Many people struggle to repay their student loans. Crushing monthly bills and past due payments create financial anxiety and instability. If you are struggling with your student loan debt, perhaps you have considered signing up for a student loan repayment plan to lessen your burden and regain control of your financial situation.
When considering a repayment option, it is important to recognize that while there are legitimate student loan repayment plans, there are also scams. Learn how to spot student loan scams to avoid paying unnecessary fees, becoming a victim of identity theft, or falling further into student loan debt.
What is Student Loan Repayment?
Before learning about student loan scams, it is helpful to understand what the typical repayment of a student loan looks like. Student loans pay for tuition and accompanying costs of attending a university or certification program. During your time in the program, most of these loans do not require repayment. However, within a set amount of time of program completion, you are required to begin making monthly student loan payments.
The average monthly payment on student loans is $393, and it takes debtors an average of 20 years to repay their loans. Many people cannot afford such a large payment for such a long period of time and fall behind on payments, or they only make the minimum payment and end up paying thousands of dollars in interest.
What is a Repayment Scam?
Repayment scams prey on the people who are struggling with delinquent accounts and high student loan payments. These scams promise borrowers that they can improve their credit score, consolidate their loans for a lower interest rate, or forgive their outstanding student loan balance.
These illegitimate companies’ promises are exaggerated and designed to trap the student loan borrower into paying for services that are freely available. In the case of loan forgiveness, the promises are completely false and target vulnerable individuals who believe that their financial burden can be wiped away by the company.
Signs of a Repayment Scam
It is tempting to sign up for a repayment scam because it promises to relieve your financial pressure or erase your student loan debts. Falling prey to these scams may damage your financial situation further or result in identity theft that can cause problems for years to come.
To avoid repayment scams, it is helpful to recognize the red flags that signal you are dealing with an illegitimate or shady business. The following are the telltale signs of student loan repayment scams.
1. Social Media or Ads
Legitimate repayment plans do not advertise on social media or through search engine ads. Additionally, legitimate plans never reach out to you through the mail or by phone. The reason? Legitimate repayment plans are not trying to make a profit.
Repayment scams are businesses, and they are trying to make money off your situation. These companies put out ads or contact you to lure you in to sign up for their service. Once you respond, they pressure you into signing up for their debt relief program with false promises. Some scammers gather your information and sell it to other debt consolidation companies who offer you unrealistic solutions to your financial problems.
2. Immediate Loan Forgiveness
Many scam repayment services promise immediate loan forgiveness, and this promise is always false. Loan forgiveness refers to the act of forgiving or canceling your student loans, so the promise that your loans are going to be discharged free of charge is understandably tempting when you are struggling with debt.
Public Service Loan Forgiveness programs do exist, but loan forgiveness is not available to everyone and doesn’t always mean your loans disappear in full. Student loan forgiveness programs also require you to work full-time for very specific employers and make payments for at least 10 years before you can qualify. Loan forgiveness is only granted through the US Department of Education through their application process.
3. Upfront Fees
Many repayment scams offer to consolidate your student loan debt to lower the interest rate and make a lower monthly payment. While this service is not illegal, it is something you can do yourself by communicating with your student loan lender. Most lenders work with you to create a repayment plan that you can commit to.
What is illegal is when a scam company collects fees or payments from you before lowering or settling your student loan debt. If an agency asks for fees over the phone or before consolidating or lowering your debt, it is a sure sign of a scam. Note that transferring or switching to a new repayment plan is completely free when working with a legitimate student loan servicer.
4. Salesperson Pressure
Legitimate repayment options do not advertise, and they do not use sales tactics to enroll you in a repayment plan. If you are working with a company to develop a repayment plan for your student loans, pay attention to how the person you are speaking with engages with you. If they use tactics that make you feel pressured, rushed, panicked, or anxious that you’ll miss out on a great opportunity or be saddled with extra debt, you are probably speaking with a scammer. A legitimate lender shares the facts and numbers concerning your student loans but never engages in sales tactics.
5. Personal Information
One of the worst fall-outs of falling prey to a scam repayment company is identity theft. It is especially difficult to know if you are being scammed out of your information because it is natural to share important financial information with loan services, so it does not seem strange that a student loan repayment company asks for personal information.
However, keep in mind that no organization, not even the Education Department or your loan servicer, should ask you for your Federal Student Aid ID password. Do not share this ID with anyone. Be careful sharing your social security number as well, and if a debt relief agency asks you to sign a document giving them power of attorney over your accounts, know that you are signing away the right to make decisions or even access your student loans.
Consequences of Falling Prey to Student Loan Repayment Scams
The consequences of falling prey to a student loan repayment scan can be dire. Identity theft or signing over power of attorney on your accounts can end up costing you thousands of dollars. Not only do you lose money to the scammers, but you are also still responsible for payments and interest on loans that the scammer did not make payments for on your behalf. This negatively affects your credit and creates a complicated mess to gain your identity back and set things straight.
Even if the worst doesn’t happen, repayment scams may end up costing you extra money and setting you back financially. Debt consolidation companies charge for the service of organizing your debt and negotiating for better rates, all of which you can do on your own. The money you pay these companies should be going to your student loans or other debts instead of increasing their profits.
How to Report a Scam
If you believe you have been scammed or are concerned that a student loan scam has targeted you, take action.
- Log in to your student loans. Change your FSA ID and look over your account activity to ensure no unwanted actions appear.
- Speak with your loan servicer and explain what happened. Revoke third-party authorizations or power of attorney documents.
- Stop payments to the scam company through your bank.
- File a complaint with the Federal Trade Commission
- File a complaint with the Consumer Financial Protection Bureau.
- File a complaint with your State Attorney General’s Office.
It is important to take the time to report suspicious activity even if you were not scammed to protect others. These organizations rely on reports from concerned borrowers in order to fight back against predatory student loan repayment services.
Where to Look for Help With Your Student Loans
If you are struggling with repayment of your student loans, there are several options available for relief. Most private student loan lenders offer repayment plans that work with your circumstances.
T&I Credit Union offers helpful repayment options through our personal loan services. We offer debt consolidation loans that help you lower your monthly payment and structure your repayment plan going forward. With a signature loan or credit card, you can lump your student loans into one place while also building credit.
If you have federal student loans, speak with a federal loan servicer that works directly with the Department of Education. Federal repayment plans are forgiving and offer several options for all types of financial circumstances.
- Standard Repayment Plan is the 10-year standard plan. It is the amount you owe, plus interest, divided into 120 equal payments.
- Pay As You Earn payments are 10% of your discretionary income but less than the standard repayment amount.
- Income-Based Repayment payments are 10% of your discretionary income for first-time borrowers, 15% for non-first-time borrowers, not to exceed the standard amount.
- Income Contingent Repayment payments are 20% of your discretionary income or a monthly amount based on adjusted income for 12 years.
Visit the website of your private lender or a reputable federal loan servicer to explore your repayment options.
Explore Your Student Loan Repayment Options
Speak with a Loan Officer at T&I Credit Union to explore your private student loan repayment options and ease your anxiety about student loan debt. Call (248) 397-9456 to discuss your available repayment options today.
