How to Avoid Student Loan Scams

How to Avoid Student Loan Scams

Scammers have a new favorite target – adults drowning in debt from student loans long after they’ve graduated. There is about $1.3 trillion in outstanding student loan debt in the country right now; making anyone who owes money an ideal target for scammers and con artists. The Consumer Finance Protection Bureau has even begun to issue warnings about students loans and the possibility of being scammed. Learning more about how these scammers approach victims and why their methods work so well can help you avoid becoming a victim yourself

Loans are Making Headlines

Politicians who promise to forgive student loans were pretty visible during the 2016 election cycle, and many scammers still promote an “Obama student loan forgiveness plan” to get you to contact them. Since loan forgiveness is in the news regularly, it’s easy to fall for a scammer who promises an easy way out.

The Loan Forgiveness Myth – Busted

Despite what you hear on the campaign trail or in slick advertising campaigns, student loans are not simply dropped and forgiven very easily or often. There is a lengthy process involved and few people actually qualify. Even bankruptcy won’t absolve your obligation to your loans. Anyone promising an easy way to get rid of your loans is selling something you shouldn’t buy.

Common Student Loan Scams

Ranging from charging you a hefty fee to access paperwork that is freely available to walking away with your deposit money, these are some ways that student loan scams are ripping people off every day:

Advanced Loan Fee Scam

Here, the scammer promises you very favorable loan terms and a super low interest rate – you just need to pay a processing fee upfront. The fee can be substantial (anywhere from $500 to $1,000) and is a huge red flag. A legitimate lender will not charge you fees upfront, at least not in this way. Once your processing fee is in hand, the scammer disappears, leaving you still in debt and a few hundred dollars poorer.

Loan Consolidation Scams

Consolidation is an option for your student loans, but some scammers have infiltrated this space and are taking advantage of people trying to responsibly pay off their debt. With these types of student loan scams, the victim is told their debt can be consolidated with a low monthly payment plan. They simply have to pay a few fees for processing and they’ll be all set. Of course, the company does nothing except abscond with those fees, leaving you further in crisis.

Lawsuit Student Loan Scams

In this variation, the scammer poses as a law firm and suggests that they can negotiate with your lender, driving your loan amount down and allowing you to pay it in one lump sum. You hand over $5,000, hoping it will clear your $65,000 in debt, but the lawsuit never materializes and the “law firm” disappears. You end up in default, with a trashed credit rating and nothing to show for it.

In general, anyone promising you immediate, easy forgiveness, a startlingly low monthly payment rate or even a fast settlement could be trying to scam you.

So, What Can You Do?

One of the reasons the student loan scams detailed above are so effective is that there is some truth behind the sensational claims. In 2014, the Pay as you Earn program was instituted for student loan repayment, and caps your monthly costs – and eliminates your balance after you make timely payments.

This is also called the Student Loan Forgiveness Act and there are a few things to know before you opt in. You’ll need to make 20+ years of on-time payments to get that forgiveness, it won’t happen next week or even next year.

Some teachers are also eligible for forgiveness, if they work in specific, at-risk schools and neighborhoods for a decade or more, as are doctors in areas with shortages.

For the rest of us, the best option is usually to contact your lender to talk about repayment plans and your choices. Don’t pay anyone else to do it for you – there is free help available online and some employers have begun offering student debt help as a benefit to entice and retain employees.

Simply being aware there are scammers out there hoping to cash in on your loans and debt can help you avoid becoming a victim. Learning more about student loan scams can help protect your assets and provide you with peace of mind about your finances, too.

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