How to avoid predatory student loan scams

5 Ways to Avoid Predatory Student Loan Scams

Got student loans? We’ve got you covered with our Student Loan Smarts blog series. Our expert tips and hacks will help you save money, pay off loans sooner, and stress less about student loan debt. Read the other posts in the series here to get all the info you need to make intelligent decisions about your student loans.

Unfortunately, spotting a student loan scam today is more challenging than you might think. It can come in the form of a Facebook ad, an email, or a cheerful voicemail:

“Click here to qualify for President Obama’s Student Loan Forgiveness Program!”

“Visit our site for lower student loan payments, regardless of credit score!”

“Call us today to consolidate your student loans and get them discharged!”

Those offers sound too good to be true, so you likely don’t take the bait. But sometimes they do cause you to think. Legislation around student loans is constantly changing, and maybe there are some legit student loan assistance companies now that didn’t exist when you graduated. And—come on!—one is literally nicknamed the “Obama program”; how can it not be real?

For one thing, scammers are getting smarter and have advanced technological tools at their disposal (some know your student loan balance). But the bigger problem is that many scam offers come from real companies that aren’t doing anything illegal.

Recommended: Your 6-Step Plan For Managing Student Loans — And The Tools To Help You Do It

“Scam companies are student loan assistance companies who charge you for a service and then never do it or don’t do it 100%,” says Robert Farrington, founder of The College Investor. “However, many totally legitimate student loan assistance companies simply charge you for services that you could do yourself for free.”

So how do you know if you’ll get actual help from one of these companies or if you’ll be overcharged for unnecessary services or be victimized in some other way?

Here are five red flags to watch out for:

1. An upfront fee

A major indication that you’re dealing with a student loan forgiveness scam is the requirement of an upfront fee. Once they get the fee, many scam companies simply take your money and disappear, leaving your loans in forbearance (or worse, default), and you none the wiser. Debt counseling firms are not allowed to charge you any fees until after they renegotiate, settle, or reduce at least one debt for you.

2. Student loan cancelation or forgiveness claims

Student loans are notoriously difficult to shake, even if you file for bankruptcy. There are a few situations that can qualify you for federal student loan forgiveness—for example, if under the Public Service Loan Forgiveness Program (PSLFP) you’ve worked for a qualifying employer and have made 10 years of payments. But if you do qualify for a federal loan forgiveness program, there’s no reason to have a third party negotiate for you. Simply call your loan servicer for instructions on getting your loans discharged—free of charge.

3. An official-sounding name or insignia

Some private lenders misrepresent themselves by using names, seals and logos that give the impression they’re affiliated with the federal government’s student loan programs (hello, Obama Forgiveness Plan). However, the Department of Education does not solicit people to borrow money; so if it sounds like a sales pitch, it’s not coming from the government.

4. A request for sensitive information over the phone

A legitimate private lender will need your social security number and other info to process your refinance application, but would never cold call you or ask for that information via email. If you’re working with an online lender, do a little homework by Googling the company and reading reviews. And if you’re really unsure, call your state attorney general’s office to see if complaints have been lodged against the company. Never share any personal information until you are 100% certain you are dealing with a legitimate lender.

5. Consolidation fee

This is where things can get a little murky. As noted above, there are legitimate companies that will help you consolidate student loans for a fee. As long as they don’t charge you until consolidation has occurred, they’re not technically scammers. But be cautious. If you want to consolidate federal student loans through the Direct Consolidation program, it’s a free process—so you don’t need a company to do it for you. If you want to consolidate private loans, on the other hand, know that the company is probably refinancing your loans into one private loan. In that case, be sure to check the interest rate and fine print to see if the new deal is actually better than your old one.

Spotting a student loan scam isn’t always easy, especially when companies go out of their way to convince you they’re legit. If your gut tells you a deal is too good to be true, then it probably is. When choosing between Direct Loan Consolidation (for federal student loans) and student loan refinancing (for federal and private loans), it’s worth taking some time to learn about both options, as the terms and potential outcomes (savings vs. interest spend) are very different. Check out our guide to student loan consolidation vs. refinancing for all the details.

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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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