Beware of any organization that charges an up-front fee or monthly fee for student loan forgiveness or other forms of student loan debt relief.
Charging up-front fees is illegal
The fees charged by scams may be cleverly disguised or hidden and may sound plausible. They may call the fee a document preparation fee, application fee, processing fee, paperwork fee or insurance.
Such fees are illegal under federal and state laws concerning credit repair if they are charged in advance. For example, the Credit Repair Organizations Act of 1996 prohibits the charging of up-front fees for credit repair, including applying for loan forgiveness and loan discharge. Some student debt relief scams also violate the Telemarketing Sales Rule.
The federal government does not charge any fees to apply for loan forgiveness and loan discharge. You can easily apply for loan forgiveness, loan consolidation or a repayment plan with a lower monthly payment through your loan servicer or at studentaid.gov for free.
The game of loans
The U.S. Federal Trade Commission (FTC), 11 states and the District of Columbia launched a crackdown on student loan debt relief scams in fall 2017, called the Game of Loans. The FTC and the states shut down 30 scams that had collectively defrauded student loan borrowers out of close to $100 million.
Some of the scams were particularly harmful in that they told borrowers to stop making payments on their student loans, causing their student loans to go into default.
Borrowers who are struggling financially are particularly vulnerable to these scams, because they are desperate for any kind of financial relief. Frustration with slow progress on genuine government programs, like public service loan forgiveness and the defense to repayment, causes some borrowers to ignore warning signs. Remember, if it sounds too good to be true, it probably is.
Warning signs of a student loan debt relief scam
There are several telltale signs of a student loan scam.
- Charges a fee for loan forgiveness. Never pay a fee to apply for student loan forgiveness. Loan forgiveness programs never charge any kind of a fee. If you have to pay money to get money, it’s probably a scam.
- Requires payment of an up-front fee for credit repair. Never pay in advance for any kind of credit repair, including services that promise to reduce your student loan payments, to decrease your student loan interest rates or to apply for loan forgiveness.
- Asks for your FSA ID. Never release your FSA ID to anybody. Your FSA ID is an electronic signature, so sharing your FSA ID is like giving someone a blank check. With your FSA ID, they can change your mailing address and borrow loans in your name. Sharing your FSA ID and allowing a third party to use your FSA ID is prohibited by federal rules.
- Programs that guarantee success. Nobody can guarantee that your student loans will be forgiven, since loan forgiveness depends on lender rules and your qualifications.
- Advertisements and web pages that refer to “Obama Student Loan Forgiveness.” There is no such loan forgiveness program with that name.
- Fake student loan forgiveness check. This scam sends you a check for too much money and asks you to refund the excess to the issuer. By the time the check bounces, the scam has long since absconded with your money.
If you are struggling with student loan debt, there are ways you can lower your student loan payments, including enrolling in an income-driven repayment plan or temporarily going on a deferment. Refinancing student loans could possibly lower your interest rate, but keep in mind that refinancing any federal loans means the loss of all the federal loan perks, including any federal student loan forgiveness programs, income-driven repayment plans and generous options for pausing payments if you lose your job.
Use our Loan Prepayment Calculator to see how much you can save and how much sooner you can pay off your loans by making extra payments.