College is an investment that typically leads to higher earnings over the life of a person’s career, but not everyone who attends college comes out ahead. 30 percent of adults take on debt to attend college, and while most earn enough to repay their loans, 18 percent were behind on their payments in 2020, according to the Federal Reserve.
Outcomes are even worse for some students. For example, the default rate for graduates of for-profit, two-year programs was a whopping 41 percent. And Black graduates with a bachelor’s degree are five times more likely to default than their white peers.
Even students who aren’t in default struggle with a tight budget between their necessary expenses and their student loan payments. Those saddled with debt are understandably eager for relief. But while there are legitimate ways you can reduce your student loan debt, there are also disreputable companies and scam artists looking to take your money. They prey on desperation, advertise aggressively, and employ all kinds of tactics to make themselves seem legitimate.
Some student debt relief companies are legal operations, but they are private companies not affiliated with the U.S. Department of Education and will charge you money for services that your federal student loan provider would offer free. Others are scam artists looking to steal sensitive information in order to commit identity theft. Here’s what you need to look out for, and what you can do if you’ve been scammed.
5 Student Loan Scam Red Flags
Requests for Upfront Payments or Ongoing Fees
According to the FTC, it’s illegal for debt relief companies to charge upfront fees before settling a consumer’s debts. Only after a particular debt has been negotiated can a debt relief company request a fee. If someone claiming to work for a debt relief company asks you for a sign-up fee, pre-approval fee, or monthly service fee, that should be a red flag.
Some scammers may ask for your bank account or credit card information upfront, or they may even require that you make your student loan payments to the company directly in order to negotiate your debt. If you’re struggling with your student loan payments, the best thing you can do is contact your federal student loan servicer directly.
Requests for Sensitive Information
If a debt relief organization asks for personal information, especially your FSA ID, that should be a red flag. The U.S. Department of Education and its partners will never ask borrowers to provide their FSA IDs. With this information, a scammer could make changes to your account and even commit identity theft.
Fraudsters might insist that they need your username and password to negotiate your debts and get you better loan terms, but this is a sign of a scam. If a debt relief employee asks to create an FSA ID for you, that is also illegal. Never reveal your FSA ID over the phone or by email.
Promises of Immediate Loan Forgiveness
Before even understanding your financial situation, scammers may promise to enroll you in a loan forgiveness program for immediate relief, or they may promise to wipe away your debt by applying new student loan regulations. If it sounds too good to be true, it probably is.
According to the FTC, debt relief companies must disclose to potential customers the total cost, the time it will take to get relief, and any consequences associated with the process. It’s illegal for debt relief companies to misrepresent their services and make unsubstantiated claims about how they can help you.
Pressure to Sign Up Quickly
Some fraudsters impose fake deadlines to try to get you to sign up for a costly program that you don’t need. They’ll often say a forgiveness program is being discontinued or a new law is taking effect that you’ll only be eligible for until a certain date. Scammers do this to create a sense of urgency that might cause you to ignore your better judgment.
There are some deadlines you need to pay attention to with regards to your student loans. For example, you need to annually recertify if you are on an income-driven repayment plan. But it’s unlikely you’ll hear about time-limited programs from legitimate debt relief organizations. If you’re unsure whether the information given to you was accurate, call your federal student loan servicer.
Requests for Third-Party Authorization
If someone asks you to submit a third-party authorization form or power of attorney, it’s a scam. These documents would allow the scammer to speak with your federal student loan servicer directly and make decisions about your account. Fraudsters can use this legal power to alter your account and contact information so that you won’t be notified if the debt relief company doesn’t make on-time payments.
Here’s how the scam works. You’ll first be asked to pay the debt relief company directly or set aside money in an account they have access to. The debt relief company will ask for third-party authorization or power of attorney in order to handle your payments to your student loan servicer. Instead, the debt relief company will use the authorization to change the contact information in your account. They’ll keep your money, and you won’t be notified that you’re in default.
Spelling and Grammar Mistakes
Some debt relief companies send communications that appear very formal, and they may even imply they are affiliated with the U.S. Department of Education. Some fraudsters will also provide public information like your name, address, and college to appear more legitimate and convince you to give them your personal information. Communications that appear formal can be scams as well. But if you get an email from a company that is ridden with bad grammar, spelling mistakes, unusual capitalization, or incomplete sentences, you’re probably dealing with a scam company.
