Fraud Awareness

Student loan fraud is on the rise and there are several different types of student loan fraud scams currently targeting borrowers, here is an overview of the top 5 scams.

Student Loan Forgiveness Scams: The student loan forgiveness scam is currently one of the top scams affecting the student loan industry. Fraudsters try to coerce young unsuspecting borrowers by offering quick and easy student loan forgiveness for a fee. As a borrower, you should know that there are several factors that can help you qualify for loan forgiveness. Unfortunately, none of them allow for a quick and easy loan forgiveness process. The factors include, your chosen career path, financial situation, place of employment, and several other factors outlined on the studentaid.gov website. These can take anywhere from 10-25 years to complete. If a company claims that they provide forgiveness in less time, then it is probably a fraud scam. 

Student Loan Consolidation Scams: Student loan consolidation is another popular scam affecting the student loan industry. Fraudsters will charge money upfront to consolidate your student loans. Unfortunately, they take your money without consolidating your loans. As a borrower, you can consolidate your federal student loans for free at Studentaid.gov. There are also loan consolidation options if you have private student loans or a mix of private and federal loans. Keep in mind that consolidating your loans may reset your qualifying payment count on your student loan repayment plan. A legitimate loan consolidation company will ensure that you understand what you’re signing up for before you consolidate your loans. 

Student Loan Debt Relief Scams: During a student loan debt relief scam, a fraudster will promise that they can either eliminate or reduce your student loan debt. Use extreme caution with regards to these claims. Except under certain special circumstances, student loan debt cannot be eliminated or forgiven. These include death of the borrower, permanent disability, identity theft, federal loan forgiveness plans and income-based repayment plans. These plans take many years and are only available through the Department of Education. For more details on student loan discharge and which loans are eligible, check out the Department of Education’s student loan forgiveness, cancellation, or discharge criteria.

Advance Fee Scams: Another common scam used by fraudsters is the advanced fee scam. During this scam, the fraudsters promise to be able to negotiate lower interest rates or better loan terms then the federal government. The catch is that they want you to pay “small” fee upfront. When everything is finalized, the fees are not small, they are paid before any service has been provided and you will end up paying more than what the federal government has offered. Yes, federal, and private loans generally have fees attached to them. Federal loans have origination fees and private loans have either an origination fee or a disbursement fee. These fees are added to the total of the loan itself. Any additional fees are usually the result of nonpayment or late payments.

Lawsuit/Law Firm Scams: Finally, the lawsuit/law firm scam is where an actual law firm is the fraudster. They claim they can save you thousands of dollars by settling your entire student loan debt. Most often they ask you to pay your monthly loan payments directly to them and they will make payments to the loan servicers as well as work to negotiate a settlement for your debt. Your loans end up in default because the law firm never paid the servicer. Once your loan is in default, the law firm then works to negotiate a settlement with your servicer based on the pretense that you are unable to make your payments. Not only does this tactic cost you thousands of dollars in legal fees, but it also causes you credit score to plumet which can affect you for many years.

What to look for (Red Flags):

  • High-pressure sales tactics,
  • Aggressive advertising with outrageous claims,
  • Customer service that asks for your FSA ID,
  • Requires you to provide sensitive personal information,
  • Upfront fees that don’t match up to the services they are providing,
  • Upfront or monthly fees to get help,
  • Official-sounding names and logos that make them seem connected to or part of the federal government,
  • Use of the verbiage “document preparation service” in their marketing,
  • Customer service with limited knowledge of student loan repayment options,
  • Businesses that only offer loan consolidation and no other options,
  • The company promises immediate loan forgiveness, and/or
  • The company advertises on social media or shows up in search engine ads.

How to Avoid Becoming a Victim of Fraud:

  • Block unwanted calls and text messages. Take steps to filter and block unwanted calls and text messages.
  • Do not give your personal or financial information in response to a request that you didn’t expect. Legitimate organizations will not call, email, or text to ask for your personal information, like your social security number, FSA ID, bank information, or credit card numbers.
  • If you get an email or text message from a company you do business with, do not to click on any links. Instead, contact them using a website or phone number you know is trustworthy. Never call a number they gave you or the number from your caller ID and never respond to an email or text. Fraudsters spend a lot of time and effort trying to make their business seem legit. They create call centers, ads, commercials, videos, and websites to look as real as possible. 
  • Resist the pressure to act immediately. Always remember that a legitimate business will give you time to make the best decision for your circumstances. Anyone who pressures you to pay or give them your personal information is a scammer.
  • Pay close attention to how a person or business asks you to pay them. Never pay someone who insists that you pay them with gift cards or using a money transfer service. Also, never agree to deposit a check and send money back to someone this is known as a fake check scam. In a typical fake check scam, victims lose roughly $1,000 to $4,000 as well as paying costly bank fees or penalties. 

How to Report Fraud, Waste, and Abuse:

If you have any questions regarding fraud, please contact Christopher Baxter, Certified Fraud Examiner, 507.933.7730, or stop into the Financial Aid Office.