Thursday, October 29, 2015
If you’re a student loan borrower, you’ve probably noticed advertisements on the television, radio, or internet for student loan “debt relief” services. You may have even received direct solicitations by phone or mail.
Many of these companies appeal to struggling borrowers by claiming a special ability to negotiate with lenders and servicers to get a better deal. Too often, borrowers learn the hard way that the companies’ promises are false or the deal is not as good as they thought.
Here are some warning signs that it may be a scam:
1) High-pressure sales tactics. Some debt relief companies may pressure you to sign a contract on the spot or provide your credit card information before you fully understand what you are paying for. Don’t rely on a company’s verbal promises or representations. Before you sign any contract, read it first and make sure that you understand the terms. If you’re not interested, say “no” and don’t be afraid to hang up. If you continue receiving unwanted contact from a company, tell them to stop contacting you and consider adding your phone number to the National Do Not Call Registry.
2) Requests for your federal student aid ID (FSA ID). Avoid companies that ask you for your FSA ID. The FSA ID, which recently replaced the PIN system, gives borrowers access to the U.S. Department of Education’s online systems. It can be used to access information about your federal student loans and can serve as your electronic signature on student aid documents. The Department of Education has made clear that the FSA ID is for the borrower’s exclusive use and should not be shared.
3) Demands that you sign a power of attorney. Be wary of companies that ask you to sign a “power of attorney.” This is a written authorization that gives them legal authority to make decisions about your student loans on your behalf. Power of attorney can be easily abused and should not be granted to someone you do not know.
4) Changing the contact information on your account. Be suspicious of companies that ask you to change the contact information on your account to their own, or tell you to make your monthly student loan payments to them directly. This can be a red flag that the company is trying to mislead you and that they may pocket the money you pay to them, instead of paying your loan.
5) Charging high-fees for free federal student loan programs. Be skeptical of companies that charge a lot of money to consolidate your federal student loans, or to enroll you in an income-driven repayment plan or forbearance. These federal loan programs are available for free, and it’s easy to do it yourself.
If you’ve been the victim of a debt relief scam, consider filing a complaint with the Consumer Financial Protection Bureau, the Federal Trade Commission, or your state or local consumer protection agency.
For more information on student loan debt relief scams, check out these consumer advisories.