Avoiding Student Loan Scams: Types, Tactics, and Tips to Stay Safe
Student loans are a necessity for many students pursuing higher education, but they can also be a source of financial stress and anxiety. Unfortunately, scammers are taking advantage of this situation and targeting vulnerable borrowers with student loan scams. These scams can leave borrowers in debt, with ruined credit scores and even legal problems. In this article, we'll discuss common types of student loan scams, tactics used by scammers, and tips to avoid falling victim to them.
What are Student Loan Scams?
Student loan scams involve fraudulent activities that deceive borrowers with misleading information or promises of loan forgiveness, lower interest rates, or lower monthly payments. These scams can come in many forms, including phone calls, emails, social media messages, or even door-to-door solicitation.
How to Identify Student Loan Scams?
Identifying student loan scams can be difficult because scammers use sophisticated tactics to appear legitimate. However, there are some common warning signs that borrowers should look out for:
- Unsolicited offers: Scammers often make unsolicited offers of loan forgiveness, lower interest rates, or lower monthly payments. These offers may come via phone, email, or social media, and they often require borrowers to provide personal or financial information.
- Upfront fees: Legitimate loan companies do not charge upfront fees to borrowers. If a company is asking for fees before providing any service, it's a red flag that it may be a scam.
- High-pressure tactics: Scammers may use high-pressure tactics to convince borrowers to act quickly, such as threatening legal action or promising guaranteed loan forgiveness.
- Request for personal information: Scammers may request personal information, such as Social Security numbers or bank account information. Borrowers should never provide this information to anyone unless they are sure that the person or company is legitimate.
Types of Student Loan Scams
There are many types of student loan scams, and scammers are constantly coming up with new ways to deceive borrowers. Here are some of the most common types of student loan scams:
- Debt relief scams: These scams promise to lower borrowers' monthly payments or forgive their loans entirely. Scammers may charge upfront fees or require borrowers to provide personal or financial information to enroll in these programs.
- Consolidation or refinancing scams: Scammers may offer to consolidate or refinance borrowers' loans at lower interest rates. However, they may charge upfront fees or enroll borrowers in high-interest loans.
- Forgiveness scams: Scammers may promise to forgive borrowers' loans entirely or partially, but only after they pay upfront fees or provide personal information.
- Phishing scams: Scammers may use phishing tactics to obtain personal or financial information from borrowers. They may send fake emails or create fake websites that look like legitimate loan companies.
Common Tactics Used by Scammers
Scammers use a variety of tactics to deceive borrowers, but some of the most common include:
- Impersonating legitimate loan companies or government agencies
- Using high-pressure tactics to convince borrowers to act quickly
- Making unsolicited offers of loan forgiveness or lower interest rates
- Charging upfront fees for loan services
Tips to Avoid Student Loan Scams
Fortunately, there are several steps that borrowers can take to avoid falling victim to student loan scams:
- Do your research: Before providing any personal or financial information to a loan company, research its legitimacy. Check the Better Business Bureau website and read reviews from other borrowers.
- Never pay upfront fees: Legitimate loan companies do not charge upfront fees to borrowers.
- Be skeptical of unsolicited offers: If you receive an unsolicited offer of loan forgiveness or lower interest rates, do your research before responding.
- Keep your personal information safe: Never provide personal information, such as Social Security numbers or bank account information, over the phone or through email to unsolicited individuals or companies. Scammers may use this information to steal your identity and commit fraud.
Be wary of offers that seem too good to be true: If a company or individual is promising instant debt relief or loan forgiveness, it is likely a scam. Legitimate loan servicers will not promise to wipe out your debt or reduce it drastically overnight. Additionally, always read the terms and conditions carefully before agreeing to any loan or debt relief program.
Watch out for pressure tactics: Scammers may use high-pressure tactics to convince you to act quickly, such as telling you that an offer is only available for a limited time or that you could face legal consequences if you don't act immediately. Don't let anyone pressure you into making a decision without thoroughly researching the offer first.
Research the legitimacy of loan companies: Before working with any loan company, make sure to do your research. Check for reviews or complaints online, and verify that the company is registered with the Better Business Bureau. Legitimate companies will not charge upfront fees and will provide clear information about their services.
Be cautious of third-party companies: Some companies claim to offer debt relief or loan consolidation services, but they are actually just charging you for services you can do for free yourself. Before paying for any third-party services, make sure to research your options and consider contacting your loan servicer directly for help.
Steps to take if you've fallen victim to a student loan scam:
If you believe you have fallen victim to a student loan scam, there are several steps you can take to minimize the damage:
- Contact your loan servicer immediately: Let your loan servicer know what has happened and report any unauthorized transactions or changes to your loan account. They may be able to help you reverse any fraudulent charges or undo any changes made to your account.
- Report the scam to the Federal Trade Commission (FTC): The FTC tracks scams and fraudulent activity, and they may be able to assist you in recovering your lost money. You can file a complaint with the FTC online or by calling their toll-free hotline.
- File a report with the Consumer Financial Protection Bureau (CFPB): The CFPB is a government agency that helps protect consumers from financial scams and fraud. They have a complaint portal specifically for student loan scams, which can be accessed on their website.
