Let’s face it: The cost of attending college is incredibly high, and it doesn’t appear to be going lower any time soon. Consequently, borrowing money to attend college is becoming almost a necessity for students … and, sometimes, their parents.
At the end of 2022, total student loan debt in the United States totaled more than $1.75 trillion, according to the Education Data Initiative.
Clearly, student loans are big business. Any time that much money is at play, you can be certain that scammers and criminals will try to steal their piece of the pie.
Whether scammers are putting fake loan applications together or are offering a scam to refinance your student loan debt, borrowers need to protect themselves. We’ll educate you on how to spot student loan scams and give you tips on what to do to avoid becoming a victim.
What Are Student Loan Scams?
Student loan scams aim to deceive individuals by attempting to obtain money from them through fraudulent means. These scams specifically target funds borrowed for educational purposes, such as loans issued by the U.S. Department of Education or banks intended to finance college or private school education.
Scammers may even present themselves as lending institutions willing to lend you money to go to school.
The scammer may ask you to pay fees to apply for a loan. More commonly, though, the scammer offers to help you reduce, consolidate, or eliminate your loan amounts when you pay them a fee.
What often happens instead is that the scammer ends up charging you a significant amount of money – sometimes more than once – without truly accomplishing what it promises.
Additionally, the scammer may create a false application for you to complete for a student loan or for student loan forgiveness to try to steal your personal and financial information. Identity theft is the fastest growing crime in America, so you should always take steps to protect your personal information.
3 Most Common Types of Student Loan Scams
A student loan scam can fall into a few different categories.
1. Loan consolidation scam
What is it? A company contacts you and offers to consolidate all your outstanding student loans into a single loan. The company promises to help you receive a better interest rate through the consolidation and perhaps a lower overall monthly payment amount.
How to spot it: The company offering the consolidation will often want to charge you upfront fees, like processing and consolidation fees. However, if you have federally backed student loans, you do not need to pay any fees to consolidate your loans, as you can do this for free through the federal government.
How to avoid it: Ensure you understand whether you have federal or private student loans. With federal student loans, there is no need to pay any fees for consolidation. If you hold private loans, contact the loan’s originator, who may be willing to help you with consolidation for no fees.
2. Debt relief scam
What is it? A company contacts you and offers to help you reduce your overall student loan debt. The company may even claim to be able to eliminate this debt for you if you just pay some money upfront. However, this is always a scam, as such companies have no ability to remove student loan debt in this manner.
How to spot it: A scammer may contact you without you making any request for help. When an offer like this comes out of the blue, it likely is not legitimate. When the company wants you to pay money ahead of time before it can start processing your request for relief, this is not a legitimate offer. The scammer will simply take your money and then claim it cannot help you.
How to avoid it: Do not give this type of company any money. If you need student loan relief temporarily because of a life event, reach out directly to the company that holds your private student loan or to the federal government for your federal student loan. Explain your situation and ask if there is any kind of relief for which you qualify.
3. Stealing your personal information
What is it? A scammer may contact you, pretending to be with the U.S. Department of Education or the bank holding your student loan. The person on the phone may ask you to confirm quite a bit of personal information, claiming that your account needs verification. The scammer actually is stealing your personal information, using it to open other loans in your name or to access your financial accounts.
How to spot it: Entities that hold your student loan information are not going to ask for detailed, sensitive personal information by phone, text, or email in a call that the entity initiates. If you receive an unexpected call from any of these types of entities, treat it with skepticism.
How to avoid it: If you receive an email, text, or phone call from a company claiming to need your personal information to help verify your student loan, do not engage this message. Instead, reach out to the company or governmental entity on your own to see if the request is legitimate. Look up the phone number or email address yourself. Do not rely on the information you receive in an email, as this contact information likely goes back to the scammer.
How to Recognize a Student Loan Scam?
Use a few of these tips to give you a warning sign that the call or message you’re receiving about your student loan is likely a scam.
1. Asking for fees
Legitimate organizations do not ask you to pay fees upfront so you can apply for a new student loan or for a consolidated student loan. If the person is asking for your credit card or bank account information right away, it’s almost certainly a scam.
2. Reaching out to you unexpectedly
If you suddenly receive an offer for a student loan consolidation at a low rate, be skeptical. Legitimate organizations that offer student loan services rarely are going to contact you with a cold sales call.
Now, if you initiated contact or if you already hold a loan with a particular bank, it’s possible the student loan organization may reach out to you at some point. However, most communications regarding student loan offers originate from the borrower, not the lender.
3. Numbers that are too good to be true
If someone discussing student loan refinancing or consolidation with you is promising interest rates that are far lower than what your research shows you are normal, this probably is a scam.
Another technique criminals use is to give you a significantly higher loan amount than what you might need or what other institutions are offering you. This almost certainly is a sign of a student loan scam.
4. Promising total loan forgiveness
Student loans simply are not eligible for forgiveness without government intervention, and any company that calls you and tells you that it can eliminate your student loans is almost certainly trying to scam you.
Often, this promise to eliminate your student loan debt comes with a request for fees ahead of time. Once you start paying these fees, they never seem to end.
5. “You must act now!”
If someone is demanding that you make a decision immediately about whether to take a student loan offer, this almost certainly indicates a scam. Any legitimate organization offering student loans is not going to pressure you into accepting terms, let alone pressure you to make a decision NOW.
How to Protect Yourself From Student Loan Scams?
When you need loans for your higher education expenses, you want to do everything possible to avoid becoming the victim of a scam. Fortunately, there are multiple steps you can take to keep your personal information and financial information safe.
