“If it seems too good to be true, it probably is.” This old maxim has never been more accurate, especially in the context of student loan forgiveness scams.
These scams are on the rise in recent years, and it’s all too easy to fall prey to one. As people continue to wrestle with the financial distress caused by inflation and the ongoing effects of the pandemic, student loan payments are threatening to swamp borrowers with additional stress. Some won’t be able to handle those payments, especially on top of rising food, gas, and rent costs.
The best way to protect yourself is to understand how to spot and identify the hallmarks of these scams, what to do if you’re targeted by a scammer, and how best to protect yourself against being victimized.
Forgiveness vs. Discharge
Before learning more about forgiveness scams, it’s important to understand the differences between a few terms.
- Forgiveness is the complete cessation of your payment obligation, usually due to working in a job that offers eligibility for Public Service Loan Forgiveness. It’s also sometimes referred to as cancellation.
- Discharge happens when you’re freed of the obligation to make payments due to permanent, total disability or fraud or closure from the college that received your loan proceeds for your education.
While both discharge and forgiveness have the same ultimate effect—you’ll no longer have to make those payments—they’re pursued through different programs and processes.
Why Have Student Loan Forgiveness Scams Increased Lately?
Student loan forgiveness scams are on the rise in recent years, according to the Consumer Finance Protection Bureau. One major reason for this is that borrowers and scammers alike are in financial distress.
For one thing, the pandemic has increased financial pressures on people everywhere. Additionally, rising inflation is depressing spending power and increasing the costs of basic living expenses. This naturally leaves less for student loans and consumer debt payments. The additional funds in COVID relief that many taxpayers received have been spent and probably wouldn’t have made a significant dent in student loan balances anyway.
Bankruptcy laws allow for the discharge of federal student loans in limited circumstances. These discharges are sometimes hard to obtain. You’ll need to prove that repayment would cause undue hardship for you. Additionally, you’ll have to go through what’s called an “adversary proceeding,” which is something like an ancillary lawsuit that’s pursued within your bankruptcy case.
The increased financial pressure means that a potential market has opened, consisting of individuals who are highly invested in finding relief from oppressive debt, including student loan payments. Where there’s a market, scammers and others who aren’t as strongly guided by ethical strictures will happily meet the market’s perceived needs, or at least promise to do that.
How to Spot a Student Loan Forgiveness Scam
It’s easier than you might think to get taken in by a clever student loan forgiveness scam.
Some of the more common potential scams people run across include:
- An organization claiming you need to apply for student loan forgiveness right away or very soon, before the offer is rescinded or stopped.
- A scam asking you to call a number right away in order to verify that you are qualified for a student loan forgiveness plan.
- An offer indicating that you may have a chance for full student loan forgiveness, but that the offer only can work on a first-come, first-served basis.
To avoid becoming a victim of a student loan forgiveness scam, keep a sharp eye out for the following hallmarks of fraud.
1. Upfront Fees
Whether you’re being asked to pay a one-time fee or a recurring monthly amount, avoid any purported programs that ask for more of your money. Keep in mind that legitimate federal programs for forgiveness, deferment, and consolidation programs don’t charge for applying to or participating in those programs.
If you’re being asked to pay, something’s wrong.
2. High-Pressure Sales Tactics
Are you being subjected to a sales pitch with traditional high-pressure sales techniques, such as a sense of urgency or scarcity? (i.e., “only a few borrowers will be allowed to apply, so it’s important that you sign up with me today”) Legitimate federal relief programs will never try to pressure you into making a fast decision like this.
3. Encouraging You to Stop Communicating With Your Servicer
For obvious reasons, it’s in a scammer’s best interest to isolate you from your servicer. After all, if you’re in contact with your servicer, you’ll find out about actual avenues for relief that aren’t scams. It’s important to keep in touch with your loan servicer and meet your monthly payment obligations. If that’s proving difficult or impossible, ask the servicer about possible avenues of relief.
4. Identifying Themselves as an Affiliate Of Your Servicer
Always ask for their full identification and employer name. Then call the servicer yourself using the information on your billing statement. Alternatively, log on to the servicer’s website and ask a service representative if the person contacting you is legit.
5. Requesting Your Personal Identifying Information
If the person on the phone is asking for information like your Social Security number, bank account information, or your Federal Student Aid (FSA) ID and password, be wary. Better yet, hang up!
