Student Debt Relief Scams On The Rise. Here’s What Borrowers Need To Know
Student Debt Relief Scams On The Rise. Here’s What Borrowers Need To Know
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Reports of fraudulent activities related to student loan debt relief are on the rise as borrowers prepare to resume payments on their student loans after a pause of over three years. According to consumer protection advocates, the confusion caused by the Biden administration’s efforts to provide student debt relief, the subsequent legal interference, and the restart of loan payments have created an environment where companies can take advantage of vulnerable borrowers.
Dan Zibel, the vice president, chief counsel, and co-founder of Student Defense, a nonprofit organization focused on student rights, explained that there has been a significant amount of policy and legal developments regarding student debt relief over the past few years. This includes news about repayment plans, different types of cancellation, the impact of the COVID pause, and the involvement of courts. The constant changes and conflicting information have contributed to the confusion experienced by borrowers.
With more than 44 million individuals owing a total of over $1.7 trillion in student loan debt, which is the third highest consumer debt in the United States, scammers find an ample pool of potential victims. Many of these scams begin with telemarketing calls where borrowers are promised debt relief upon payment of a fee. The scammers often request sensitive personal information and falsely claim affiliation with the U.S. Department of Education and student loan servicers. Some even mention a fictitious "Biden Loan Forgiveness" program.
The Federal Trade Commission (FTC) has seen a steady increase in the number of complaints regarding student debt relief scams as the deadline for loan repayment approaches. In June, there were 385 complaints, which rose to 562 in July and 610 in August. To combat these scams, the FTC and Department of Justice have taken action. In August, they returned $9 million to individuals who had paid upfront fees of up to $800 to Ameritech Financial, believing they were participating in a federal loan assistance program. Similarly, the FTC refunded $3.3 million to consumers in June who had fallen victim to a scam operated by Arete Financial Group, which claimed affiliation with the Department of Education.
The FTC has also joined forces with law enforcement agencies and attorneys general to combat illegal telemarketing calls. Some of these campaigns involve scammers impersonating government officials or businesses in order to deceive unsuspecting student loan borrowers.
The series of events leading up to this situation began with multiple policies implemented by the Biden administration to alleviate the burden of student loan debt over the past few years. In August 2022, a program was announced that would allow qualifying borrowers to have up to $20,000 of their federal student loans canceled. As a result, 26 million individuals applied or submitted the necessary information to the U.S. Department of Education for relief. However, in June of this year, the U.S. Supreme Court ruled against the plan, stating that the administration did not have the authority to cancel the debt. Subsequently, the administration introduced the SAVE Plan, which offers a new income-driven repayment plan allowing some lower-income borrowers to make zero monthly payments and provides early student loan cancellation to certain individuals. Furthermore, students who have been deceived by for-profit colleges continue to receive student loan cancellation.
Zibel pointed out that student debt relief scams predominantly target vulnerable borrowers who are facing economic hardships or have language barriers that hinder their ability to detect fraud. However, even individuals who appear to be less susceptible to scams can be tricked, as scammers are becoming increasingly sophisticated. Kyra Taylor, a staff attorney at the National Consumer Law Center, has received reports from borrowers who have had scammers spoof their student loan servicers’ email addresses. Differentiating between legitimate and fraudulent communications has become more challenging, especially when scammers can create emails that look indistinguishable from those sent by legitimate loan servicers.
To identify potential scams, it is crucial to remain vigilant and be aware of common warning signs.
"We are nearing the resumption of payments, and individuals are anticipating contact from their loan servicers. While the servicer may reach out to you, it is essential to be cautious if they ask for personal information. In such cases, it is advisable to end the current call and initiate contact with the servicer yourself to ensure that you are speaking to the correct person," she advised. "Furthermore, it is highly unusual for the Department of Education to reach out to borrowers. Whenever you receive a call claiming to be from the Department of Education, it is crucial to approach it with skepticism."
Mark Kantrowitz, a financial aid expert and author of "How to Appeal for More College Financial Aid," cautioned against sharing your financial student aid ID, which includes your username and password, with a third party. He explained that doing so could result in unauthorized changes to your account, for which you would bear responsibility. When borrowers log in, the federal student aid website explicitly states that the use of this information by a third party for their own gain is prohibited and could lead to criminal prosecution.
Taylor and Zibel suggested that the government take measures to mitigate the harm caused by student debt relief scams. Taylor proposed automating relief for borrowers, which would limit opportunities for scammers to intervene in the process. Zibel emphasized the importance of continuing to educate borrowers about legitimate sources of information regarding student loans as they resume making payments.
The Federal Trade Commission (FTC) provides guidance on identifying scams. The agency warns that it is a warning sign if someone attempts to charge you for debt relief services before providing any assistance. Ari Lazarus, a consumer education specialist at the FTC, explained in a blog post that only scammers would promise quick loan forgiveness. Experts in these scams also remind borrowers that they should not have to pay for assistance with student loan relief and encourage them to refer to the federal student loan website for reliable information.
Janet Yuen discovered too late that she did not need to pay for help. In 2019, she received a call from a company called A Better Solution Student Loans (ABS Student Loans) and agreed to pay them $33 per month to reduce her debt. Yuen, a social worker from Southern California, revealed that she stopped making regular payments towards her student loans because she believed that ABS Student Loans was handling it on her behalf. From October 2019 to November 2021, Yuen paid ABS Student Loans $33 per month and provided them with her student loan website credentials. She now has approximately $263,600 in student loan debt and has lost nearly $900, which she could have used for other financial obligations such as medical bills.
Yuen reported the situation to the FTC, but it remains unclear whether the agency is actively investigating ABS Student Loans, as they do not publicly disclose ongoing investigations.
There is, however, a government investigation into ABS Student Loans being conducted by the office of Minnesota Attorney General Keith Ellison. On September 6, Ellison announced that 52 student debt relief companies, including ABS Student Loans, are under suspicion for violating state regulations by offering debt settlement services without proper registration and potentially misrepresenting fees and services. John Stiles, Deputy Chief of Staff for the Attorney General, confirmed that they have requested information from ABS Student Loans regarding their customer base in the state, but the company has yet to respond.
ABS Student Loans’ website includes a disclaimer stating that they are not affiliated with any government agency and that borrowers do not need to engage a third party for student debt relief. Despite multiple requests for information, the California-based company did not respond to inquiries from States Newsroom.
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