By Bruce McClary
The growing burden of student loan debt has drawn much attention from those who wish to address consumer needs, but not all of that attention is positive. Student loan debt relief is a term that is in danger of becoming synonymous with “scam” or “rip-off”. Some of the same players that were abusing consumer trust under the banner of for-profit debt settlement or foreclosure rescue are now finding a new home in the world of student loan debt forgiveness. Their actions could result in confusion for consumers, and a bad name for others who are working with the best interest of the public in mind. As a matter of consumer education, it is important that we take time to alert and educate the public about the warning signs of student loan debt relief scams.
Here are some of the points that can help consumers recognize possible student loan debt relief scams:
One Size Fits All – Regardless of Circumstances
How a student loan situation is managed depends on a wide variety of circumstances that are rarely the same from borrower to borrower. Among the factors to consider are loan types, account statuses, payment amounts, and income. Details related to those and a number of other items are the key to determining how the debt should be handled.
Some companies don’t factor the positive and negative consequences of actions they may take on behalf of a borrower. Instead of carefully considering the uniqueness of the borrower’s situation, they proceed to direct the individual to a course of action right away.
In many cases, applying for a program or submitting information can actually harm a borrower, leading to higher payments or loss of certain legal rights.
Promises and Guarantees
Many companies will offer to completely wipe out the debt, or immediately lower payments to an amount that is much easier to pay. They make these promises without knowing anything about the borrower’s loan or overall financial situation. In fact, many of the promises they make are absolutely impossible to fulfill.
Providing Incorrect Information
Consumers seeking help from student loan debt relief companies are sure to have questions. This pursuit of information may lead them to ask about bankruptcy, debt collection, and a host of other complex topics that require expert knowledge and experience. Without the same training and certification standards as the NFCC, it’s hard to know what advice other providers will give. Companies that do not properly support their staff with resources and training may create an environment where incorrect information places consumers at great risk.
Money First – Service Never
Some companies will turn a counseling session into a fleecing in the blink of an eye as they ask for high up-front fees before they present the terms and conditions of their service. This may seem familiar if you recall the reported practices of the for-profit debt settlement and foreclosure rescue industries over the past 10 years. Consumers should be reminded that demands for full payment or high fees before services are rendered are a clear indicator of a possible scam.
The Lawyer Bait and Switch
In another example of the past repeating itself, some student loan debt relief companies are presenting themselves as law firms. Most consumers would believe that using one of these law firms would protect them from the less-trustworthy debt relief agencies. In the heyday of for-profit debt settlement, large companies would hire lawyers as in-house counsel to help maintain the appearance of a law firm. The only role those lawyers serve is to help those companies appear legitimate, and to lead consumers to make the assumption that they might be receiving personal legal representation.
All these examples can be used in explaining the importance of knowing the difference in order to make the best financial decisions when reaching out for help with student loan debt.
Bruce McClary is Vice President of Public Relations & External Affairs with the National Foundation for Credit Counseling.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.
Educating Consumers: How To Spot a Student Loan Debt Relief Scam
By Bruce McClary