going to need to collect personal information ranging from the commonplace to sensitive, such as your home address, current lender, student loan number, and even your social security number. But if the company or loan officer contacting you does not seem legitimate, you should hesitate to give this information out and verify the company through something like the Better Business Bureau. Moreover, a lender will certainly not need to ask you for online usernames and passwords such as the ones you use to manage your Federal Student Aid account.
2. Promises immediate loan forgiveness
On August 24, 2022, President Biden announced a partial student loan debt forgiveness plan. While this program is genuine, other programs may be a scam. Lenders promising immediate loan forgiveness are probably not legitimate.
Some lenders will allow you to defer the loan payments or provide forbearance on the payments for a certain amount of time provided you meet certain criteria in terms of income. There are also federal student loan forgiveness programs, but pretty much all of them will require you to work in a certain industry or particular career field for a certain number of years, and continue to make payments on time until your loan is forgiven. An example of such a program is the Public Service Loan Forgiveness program, which will allow you to apply to have your student loans discharged if you spend ten years working at a nonprofit or government agency. Don’t believe anything about immediate student debt relief.
3. Asks you to pay upfront fees
Most lenders will not ask you to pay upfront fees for any kind of loan, ever. They will usually wrap the fee into the loan itself, which helps them compete against other lenders. Charging customers to refinance a loan up front can often be a red flag.
In this case, you might think it’s okay because the person contacting you is promising debt relief, and not a new loan. However, it’s important to keep in mind that the Department of Education actually does not charge any fees for deferment, forbearance, loan consolidation, or student loan forgiveness plans. Keep in mind that if you are refinancing your loan with a private lender, they may have an origination fee. Although, in this case, such a fee would be legitimate, most private lenders will not charge such a fee – so this can also be a red flag.
4. Claims to be affiliated with your loan officer
The easiest way to see if someone is actually associated with your loan officer is to contact your loan officer. If you don’t know how to do that, find some of the paperwork or an email from your current loan provider and get in touch with them. Another tactic a scammer might try is telling you that they are affiliated or partnered with a government organization like the Department of Education. They may even try to fool you by putting logos and special fonts on their marketing materials, or perhaps using an official sounding name.
5. Urges you to cut off communication with your loan officer
One tactic that scammers try is to discourage you from communicating with your current loan officer. Despite market competition for new customers, financial institutions like banks and lenders are amicable about working together and transferring assets. When a potential new lender or representative of a debt forgiveness program attempts to cut you off from your current financial institutions, this is a red flag that they might have ulterior motives.
6. Pressures you to sign up
Another red flag of a student loan scammer is high pressure sales tactics. You may recognize some of these tactics from other venues where a salesperson desperately wants to close a deal. Saying things like, “This deal is only going to be available today,” or, “What if I give you this special deal right now…” are meant to put pressure on you and lead you into some potentially bad decision making.
When it comes to deferring a loan, waiving a loan, or refinancing a loan, offers are not going to change day to day, and they are certainly not going to be crafted individually on the spur of the moment. This is because matters involving loans are not really in the hands of the loan officer or person representing loan forgiveness. They have to be assessed on the back end by credit analysts or people who vet your application for a particular program.
The bottom line: Be suspicious of high pressure sales tactics.
7. Looks and seems unprofessional
Student loan scams can be spotted with some of the same red flags as identity theft or a suspicious private loan. A scam artist may be quite adept at creating a convincing email or placing an official sounding call, but there will always be ways to tell a scam from a legitimate offer of student loan debt forgiveness.
Debt relief scams of fast loan forgiveness offers might come from a strange email address, such as one that contains off-sounding names or numbers. The email itself might have errors in grammar and spelling, and its formatting might just not look professional. Keep in mind that private and federal loan servicers have a lot of resources at their disposal to make their marketing material look professional. Small mistakes like these can be a sign of a scam meant to take advantage of a student loan borrower.
The same is true for phone calls. When a lender or financial institution is making offers to refinance or provide a student loan forgiveness program, they are going to call most likely from an 800 or 888 number rather than a local number. Even if they do call from a typical marketing kind of number, you should keep in mind the other red flags discussed above: asking for your FSA ID, encouraging you to cut off contact with your current loan servicer, or asking for an upfront fee to be paid right away.
What To Do If You’re Contacted By a Scammer
If you’ve been contacted by scammers, the best thing you can do is report them. You can report financial scammers of any sort to the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), or your state’s attorney general, using forms available on their website. You should also report the scam to your current lender or the loan officer who services your federal student loan.
Help for Victims
If you’ve been tricked by a student loan forgiveness scam, contact your current servicer of federal loans. Let them know you are trapped in one of the debt relief scams that are going around. They may be able to help you immediately revoke any payment authorizations from third parties to a spurious student loan forgiveness center or program.
You should also contact your credit card company and bank to put fraud alerts on your account and prevent these transactions from going through. Then, be sure to contact the credit reporting agencies such as Experian, Equifax, and Transunion to freeze your credit report and enquire about further appropriate actions to take.
You should also change all your online login and password information that the scammers have taken from you, since they may attempt to use this information to continue pursuing their financial crimes against you, or sell that information to third parties who pursue other financial scams and identity theft.
Navigating the world of student financial aid is already very difficult. It can become even more difficult after school when you are just starting to establish yourself in a career path and entering the world with little experience in the realm of managing your own personal finances. It’s for these reasons that the student loan scam in terms of loan forgiveness is a popular go-to for scam artists. There is a market of people looking for student loan debt relief, and plenty of scam artists willing to service this market who do not work for a legitimate student loan servicer on behalf of a private lender or even the education department.
Of course, the best defense is a good offense, as they say. Work with your current lender or the financial aid office from your school to discuss any real and legitimate paths toward student loan forgiveness that are out there, rather than the flash in the pan of a student loan debt relief scammer.
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