- Consider contacting law enforcement: If you believe that the scammer has stolen your identity or committed fraud, you may want to consider filing a report with your local police department or the FBI.
Real-life examples of student loan scams:
- In 2018, a man was sentenced to prison for running a student loan scam that defrauded over 7,000 borrowers out of $4 million. The scam involved offering borrowers "student loan debt relief" services in exchange for upfront fees.
- In 2020, a company was ordered to pay $23 million in damages after being accused of using deceptive practices to target student loan borrowers. The company allegedly promised to help borrowers with loan forgiveness and debt relief, but charged excessive fees and made false promises.
- In 2019, a group of companies were sued by the Federal Trade Commission for falsely claiming to provide student loan debt relief services. These companies charged borrowers upfront fees and promised to reduce or eliminate their student loan debt. However, they failed to deliver on their promises, leaving borrowers in even worse financial situations.
Another common student loan scam involves phishing emails and phone calls. Scammers will pose as loan servicers or government agencies and request personal information or payment for overdue loans. It's important to remember that legitimate loan servicers and government agencies will never ask for payment over the phone or by email.
Tips to Avoid Student Loan Scams
To avoid falling victim to student loan scams, it's important to stay informed and take precautions. Here are some tips to help you protect yourself:
- Research before providing any personal or financial information: Before providing personal or financial information to a loan company, research its legitimacy and check if it's registered with the Better Business Bureau or the Consumer Financial Protection Bureau.
- Keep your personal information safe: Never provide personal information, such as Social Security numbers or bank account information, to anyone you don't trust. Be wary of emails or phone calls asking for personal information and verify the legitimacy of the request.
- Be cautious of promises that sound too good to be true: Student loan debt relief companies that promise to lower your monthly payments or eliminate your debt quickly are often scams. It's important to do your research and read reviews from other borrowers before trusting a company.
- Don't pay upfront fees: Legitimate loan servicers and debt relief companies will never charge upfront fees for their services. Be cautious of any company that requests payment before providing a service.
- Stay up-to-date on the latest scams: Stay informed about the latest student loan scams and tactics used by scammers. The Federal Trade Commission regularly updates its website with information on current scams and how to avoid them.
Steps to Take if You've Fallen Victim to a Student Loan Scam
If you've fallen victim to a student loan scam, it's important to take immediate action. Here are some steps you can take:
- Contact your loan servicer or lender: If you've provided personal or financial information to a scammer, contact your loan servicer or lender immediately to report the fraud and change your account information.
- Contact credit reporting agencies: If a scammer has affected your credit score, contact the three major credit reporting agencies (Equifax, Experian, and TransUnion) to dispute any fraudulent activity on your credit report.
- File a complaint: Report the scam to the Federal Trade Commission and your state attorney general's office. This can help prevent the scammer from targeting other borrowers.
- Seek legal advice: Consider seeking legal advice if you've lost money or suffered financial damages as a result of a student loan scam.
Resources for Reporting Student Loan Scams
If you've encountered a student loan scam, it's important to report it to the proper authorities. Here are some resources to help you report student loan scams:
- Federal Trade Commission: The Federal Trade Commission is a government agency that works to prevent fraudulent and deceptive practices. You can file a complaint with the FTC online or by calling 1-877-FTC-HELP.
- Consumer Financial Protection Bureau: The Consumer Financial Protection Bureau is a government agency that works to protect consumers from financial fraud and deception. You can file a complaint with the CFPB online or by calling 1-855-411-2372.
- Better Business Bureau: The Better Business Bureau is a nonprofit organization that works to promote trust and transparency between businesses and consumers. You can file a complaint with the BBB online or by contacting your local BBB office.
Legal Actions Against Student Loan Scams
In recent years, the government has taken legal actions against student loan scams to protect borrowers. The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) are two federal agencies that work to identify and prosecute scammers.
One example of legal action against a student loan scam involved the company "Student Loan Processing US." In 2018, the FTC shut down the company and its owners were ordered to pay $11 million in restitution to defrauded borrowers. The company had charged upfront fees and falsely promised to lower borrowers' monthly payments or forgive their loans.
Another example is the 2019 settlement between the CFPB and the student loan servicer Navient. The CFPB alleged that Navient engaged in deceptive practices, such as misallocating payments and failing to disclose information to borrowers. Navient agreed to pay $60 million in restitution to borrowers and to change its business practices.
These legal actions send a message to scammers that their fraudulent activities will not be tolerated. However, it is important to note that legal action can take time and may not result in all affected borrowers receiving restitution.
Conclusion
Student loan scams can be devastating for borrowers, leaving them with debt and a damaged credit score. It is important for current and future college students, parents, and borrowers to be aware of the common tactics used by scammers and to take steps to protect themselves.
By following the tips outlined in this article, borrowers can avoid falling victim to student loan scams. If you do suspect that you have been scammed, it is important to report the scam and take steps to protect your personal and financial information.
Remember, there are resources available to help borrowers, including the Federal Student Aid Information Center and the FTC's Consumer Sentinel Network. By staying informed and taking action, we can work to combat student loan scams and protect borrowers.
