If you’re struggling to pay student loans or find that you can’t afford to pay them at all, you may be eager to find a solution. Problem is, wherever there is someone in a financial crisis, there are predators looking to take advantage and profit off their misfortune. A new wave of ads on the radio, search engines and social media sites like Facebook are promising student forgiveness that sounds too good to be true – because it is. Today we’ll tell you about how some of these firms are using student loan forgiveness scams to prey on distressed student loan debtors:
#1 Tell You That You Can’t DIY It
These agencies have no special powers of persuasion or ability to get you a better deal than you can get on your own. Simply put, what they do is consolidate your loans into another loan. This is not a good deal if you have federal student loans – you’ll lose out on many protections by converting them. Federal student loans offer easy-to-apply-for repayment plan alternatives, including Income Based Repayment (IBR) and Pay As You Earn (PAYE), which cap your payments at 15% or 10% (respectively) of your disposable income. And after 25 years or 20 years (respectively) of payments, you can have your remaining balances forgiven. All of this is easily done yourself. Check out our Student Loan Help Center for free How To guides on applying for these programs.
#2 Offer a Period With No Payments
The only way to not make any student loan payments for a period of time is through forbearance or default. These programs are not recommended because interest will pile up during this time and drive your loan balances much higher. Instead, applying for IBR or PAYE will make your monthly allotment affordable with no need to take a hiatus on your payments that can make things harder on you in the long run. Any firm that makes this offer is simply pushing a consolidation and then a forbearance or deferment to tempt you with a “payment holiday” – this is not what you want to do.
#3 Charge a Fee and Don’t Disclose How Much It Is
The vast majority of “debt relief” agencies are operating on a for-profit basis and charge high fees for their services. They offer consolidations and can build their exorbitant fees into your new loan. You’ll end up paying thousand of dollars for their “services,” but because it’s rolled up into your consolidated loan, you will have no idea the outrageous amount you’re being charged. Consolidations are typically the only services these agencies offer. And yes, your payments may be lowered, but that’s because the loan repayment term has been extended from the standard 10 to many, many more years, ensuring you’ll pay far more in the long run. Your better option is to apply for a federal consolidation and then seek IBR or PAYE for your repayment plan – all of which you can do yourself with no outside assistance.
#4 Only Offer a Website or a Phone Number
The ads that play on the radio offer just a phone number to call and no website – or the ads you click online take you to a website with no other means to contact the firm. This is a huge red flag. Giving your financial information to a firm that you know nothing about is not wise. They may not be a legitimate company and they may use your financial information to steal your identity or engage in fraudulent activities. Again, you simply do not need an outside firm to help you. They have nothing to offer and will only cost you more money out of pocket. Their ads sound great and promise a lot, but the reality is they have nothing to offer that you can’t do yourself.
#5 Don’t Reveal Who Owns the Company or Credentials
Most of these “debt” relief organizations don’t offer you much info on their website or radio/TV ads about who they really are. They won’t give you actual names of principals in the company, don’t have any specific credentials such as a law degree, CPA or other professional certification that will let you know you’re dealing with someone who’s qualified to help you. If you do want to pursue private loan consolidation, it’s best that you research and apply yourself only to a reputable loan refinancing program, and not what may be a fly-by-night firm that is not trustworthy.
The Bottom Line on Student Loan Forgiveness Scams
You don’t need to pay anyone to help you get a better deal on your student loans – especially if federal loans are all you have. The only time you’d need outside assistance is if you are hoping to get some of your loan balances discharged in bankruptcy. In this case, you need a bankruptcy attorney with experience in this arena and a track record of winning adversary proceedings. Any firm that tells you they can get your student loan balances lowered is telling you a fat fib. You can easily apply for Income Based Repayment or Pay As You Earn to lower your monthly payments and if you are behind, you can apply for consolidation and then IBR or PAYE yourself.
These “loan forgiveness” agencies are outright scams and are just seeking to profit off of your financial difficulties. None of them have anything to offer you. If you are struggling to make your student loan payments, contact your student loan servicer and find out which repayment plans you qualify for and apply yourself – you won’t be charged any fees and don’t need help to do this.
The Tuition.io blog and Help Center offer tons of free info to educate yourself on your student loans so you can manage them yourself. Also sign up for our free student loan tool to track your debts – both federal and private – so you know who you owe, how long you have left on your loan terms and can see the impact of making additional payments or using IBR or PAYE to pay off your loans.