Graduating can be one of the most exciting times in a new professional’s life. It is often met with moments of elation, expectation, and the realization that life is finally coming together. However, it is also a period of transition and growth. All financial protections that university, college, or trade schools give, such as in-school deferment, grants and other financial assistance come to a halt. Finding your footing among all these new expectations can be a learning experience in of itself. This is especially true when it comes to student loan repayment.
Last year nearly 4.2 million Americans walked away from their experience in higher education $38,000 to $100,000 in debt. Given the fact, the average student loan payment is $393 per month, many new professionals do not have the monthly allowance to pay for their student loans. This can be a frightening realization for some who do not know there are programs available to help.
In fact, scammers count on it.
The student loan scammers targets new graduated borrowers by promising lower payments, lower interest rates, loan forgiveness, consolidation, refinance—in exchange for fees or lump sum payments. Before we begin, it is imperative you know that NO lender will ever require you to pay money for easier payments or interest fees. Ever. This is especially true if your loans are owned by the federal government.
Here is Everything You Need to Know about Current Student Loan Scams
Know Your Loan
The reason student loans scams are successful have to do with timing. They catch new graduates who do not know much about their student loans, the repayment process, or their options—let alone their lenders. Scammers are acutely aware of this. Not only do they attempt to fear monger you into their scheme by throwing high monthly payments at you if you do not take advantage of their program, but they demand you make a decision in that moment. I have never seen a repayment plan, refinance opportunities, forbearance, deferment, or the option to consolidate a loan expire.
While there are many types of student loans (subsidized, unsubsidized, Perkins loan, parent loan), student loans fall into two categories: Private and Federal.
- Private student loans are any monies given for the purpose of education not by the federal government
- Federal loans are monies given to the student by the United States of America
It is important you know that private loans are different from federal loans, and they do not share the same protections or options that the government has. However, both private and student loans are tied to a lender. For private loans, this is usually who issued you the loan during school. Unless someone buys out your loan, which does sometimes happen, this is who would be calling you directly about payment.
Here is a list of lenders who oversee student loan repayment for federal loans:
- FedLoan Servicing PHEAA
- Granite State-GSMR
- Great Lakes Educational Loan Services Inc.
- Maximus Federal Services Inc.
- Default Resolution Group
If your loan moves to a different lender, you will be notified first. Otherwise, no one except your lender/servicer should ever contact you about your student loans. Similarly, unless you are not paying your monthly bill, it is highly unlikely you would receive a phone call from them period. Lenders are not sales representatives. They must adhere to strict guidelines to become servicers of federal loans.
There are times when scammers front as “Student Debt Loan Specialists” or agencies designed to reduce your student loan, monthly payment, or interest rate. Be extremely cautious and due your research before ever providing any of your private information to one of these individuals.
What is the difference between consolidation and refinance?
Due to the fact many scams target these two areas, it is important you understand the difference between them.
- Consolidation: In terms of loans and finance, consolidation is when you merge all your loans into one loan. For some who have been in school for many years or have many different loans, this is one way to create one payment with one interest rate. However, whether it saves you money depends on many factors. In some cases, your interest rates may be lower before consolidation, making your payments lower and the life of your loan shorter. Therefore, it is important you look at all the different ways consolidation could impact you before choosing to be sure it is a positive move.
- Refinance: refinance occurs when you take out a loan on your current loan to get a better interest rate and lower your monthly payments. The success of this depends strongly upon your credit history and creditworthiness.
What Kind of Scams May Target Me?
Legal Representation Scam
If you are approached by a law firm who claims they can settle your student loan debt, proceed with caution. There are a lot of scams out there that take advantage of student borrowers by claiming to be lawyers skilled at legally alleviating student loan debt. While they are “negotiating” terms, these scammers will ask you to make your monthly payment to them, promising to pay your servicers for you. Only they do not. Instead, they pocket your cash, let your loans go into default, ruin your credit, and use you as an income source.
Federal Student Aid (FSA) Identity and Password Scam
Studentaid.gov is the website you apply for FASFA and sign for student loans. To gain admission to your information, loans, financial totals, identity, and other private factors—you must use an FSA password and username. In many ways, this is all that stands between a scammer and the ability to open new loans in your name and have full access to all your personal and private information.
There is never any reason any person, lender or otherwise, would need your password and login to “assist” you with any facet of student loan repayment. Your servicer already has all the information they would need to assist you. Do not under any circumstances hand over your password and username to anyone. This poses a great financial and personal risk.
Some individuals choose to go through a debt relief program to assist with lowering their payments and negotiating better terms. If this is the case be aware how this may affect you. Be cautious about debt relief programs in general, while some are reputable, many are moneymaking schemes designed to take money from you and use your information illegally. Signing a Power of Attorney (which is a legal document that gives someone the right to make decisions on your behalf. It signs your rights away) allows companies to change your password and so much more. Sadly, if your payments are taken and not made—you are still responsible for them. Remember that most payment programs are available to you and easy to obtain without the need for third-party intervention
Advanced Payment Scheme
Scammers fronting as “Debt Consolidation Specialists” will often call you with an offer to lower your student loan payments for an upfront fee of up to $1500. This is simply false. You will never need to pay an advance on any programs you may qualify for or on top of your monthly obligation. This is merely one-way scammers attempt to get fast cash from past student borrowers.
