What You Should Know About Student Loan Scams
Criminals love confusion. It creates the perfect environment for taking advantage of overwhelmed consumers. Add a kernel of truth plus a promise of financial relief, and a profitable scam is born. In recent years, fraudsters have raked in profits in excess of $95 million by claiming they can help student loan borrowers eliminate, pause, or lower their monthly payments.
What is a Student Loan Scam?
A student loan scam occurs when a scammer makes false promises about their special ability to forgive or drastically alter federal student loan payments. Charging hefty up-front fees for their services is only the beginning. They often require borrowers to hand over their Federal Student Aid (FSA) ID or Social Security number. Some even ask borrowers to assign power-of-attorney before they provide assistance.
Their ultimate goal is to gain access to student loan accounts so they can change a loan status or repayment plan, directing future payments into their own bank accounts.
Student Loan Scam Tactics
Scammers hope borrowers are unaware of the details surrounding the federal government’s temporary student loan payment suspension that started in March 2020. Federal student loans were automatically placed in this status at no cost to the borrower and will remain so until at least September 30, 2021. This hasn’t stopped scammers from pressuring borrowers into paying a fee to consolidate loans or change repayment plans.
Even before this date, scammers used the promise of lower payments to take advantage of borrowers who didn’t know they could make changes to their loans for free by contacting their loan servicer.
Another popular tactic involves telling borrowers to send payments directly to the scammer instead of the loan servicer to “guarantee” lower monthly payments. Scammers can hide for months using this tactic. For example, a scam artist places the loans in deferment or forbearance status for six months, during which no payment is legally required on the debt. The borrower continues to make student loan payments to the scammer, unaware of the change in loan status. The scam comes to light after the deferment or forbearance period has expired, and the loan servicer reports nonpayment to the major credit reporting bureaus.
Student Loan Scam Red Flags
- Phone calls, emails, or text messages promising access to student debt relief programs for a one-time or monthly fee.
- Requests for an FSA ID or Social Security number to confirm eligibility for loan forgiveness programs.
- Offers of assistance that require borrowers to give power-of-attorney to interact with the loan servicer.
How to Protect Yourself from Student Loan Scams
- Contact your loan servicer with questions about specific student debt relief programs.
- Make sure your account information is up-to-date. If you no longer receive correspondence from your loan servicer, it could mean a scammer has accessed your account.
- Never give your FSA ID number to anyone. It’s your legal signature to authorize changes to your student loan.
If you suspect a student loan scam, report it to your loan servicer and the Federal Trade Commission at ReportFraud.ftc.gov.
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