These data points will enable the scammer to access your account with your servicer, terminate contact between you, and even access funds from your checking account. A legitimate contact will never ask for this information over the phone.
6. Claiming They Can Help Before They Know the Details Of Your Situation
Quick or easy loan forgiveness is pretty much always a pipe dream. Legitimate programs require paperwork and processing, which take time. In most cases, there’s nothing anyone can offer to do for you (usually for a fee) that you can’t do for yourself for free.
Anyone offering a magic trick to make student loans go away is almost certainly a scammer.
How to Avoid Student Loan Forgiveness Scams
The best way to avoid falling prey to a scammer who promises student loan forgiveness is to contact your loan servicer as soon as you experience difficulty meeting your monthly payment obligation. This will help you avoid a situation where your financial stress adds to the pressure to make quick decisions without analyzing the facts.
Never disclose personal data over the telephone to anyone contacting you about your student loans. Providing a scammer with your Social Security number, FSA ID, bank or other relevant site login information can give them all the ammunition they need to access your money and cancel your access to your servicer, so you won’t immediately know that you’ve been scammed.
Remember that anyone can spoof a telephone number, making it seem like a scammer’s phone call is really coming from the Department of Education or your loan servicer. Verify their identity by calling them back at a confirmed official number. If they’re legitimately who they claim to be, they’ll understand and respect your caution.
Finally, resolve to never agree to pay any kind of upfront fees in exchange for assistance. The Department of Education prohibits this kind of arrangement and won’t ever charge you to get access to assistance.
What to Do If You Think You’ve Been Scammed
If you suspect you’ve become the victim of a student loan forgiveness scam, it’s crucial that you gather your documentation and take action quickly.
- Contact your bank and stop payment on any pending payments. Protecting your funds should be your primary focus right off the bat.
- Talk to your bank’s fraud department about your concerns. There may be additional steps they can take to help protect you, your money, and your identity.
- You’ll also need to contact your student loan servicer as soon as possible and let them know you’ve been targeted by a suspected scam.
- Change your login credentials and protect your personal information. If you gave the scammer any other personal ID information, such as your FSA ID or password, change your password immediately.
- Next, contact the major credit reporting agencies: Equifax, Experian, and TransUnion. Let them know you may have been the victim of fraud, and arrange to put a freeze on your credit to prevent potential future identity theft attempts.
- Write a short narrative beginning with your first contact with the scammer and describe each communication (phone call, letter, or email). Note where you have any contemporaneous notes from these discussions or other documentation.
- Use this narrative to help you file written complaints with the federal agencies tasked with investigating claims of fraud, starting with the Consumer Financial Protection Bureau. You should also file a complaint with the Federal Trade Commission. You may also want to file a complaint with your state Attorney General’s office. In some cases, the AG’s office may be able to exercise a more assertive approach in investigating and pursuing charges against fraudsters and scammers.
The best response to a scam is to spot it before any damage is done. However with the increasing sophistication of scams these days, even borrowers who know what to look for can fall for fraudulent scams. It’s important to act quickly to protect yourself and put a stop to future damage to your identity, credit, and account status.
Legitimate Student Loan Forgiveness Programs
As of now, there are no universally applicable forgiveness programs for federal or private student loans. However, you may qualify for specific types of student loan forgiveness.
For example, if you’ve entered a career that would qualify as public service for a government employer, you might be eligible to seek relief under the Public Service Loan Forgiveness program (PSLF). Borrowers must make timely payments for ten years to become eligible for this and meet other criteria to qualify.
Teachers may qualify for the Teacher Loan Forgiveness Program. Eligible borrowers must teach in a low-income school for five consecutive years. Thereafter, they can apply for forgiveness of up to $17,500 of direct subsidized and unsubsidized federal loans.
Members of the U.S. armed forces and AmeriCorps may also qualify for assistance. While not technically forgiveness programs, they can be used to reduce your federal student loan obligations.
In addition, certain borrowers may qualify for other types of relief and assistance. Income-based repayment plans can reorganize your payment schedule and amount by tying them to your monthly income, making them more affordable. You may also be eligible for discharge in certain limited circumstances, such as:
- A closed school
- Total and permanent disability
- Certain conditions involving Perkins loans
Finally, you can inquire about refinancing your loans. In many cases, borrowers can qualify for a lower interest rate which would reduce the monthly amount, as well as the total amount owed. However, be aware that refinancing your federal loans with a private lender will render your stude