Student loan companies charge vulnerable borrowers for services they should get for free

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This week, Illinois became the first state prosecute companies that allegedly tricked indebted university graduates into paying for student loan services that they could easily have obtained for free.

It will certainly not be the last.

The case of the forgery student debt relief services has been booming for years. With over 40 million Americans collectively bearing $ 1.2 trillion in student debt, there is no shortage of clients willing to do anything to ease their burden. Capitalizing on borrower anxiety, these companies promise to either consolidate their loans or cancel their debt. They charge high fees to borrowers who don’t know it and run away with the money without ever doing anything. The phenomenon closely resembles the wave of predatory mortgage services that preyed on underwater homeowners following the 2008 housing crisis.

“I knew I shouldn’t have listened”

Jenny Dawn, 31, was desperate enough to believe such a claim earlier this month. After eight years of diligently paying off her $ 60,000 student debt, the Boston teacher is still in the red at $ 29,000. With the birth of her daughter earlier this year, continuing to make payments of $ 800 each month – even with the help of her husband’s income – seemed nearly impossible.

Dawn had previously reviewed a federal student loan waiver program specifically targeting public service workers, but was told she did not qualify. So when she saw an ad for a new student loan cancellation program on Facebook two weeks ago, she couldn’t help but hope.

The ad was posted by a company called National Student Loans Center. According to its website, NSLC is a California-based “document preparation” company that helps students find ways to reduce their student loan payments.

When Dawn contacted them, a representative of the company “said there was a new program called the Obama Forgiveness Loan that came out recently because the government wanted to help students get out of debt, ”she said. “He asked me a bunch of questions about my income, my budget, my expenses, everything. He plugged it all in and told me I was definitely qualified.

There was only one problem: To complete the necessary paperwork to apply for the program, Dawn would have to pay a processing fee of $ 588. When she hesitated, the rep urged her to reconsider.

“He was very aggressive and kept pulling numbers at me as to why this was the best option and told me I could make payments in three installments,” she says. “I knew I shouldn’t have listened, but my baby had just woken up and I was in a rush. I figured if that was true, I didn’t want to pass up an opportunity to get my loans.

So Dawn handed over her credit card information and the rep sent her a contract to sign online. Before hanging up, the representative gave him one last piece of advice: “If one of myAgents or debt collectors tried to contact me, he told me that I should not talk to them and that I should only call him, ”she said. It was then that she started to become suspicious.

The next day, she called the Department of Education to see if there was really a new loan cancellation program. Indeed, there was a loan cancellation program for public service workers, she was told – the same program she had already inquired about and for which she was not eligible. For good measure, the rep ran Dawn’s information through the system and confirmed that she was still not qualified. Fortunately, she was able to cancel her credit card before she was even billed for NSLC services.

We have reached out to Nationwide Student Loan Center for comment, but so far they have not resent our messages.

How to know you’ve been duped

Persis Yu, an attorney with the National Consumer Law Center (NCLC), says cases like Dawn’s are not uncommon.

“Because borrowers are in trouble, they are constantly looking for a solution,” says Yu. “But they don’t realize that they are paying for papers that they could do for free.”

The idea of ​​paying a professional to prepare an application for a debt consolidation or loan cancellation program is not entirely absurd. We pay tax lawyers and CPAs to manage our taxes every year, although we can do it ourselves. Some students who find themselves caught in a jumble of different types of student loans may actually benefit from expert help, Yu says.

But the problem with some student debt relief services is that they don’t offer personalized debt advice, and they don’t make it clear to borrowers that the service they are offering – loan consolidation. federal – is readily available for free elsewhere. . Buried in the four-page client agreement, Dawn was asked to fill out a line acknowledging that she could apply for the loan cancellation program on her own. She claims that the representative she spoke to made no mention of it, however, and urged her to sign the form without reading it.

In a 2013 report, the NCLC investigated 10 student debt relief companies in the United States. The initial charge reached $ 1,600 and included a monthly service charge of $ 20 to $ 50. In January, New York Governor Andrew Cuomo formed a special group Student Protection Unit in response to complaints about bogus debt relief companies. The group has issued subpoenas for information to more than a dozen debt relief companies and is currently investigating potential fraud.

Aside from fees, the biggest red flag borrowers deal with a scam business is when they warn them against direct communication with their lenders. By urging borrowers to ignore calls from their lenders or debt collectors, these companies suggest that borrowers cannot apply for loan forgiveness or debt consolidation programs on their own, which of course. is not true.

There is only one federal loan consolidation program. Any federal student lender will be able to help you apply for free. A business that tries to convince you otherwise – and makes big promises about what it can do for you – doesn’t have your best interests at heart. The government also doesn’t sanction debt relief companies, so don’t trust a company that claims to have been approved by the government.

While the government does not exactly allow students to understand their loan repayment options, there is information. You can visit the Office of Consumer Financial Protection’s “Pay Off Student Debt” Tool, which helps narrow down your options for paying off private and federal loans. There is also a comprehensive list of student loan repayment options on the Federal Student Aid Office website.

The bottom line: If you’re having trouble paying off your student loans, there’s really only one place you should call for help: your lender.

“Borrowers should be in contact with their loan officers about their options if they are having difficulty,” says Yu. “Unfortunately, a lot of borrowers have paid. [for debt relief services] and don’t even realize they’ve been scammed.

If you believe you have been the victim of fraud, Yu suggests requesting a refund from the company and requesting that all contracts you have signed be canceled. Sometimes companies ask borrowers to sign a contract giving them a limited power of attorney, which allows the company to communicate with lenders on behalf of the borrower. Contact your student loan manager to explain the situation and revoke the company’s power of attorney. If you provided your social security number, keep an eye on your credit reports via annualcreditreport.com to make sure your information has not been used to open accounts. Finally, you can report any suspected fraudulent activity to the CFPB (855-411-CFPB) or the Federal Trade Commission online service. Complaints assistant.

Have you fallen for any of these student debt relief scams? Let us know: yfm[email protected]

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