Too Good To Be True: Essential Guide To Student Loan Scams

figure of student being crushed by dollars from student loan scams

How to Avoid Student Loan Scams

Struggling to pay student loans? Looking for another solution to get rid of debt? While you’re pursuing those financial goals you need to keep a sharp eye out for student loan scams.

If you are struggling, take solace in the fact you’re not alone. About 13% of Americans have student loan debts amounting to $1.36 trillion collectively. Out of the 44.2 million of those in debt, 11.2% fall to delinquency.

scam warning signs

Student loans are almost a normal part of an adult’s life, which can remain into their middle-aged years. This can make anyone with debt desperate, especially if they weren’t as successful as they should have been with a diploma.

Student loan scams prey on this desperation. And with a huge market to prey on, there are unfortunately a huge number of various scams.

But you can take steps to avoid falling into this type of scams.

Read on to find out what are the typical scams and how to avoid them.

What Are Student Loan Scams

As the name suggests, this type of scam targets students desperate to pay off their loans fast. Student loan forgiveness scams will offer to lower the total amount you need to pay. They might also promise to eliminate the debt completely.

Do note that there are legitimate student loan forgiveness companies that can lower your debt. Student loan scams prey on people under the guise of such programs.

The scam involves them making promises to make deals or settle with your lender. But before that, you’ll have to pay an upfront fee.

student leaning on book worried about loan scams

They may also ask you to pay them instead of the lender. They’ll offer lower interest rates, a shorter term, or lower monthly payments. But then they’ll put your loan into forbearance.

By the time you find out about it, they’re long gone.

Watch Out for These Red Flags

Student loan scams are too good to be true, which makes them easy to spot. Here are other warning signs you need to look out for:

Official-Sounding Names or Logos

If they claim to have an affiliation with the Department of Education, it’s a scam. Keep in mind that the federal student loan forgiveness government entity doesn’t associate with third-party companies.

Look out for companies with “Federal” or “National” in their names. Scam companies can also trick you into having official-looking logos.

Asking for Upfront Fees

Student loan scams will often pressure you into making an upfront payment as high as $999. You shouldn’t have to pay anyone a ridiculous amount of money as advanced payment.

Promising Immediate Loan Cancellation

There are government programs that can offer you loan forgiveness. Typically, you would have been paying for a certain amount of time before you can qualify.

Any company promising immediate debt relief is most definitely a scam.

red flag waving in the wind

Requesting Your Personal Information

There are a lot of ways giving out sensitive information can go wrong, so don’t give them any personal info until you’ve verified that they’re a legitimate company.

Moreover, don’t ever sign any document, like third-party authorization or power of attorney.

Calling You For a Grant You Didn’t Apply For

Sometimes, you’ll receive a call saying that you won a grant for your education and you won’t have to pay it back.

The only thing you’ll need to do is pay processing fees. As per Red Flag #2, that’s a scam.

But receiving calls about a grant you didn’t apply for should have raised a red flag immediately.

Pressuring You into Doing Something

Sometimes, they will not only ask but also pressure you. They don’t want you finding out about them, so they’ll ask you to pay as soon as possible. They may also force you to sign documents ASAP to get your information quickly.

These warning signs are present in almost every student loan scam. On top of those, you can take further steps to ensure that you’re not falling for any scam.

How to Avoid the Student Loan Scams

Aside from watching out for the red flags, do these steps to avoid student loan scams.

Ask Questions

While you’re on the phone, don’t let the caller take control of the conversation. Most often than not, they’ll overwhelm you with promises so you wouldn’t have time to doubt them.

They’ll also avoid questions that would give them away, so they’ll talk and talk until you’ve forgotten the question in the first place.

Be firm and ask questions about their company. If they refuse to answer directly, you’re just wasting your time on student loan scams.

Also, if they claim to be your student loan care servicer, ask them something they wouldn’t know if they were lying.

man touching question mark

Research the Company

Don’t agree to anything on the first call. Take your time to do a little research about their company first based on the information they give you.

Use Google to search their company name, address, and even phone number. If they’re not legitimate, the search engine will have very few or no details at all about them. You can also go to student forums to see if others have heard of the company or scam.