Legitimate Loan Servicers
Loan servicers deal with billing, repayment options, loan consolidation, and more at no cost to the borrower. You’ll be assigned a loan servicer when you receive your loan. If you have questions about your student loans while you’re still in school, you can contact your school’s financial aid office. However, if you withdraw, graduate, or drop below half-time, you’ll need to contact your loan servicer. You should also contact your loan servicer to change your contact information or if you have any questions or need help with repayment.
To identify your loan servicer, go to your account dashboard, locate the “My Aid” section, and select “View loan servicer details.” Or, you can call the Federal Student Aid Information Center (FSAIC) at 1-800-433-3243. If you need to contact your loan servicer, consult the contact information below.
| Loan Servicer | Phone Number |
| FedLoan Servicing (PHEAA) | 1-800-699-2908 |
| Granite State (GSMR) | 1-888-556-0022 |
| Great Lakes Educational Loan Services, Inc. | 1-800-236-4300 |
| HESC/Edfinancial | 1-855-337-6884 |
| Mohela | 1-888-866-4352 |
| Navient | 1-800-722-1300 |
| Nelnet | 1-888-486-4722 |
| OSLA Servicing | 1-866-264-9762 |
| ECSI | 1-866-313-3797 |
| Default Resolution Group (a.k.a. Maximus Federal Services, Inc.) | 1-800-621-3115 (TTY: 1-877-825-9923 for the deaf or hard of hearing) |
What to Do if You’ve Been Scammed
If you provided sensitive information or payments to a debt relief company that you believe was operating illegally, you should:- Contact your student loan servicer. Revoke any third-party authorizations or power of attorney and check to make sure no changes were made to your account.
- Contact your bank or credit card company as soon as possible to let them know you have made a payment to a fraudulent company. Ask to stop the payment.
- File a complaint with the FTC. Be sure to keep copies of all email communications and provide as detailed a description as possible.
- Submit a complaint of nefarious activity through the U.S. Department of Education FSA Feedback Center. You can also submit a complaint on behalf of a friend or family member.
How to Reduce Student Loan Debt
Apply for Forgiveness
It can be tough to meet the eligibility requirements for student loan forgiveness, but if you work in certain professions and/or serve certain communities, it’s possible to wipe away a portion of your debt after you’ve made a certain number of payments on your federal student loans. These forgiveness programs won’t provide relief for private student loan debt. Federal and state programs may help you if:- You’re a teacher who has worked five years in a low-income school
- You’re a healthcare worker in a high-need area
- You’re an attorney working in the public sector
- You’re a nonprofit or government employee
- You complete at least one year of service with AmeriCorps
Apply for an Income-Driven Repayment Plan
It’s possible to make payments as a percentage of your income if you apply for an income-driven repayment plan. Your payments could change each year as you earn more, but they’ll always be based on your income. If you’re a low-income earner, you’ll likely benefit from a lower monthly payment under an income-driven repayment plan. Depending on your family size and income, you may even be eligible for $0 monthly payments. Use the FSA loan simulator to assess whether an income-driven repayment plan is right for you.
Refinance Your Student Loan Debt
With student loan refinancing, your existing loan gets replaced with a new one that has either a different term or a lower interest rate. This can help you save money on your monthly payment and/or pay less over the life of the loan. You can refinance both private and federal student loans, but this will cause your federal student loans to become private. That means you will no longer be eligible for loan forgiveness programs or income-driven repayment plans.
Refinancing is also distinct from federal student loan consolidation, which lets you combine your loans into a single loan with new repayment terms. This will only save you money if you’re able to increase your monthly payment.
You’ll also need to meet certain requirements. For example, most lenders require a credit score of 650 or higher and a debt-to-income ratio below 50 percent. If you have a lot of debt or bad credit, you may not be able to get the interest rate you need.
The Bottom Line
If you’re having trouble making your student loan payments, the first thing you should do is contact your loan servicers and ask about your options. They can help you apply for an income-driven repayment plan or inform you about forgiveness programs. If you have private student loans, you might consider reconsolidation, especially if you have excellent credit.
If you’re a low-income earner, you should also take advantage of other federal and state programs such as Medicaid and SNAP. These programs can help reduce the cost of your necessary expenses, which means you’ll be able to devote more of your income towards paying your student loan debt.
The last thing you should do if you’re overwhelmed by student loan debt is respond to advertisements from debt relief companies. And if a debt relief company calls you and offers immediate loan forgiveness or requests upfront payments, hang up. Never give anyone your FSA ID or authorize the debt relief company to make changes to your account on your behalf.