Are Student Loan Debt Collection Scammers Calling Your Parents?

The nation’s collective student loan debt balance continues to grow, reaching $1.73 trillion in the first quarter of 2021. As borrowers increasingly struggle, experts expect a rise in student loan scams. Collection activities have stopped and zero percent interest is still in effect until September 31, 2021 as a result of the coronavirus pandemic, but borrowers will need to resume payments after that point to avoid default, unless the temporary pause is extended. And while families are in better shape than they were in December of 2020, financial hardship still plagues the country. For example, more than one quarter of adults had a hard time paying for their necessary expenses in the last seven days, according to a June survey. And one in five renters with children are behind on their monthly rent payments. That leaves little to devote to debt repayment come October. Where scammers see vulnerability, they find opportunity. Before the pandemic, scammers were known to contact borrowers or even their family members with an alert related to a missed student loan payment. They claim to be from the U.S. Department of Education and prey on borrower’s fears with requests for immediate payment. They may even threaten legal action. If you think your parents might respond to a student loan debt collection scammer by forking over payment, you should keep them informed about your financial situation and make them aware of the red flags. Here’s what you need to know to protect yourself and your family.

Can Legitimate Student Loan Debt Collectors Call Your Family?

Yes. If a debt collector is unable to reach you, they are legally allowed to contact your friends or family members in an attempt to locate you. However, the Fair Debt Collection Practices Act restricts what they can say. They can’t try to collect money from your relatives, nor can they provide details about your debt to anyone who is not your spouse, your guardian, or your parents if you are a minor. If you are an adult and someone contacts your parents with details about a missed student loan payment or demands for repayment, it’s a scam. You can also educate your parents about some of the red flags associated with student loan debt collection scams.

How to Spot a Debt Collection Scam

• Pressure to pay: Legitimate debt collectors can be pushy, but if a supposed debt collector asks for payment via wire transfer or prepaid card, it’s likely a scam. Scammers collect this way to avoid detection and prevent you from getting your money back. Always ask for a debt validation letter before you submit payment. You can also contact your student loan servicer directly or look for the account on your credit report.
• False threats: It’s illegal for debt collectors to threaten legal action, criminal prosecution, property seizure, or wage garnishment unless that is their intent and they have the legal authority to follow through. Most of these actions would require the debt collector to win a judgment against you. If a debt collector threatens you or your family and you don’t believe they have the legal authority to do so, you should file a report with the Federal Trade Commission.
• Inappropriate calls: A debt collector can’t use profane or obscene language to try to get you to pay, nor can they call you before 8 a.m. or after 9 p.m. If you or your parents receive an inappropriate phone call like this, you’re probably dealing with a scam artist.
• Withholding details: Legitimate debt collectors are required to tell you how much you owe and the name of the original creditor. They’re also required to inform you of your right to dispute the debt. If a debt collector is vague about the details, that’s a sign of a scam.

How to Stop Student Loan Robocallers

If student loan debt collection scammers are calling your parents, there are steps you can take to prevent future calls.

1. Add their number to the National Do Not Call Registry. This is more likely to prevent telemarketers from contacting your parents than scammers, since bad actors are more likely to violate the rules. However, it’s the first step in protecting your family.
2. Use a robocall blocker: Scammers use Caller ID spoofing to mimic your local area code and also call from different numbers, making it difficult to block the calls directly. But you can use a robocalling app like YouMail, which analyzes call patterns and utilizes feedback from users to block scam calls. If a call gets through, let the company know — it may actually help other victims of the same scam artist.
3. File a complaint: If a call does get through, you should also report it to the FTC. You should also notify your cell phone carrier. You can report robotexts to most carriers by forwarding the message to 7726 (SPAM).
4. Get legal help if you need it: You may also want to stop robocalls from your loan servicer, even if they’re not trying to scam you. Under the Telephone Consumer Protection Act, your loan servicers must have permission to call you and must provide you with a way to opt out of receiving the calls. If you believe your loan servicer is violating your rights, keep track of the date and time of each unwanted call and seek help from an attorney.