Doing diligent research should also show you some services that should be free. For example, they’ll offer to consolidate your loans for you for a massive fee. However, if you go online, you’ll see that you can do it yourself for free.

Don’t Give Your Personal Information on the Phone

Asking for your personal info is a red flag. So, you shouldn’t provide any information no matter how legitimate a company looks.

Keep your Federal Student Aid PIN or your servicer account password safe.

Watch Out for Paperwork Processing Companies

These are companies who will process your student loan consolidation paperwork for you then charge you for it. But they won’t tell you that. Instead, they’ll make it look like they’re consolidating your student loans.

paperwork stacked up

Note that applying for student loan consolidation is free on government websites. You won’t be able to go after them because they only did what they promised – and that is to do your paperwork.

Apart from these, one of the best advice we can give you is to follow your guts. It warns you that something isn’t right, which is true most of the times.

Handle Your Student Loans and Finances Like a Pro

Managing student loans can be a burden, but it shouldn’t have to. With the right knowledge and skills about financial management, you’ll be able to still live your life while paying off your student loans and other types of debt.

Contact us now for more tips and advice on how to have a fulfilling financial life without debt.

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6 Comments

  1. Hello Patrick,

    Great article on student loan scams, appreciate you sharing this.

    This article is especially poignant for me right now as my brother, who is 46, has just had to file for bankruptcy due to a nasty divorce.

    But the thing that really stood out to me was that he still owed almost $20K in student loans!

    My oldest daughter is 18 and is nearing the end of her freshman year in college. We’ve put together a fairly comprehensive financial plan for her overall but she will have to figure out how to pay for the majority of her senior year.

    I’ve discussed with her she could cover this by working more now or looking into other scholarships or a variety of other ways.

    If she is unable to do those things for one reason or another she will have to go the student loan route. It’s good to have article such as yours to help inform folks – thanks so much!

    Mat A.

    • That’s a bunch of student debt at 46 years old.  Looks to me like your brother has some serious underlying debt problems.  Introduce him to my site.  It may be of some help to him.

      It appears to me that your daughter has a few decisions to make by the time she gets to her senior year.  If it were me I’d mix in a job and some Federal Student loans to get to the finish line.

      Scholarships are tough to get unless you are making the grades, so if you are short of funds there aren’t a lot of place to go other than the student loan route.

      Hopefully your daughter gets a good job after graduation.  That will go a long way towards beginning to pay down her student loan debt.

      Best of luck.

  2. Hey Patrick,

    Great article.

    When you’re desperate to pay debt fast you start looking at your options and most of the time end up in these kind of shady sites and companies.

    I barely even trust the legitimate sites, because of the crazy fees and small print deals.

    The best advice is not to fall into desperation and not to fall for these traps, just keep working hard and that loan will be gone soon enough.

    Thanks for getting this to people’s attention.

    • Hey Victor,

      You make some excellent points.  Best of all, just keep working hard and the loan will eventually get paid off.

      There are legitimate student loan forgiveness companies out there that can help lower your debt payments, you just need to do your research first to make sure they are on the up and up.

      If you are unsure just walk away.  Watch out for the immediate debt payoff student loan scams. Any company promising this is definitely a scam operation.

      Thanks for sharing. 

  3. Really great post about student loan scams.

    I knew they were out there but your advice to the reader is very informative and easy to understand.

    I really like the section about watching out for any “company” that has “federal” or “national” as seeing those names makes it easy to be bamboozled.

    I can be fooled sometimes by that. When I am reading the post, everything is to the point which is great for someone like me who is time sensitive.

    Great job!

    • Hey thanks! Glad you enjoyed the post.

      Yea the phony companies with National or American in their names are the ones to watch out for.

      Once you contact these companies they put on the high pressure tactics. That’s the first thing you should look out for.  Reputable services won’t rush you and will give you all the information you need to make an informed decision.

      There are student loan scams everywhere.  They prey on graduates that are desperate, as they are easy targets.

      I recommend that you do your research before committing to anything. Signing on the dotted line without knowing what you are getting, can put you in a worse student debt position than you were before.

      Best of luck.

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