Loan Forgiveness Scams
If anyone calls you and attempts to sell you loan forgiveness in lieu of a one-time payment or private information, decline. There are few cases in which loan forgiveness occurs:
- Death of a borrower
- Proven Disability: a disability in which you receive SSDI for, is expected to last more than five years, and of which you have medical proof.
- Public Service Loan Forgiveness (PSLF): a program for public service workers, who work full-time for a nonprofit and make 120 qualifying payments (these include payments under payment programs) or ten years of service. This is not a program you automatically qualify for. You must apply through your loan portal and have your employer verify their nonprofit status.
- Teacher Forgiveness: if you are a teacher, you are eligible to receive up $17,500 of your debt forgiven if you serve in a low income school full time, and make the minimum of 120 payments (this is ten years).
- Medical Professional Forgiveness: same as above, must meet the needs of an underserved population for 10 years and make 120 payments on time throughout the course of your service.
- Bankruptcy: Student loans can potentially be dismissed if you file for bankruptcy, but be aware, this is often a difficult thing to achieve. To do this, you must file a second lawsuit and prove that repaying your loans will cause an undue hardship. This can be a difficult process.
Private loans are their own entities, but they do often excuse your debt if you die or become disabled during repayment. Reach out to your private loan lender to learn more about how they approach loan forgiveness.
Loan Consolidation Scam
Consolidation is the act of combining all your loans into one, under one interest rate, and one payment. Debt consolidation does not require a set fee or any amount of money to initiate new terms, nor is it reliant upon a fee to be useful. Do not ever pay a fee to consolidate your loan. A lot of scams will claim to consolidate your loans for a onetime payment through processing fees or administrative fees. Consolidating a loan costs zero dollars and can be done from your account or with the help of your servicer.
Urgent Payment Scam: Know Your Grace Period
Upon graduation, most private and federal loans servicers offer a grace period between 3-9 months (depending on loan type) wherein you are required to make ZERO payments. This was designed to give new professionals sometime to settle into their new career and start making regular income from employment. If you receive a call during your grace period demanding urgent payment, this is not your servicer. In fact, you will receive a letter from your loan servicer reminding you that you are nearing the end of your grace period. If you are skeptical about payment demands you are receiving call your loan servicer directly and retrieve the details firsthand.
Unfortunately, the recent pandemic has open new doors to scammers throughout the country. Right now, all federal loans are frozen until December 31, 2020. Private loans are still collecting but may offer programs to help if you have been affected by the pandemic. Be aware that as we approach the new repayment date, scammers are likely to utilize repayment fear in their favor. You will likely receive a letter when your payment date begins, and if you are concerned there are many programs available to help.
These programs cost zero dollars and there will never be a payment set to qualify.
Repayment Programs That Help
If you are facing financial hardship, unemployment, or simply cannot repay your student loans at the projected amount, there are many programs for you to consider.
For private loans, call your lender—most offer income repayment plans of their own. They are not likely to be as low as federal loans, but they can drastically reduce your monthly payment. Often, private lenders offer:
- In-School Deferment: where your loans are on pause until you graduate
- Grace Period: a set number of months after graduation before your loans go into repayment
- Deferment: a way to postpone repayment without extending the life of your loan or adding interest
- Forbearance: a way to postpone repayment, but interest still accrues, extending the life of your loan
- Income-Driven Program: This amount is based on your income, dependents, and bills. It works to drive your payments lower.
Federal loans offer the following programs (at no charge):
- In-School Deferment: no payments are required while in school
- Grace Period: a set number of months after graduation before your loans go into repayment
- Hardship Deferment: the ability to postpone payments due to hardship
- Forbearance: a way to postpone repayment, but your loan still accrues interest, which extends the life of your loan
Federal Loans additionally offer Income-Driven Repayment Plans (IDR), where your monthly payment is determined based on your income and number of dependents. Depending on your situation, you may qualify for $0 a month payments. You can view these and more on studentaid.gov.
- Income-Based Repayment: Monthly payment is based on your yearly income (you submit your taxes) and number of dependents. Based upon many factors, your monthly payment could be as low as $0 a month.
- Pay as You Earn (PAYE): Your loan must be dated 2014 or later. This program bases your monthly amount upon 10% of your discretionary income.
- Revised Pay as You Earn (RPAYE): In this program, payment is based on adjusted gross income and capped at 10% of your discretionary income (money left over after bills and rent are paid).
- Income Contingent Plan (ICR): Your monthly payment is based on your income and your payment can be no greater than 20% of the poverty level
All these programs must be renewed annually to be sure you qualify. You can apply for them separately through your loan portal or with your servicer. Many times, your loans can be placed in forbearance or deferment while your new plan is being processed.
None of these programs need a third-party to assist you. If you are ever contacted by a person claiming they can get you onto one these programs in exchange for payment, your information, or call for direct payment—this is not the truth. Most of these programs can be applied for in as little as twenty minutes from your phone at no cost to you.
If you are facing loan repayment or are in repayment now, be cautious of any person offering you a service they cannot deliver. Scammers are actively looking for ways to turn your situation into a lucrative side scheme. As always, err on the side of caution, and only deal directly through your loan servicer or .gov portal. Never give your private information to any person, and exercise caution when considering your options for repayment. While graduating is one of the highlights of any individual’s life, it does not come without its own set of challenges. Protecting your financial health and well-being is one of them. Know your loans and take control of your monthly payment. By doing so, it effectively closes the door on potential scammers and reduces the risk of financial harm.