When Does Student Loan Debt Go to Collections?

30 days after your first missed payment, you’ll be considered delinquent on your student loans. Private lenders may report the missed payment to the three major credit bureaus at this time, while federal student loan servicers won’t report a late payment until 90 days past due. Since your payment history is the most important factor affecting your credit score, even one late payment can cause your score to drop significantly. But 270 days after your first missed payment on a federal student loan, you’ll be in default, and that’s when the financial consequences become most severe. Your entire balance, including interest, becomes due at once. You’ll no longer have the option to enter into a repayment plan or qualify for deferment or forbearance. Next, your loan servicer may decide to place your loan in collections. If that happens, you’ll owe an additional 17.92 percent in addition to the principal and interest. Most likely, you’ll be offered an opportunity to enter into a repayment agreement with the debt collector. If you don’t agree or you don’t make payments, the loan holder can garnish your wages. They can legally take up to 15 percent of your disposable income.

What to Do if Your Student Loan Debt Is in Collections

If you believe the debt has incorrectly ended up in collections or does not belong to you, you should dispute the debt. Collect any needed documentation and contact your student loan servicer. If the debt is yours, there are a few ways to remove it from collections.

• Repay the loan: If you’ve been struggling with your student loan payments, it’s unlikely you’ll be able to pay the full amount at once. But if you can, that’s one way to get your student loan out of default. This is typically your only option if you default on a private student loan.
• Apply for loan consolidation: Federal loan borrowers can apply for a Direct Consolidation Loan if they have a loan in default. This combines all eligible outstanding federal student loans into one loan with a single monthly payment. Consolidation makes you eligible for deferment or forbearance again, but you must either agree to an income-driven repayment plan or make three voluntary monthly payments on-time prior to consolidation. Also keep in mind that the loan default and all missed payments will remain on your credit history.
• Rehabilitate your loan: Loan rehabilitation requires you to make nine payments over 10 consecutive months. Your loan servicer will determine a monthly payment that is affordable for you. After that, the record of default will be removed from your credit report, though earlier missed payments will stick for seven years. You’ll also be eligible for deferment, forbearance, and your choice of repayment plans. Keep in mind you can only rehabilitate a loan one time.
• Declare bankruptcy: Bankruptcy should always be considered a last resort, but if you’re completely overwhelmed by debt and don’t see another way out, it’s an option. Student loans are not typically dischargeable in bankruptcy, but if you can prove to the court that you are incapable of handling repayment while affording basic necessities, you may be able to wipe away your student loan debt. Just be aware of the consequences — you’ll lose your property and destroy your credit score.

Other Student Loan Scams That May Affect Your Parents

If your parents took out federal Parent PLUS Loans, they should also beware of student loan debt relief scams. Some debt relief companies operate legally, but they still charge fees for services the Student Aid office would perform for free. Scam artists can also pose as professionals from the U.S. Department of Education and claim to offer forgiveness or other forms of relief, instead collecting sensitive information to steal your money or your identity. If a caller asks for upfront payment, it’s definitely a scam. Also look out for aggressive tactics, promises of instant loan forgiveness, and requests for your FSA ID. Never sign a power of attorney or third-party authorization, since this will allow the scammer to make changes to your account.

The Bottom Line

If you’re struggling to make your student loan payments on-time, it’s best to be proactive. Your options will dwindle the longer you go without making a payment, so contact your student loan servicer as soon as you’re experiencing hardship and discuss your options. You may be able to apply for forgiveness, enter into an income-driven repayment plan, or refinance to get a lower interest rate and monthly payment. Even if you’ve been making your payments on time, you and your family members can still be the target of a scam. Discuss student loan scam red flags with your parents and relatives to ensure everyone is educated about the risk. When in doubt, hang up and call your student loan servicer directly.