Regulators land hard on student loan debt relief scams

By Randy Hutchinson
President of the BBB
Reprinted from The Jackson Sun

Student loans are the second largest kind of debt in the U.S., exceeded only by mortgages. Over 42 million Americans of all ages have student loan debt totaling more than $1.4 trillion. The average 2016 graduate owes $37,000. Default rates are at an all-time high, with about 8 million borrowers having stopped making payments altogether.

These kinds of numbers are fodder for scammers. The FTC and Attorneys General in eleven states and the District of Columbia have launched “Operation Game of Loans,” the first ever coordinated federal-state enforcement initiative against student loan debt relief scams.

The FTC alleges that the companies charged illegal upfront fees, falsely promised to help reduce or forgive student loan debts, and pretended to be affiliated with the government or legitimate loan servicers. At least one defendant also targeted homeowners having trouble making their mortgage payments.

Company names included American Student Loan Consolidators, Student Debt Doctor, and Student Aid Center. Ads made promises like “Get rid of student loan debt,” “$0 monthly payments,” and “We can solve your student loan problem. 100% guaranteed.”

The crackdown has resulted in 36 actions so far against companies that took in more than $95 million in illegal upfront fees. Victims paid as much as $1,500 and usually got nothing in return.

The Acting Chairman of the FTC said, “Winter is coming for debt relief scams that prey on hardworking Americans struggling to pay back their student loans.”

Other elements of the scams included:

• Marketing their programs through social media, email and telemarketing.
• Fabricating income, employment status, and size of family on relief applications.
• Promoting their services in English and Spanish.
• Changing their company name rather than their business practices when complaints mounted.

The FTC said the CEO of one company spent victims’ money on cars, jewelry, nightclubs and restaurants. It’s safe to say other scammers also used their ill-gotten gains to fund lavish lifestyles while borrowers who were already struggling ended up worse off.

 The FTC and BBB offer these tips for avoiding a student loan debt relief scam:

• If an ad promises fast loan forgiveness, it’s a scam. Genuine options are available through the Department of Education or the loan servicer – and they’re free.
• Never pay an upfront fee for debt relief services of any kind.
• Scammers often fake an affiliation with the Department of Education. Investigate the source of the information you receive.
• Don’t share your FSA ID (user name and password for logging in to U.S. Department of Education websites) with anyone.

Student loan debt relief scams don’t affect just young people or recent graduates. Mid-career employees and parents of students are also at risk. The FTC encourages employers and HR departments to make employees aware of the signs of a scam and to share information on repayment and forgiveness programs available to them at no cost.

One good resource is StudentAid.gov/repay. It includes information on legitimate repayment and forgiveness programs for federal student loans, including income-driven repayment plans, deferment and forbearance, loan forgiveness or loan discharge, and consolidating loans.

There are fewer options for private student loans. People with federal or private student loans can also contact their loan servicer for information.