1. Consolidate your federal student loans yourself
If a company reaches out to you to try to help you consolidate your federal student loans for a fee, be wary. This almost certainly is a scam.
It’s always free to consolidate your federal student loans through the federal government. There’s no reason to use a private company for this purpose.
Even if the private company that contacts you tells you it will help with consolidating your federal student loans for free, be cautious. It’s possible that the company will try to hook you in with this promise before starting to charge you unnecessary fees several weeks in the future.
2. Do not agree to loan consolidation with upfront fees
Scammers want your money. They may make many different promises about how they can help you. Some of their boasts about what they can do may seem unbelievable. (That’s because they almost certainly are.)
However, inside all the promises and boasts is an undercurrent of needing you to pay fees. Eventually, you’re told you need to pay these fees ahead of time before the company can help you. This is a sure sign of a scam.
Do not pay upfront fees to a loan consolidation company.
3. Guard your FSA ID
When a company calls you and claims that it will seek forgiveness for your student loans, it may ask for quite a bit of personal information, including your Federal Student Aid identification number, user name, and password.
Once a scammer has this information, it could begin making changes to your student loan status. You could end up with a far bigger problem than you started with. Don’t give out your FSA information unless you initiate contact with the U.S. Department of Education.
What You Should Do If You Believe You’re a Victim of a Student Loan Scam?
Source: Andrea Piacquadio
If you believe you signed up for an account with a company that’s running a student loan scam, here are some steps you should follow.
1. Change your passwords
Some scammers will ask for your Federal Student Aid password and identification credentials. Giving them this information allows them to make changes to your account, potentially without your knowledge.
Once you believe you are the victim of a scam involving loans for college, change any account passwords you believe may be exposed.
2. Notify your student loan’s originator and FSA
Contact the servicer for your student loan to alert them to the potential scam. The servicer may ask you to take additional steps to protect your account.
Ask the originator to cancel any documents that allow the scammer to access your account. Ask to remove any access the scammer has to your account.
Additionally, contact the Federal Student Aid (FSA) office to learn more about your options.
3. Ask to cancel the account
Call the company and ask to have your account canceled. Ask for a refund of any money you paid, too.
Unfortunately, this may not work, especially if you signed some sort of contract. You could have cancellation fees to pay per the contract. You may want to have an attorney look over the contract to figure out your options. Better yet, have an attorney review any contract before you sign it regarding student loan forgiveness.
You may find out that the scamming company does not offer any way to contact it by phone. This complicates the process of trying to cancel the account.
Some scammers may try to bully you into keeping your account, making threats or promises it can’t keep. Stand your ground and demand the cancellation of your account.
4. Report the scam to authorities
Reach out to the Office of Inspector General (OIG) hotline to report the fraud. You may want to contact the attorney general’s office for your state to report the scam as well.
Unfortunately, the authorities likely cannot help you recover any money you lost in the scam. Perhaps they can track down the responsible parties or help other students avoid becoming victims of the same scam.
5. Reach out to your bank
If you agree to set up automatic payments to the company you believe is now scamming you, contact your bank or credit card company. Notify the bank of the potential scam and ask it to cancel any payments that are pending. Occasionally, the bank may be able to reverse payments you already made.
6. Freeze your credit report
Contact the three primary credit bureaus and ask them to freeze your credit. If the scammer uses your student loan information to steal your identity, freezing your credit report will prevent anyone from accessing it. (You will have to unfreeze your report before the next time you want to apply for a loan.)
You also can ask the credit bureau to place a fraud alert on your credit report.
7. Consider subscribing to an identity theft protection service
Some student loan scams start because someone has stolen your identity. The danger goes the other way, too. When a fake company fools you into revealing personally identifying information as part of a loan scam, you could become the victim of identity theft.
If you have concerns over falling victim to identity theft because of a student loan scam, subscribing to one of the best identity theft protection services can give you some peace of mind.
Should the scammer try selling your personal information on the dark web or start using some of your information to try to open loans in your name, the ID theft protection service should give you a heads up as to the danger.
The unfortunate truth is that once you become a victim of a student loan scam, your chances of being bombarded with other scam attempts will likely increase. Scammers believe that past victims are more likely to become victims again. An identity theft protection service subscription, such as Aura, can give you a leg up against these repeat scammers.
As a parent involved in your child’s student loan application, you can subscribe to an ID theft protection service and protect your child’s identity online. You can often track the child’s personal information through the account you use for your information.
8. Make sure the charges actually stopped
Over the next few months, keep a close eye on your credit card and banking statements that you used with the company you believe is scamming you. Make sure that it actually canceled your charges and that you are not receiving new ones.
You may have to call the company again if you are still receiving charges. During every phone call with the company, take notes about who you spoke to and what was said.
Don’t Let Emotions Cloud Your Judgment
Source: Jane Carmona
One of your best defenses against becoming the victim of a student loan scam is to try to take emotions out of your decisions. If an offer regarding an original student loan or a refinanced loan for school sounds too good to be true, it probably is.
Shop around after receiving an offer that you are questioning. If the offer rates significantly differ from what you are seeing in other places, you should be skeptical of the original offer.
It can feel overwhelming when you are facing a lot of student debt or struggling to receive a loan to attend school. You may want to believe there’s a magic solution out there, and the scammer is offering it. However, don’t let your emotions overwhelm common sense and make the problem worse.
Do your homework on any offer you receive before accepting it, and you’ll have the best chance of causing scammers to fail.
✎ Protect Yourself from Financial Scams – Stay Informed!