How to Spot and Avoid US Student Loan Scams

Student loans can be complicated, especially if you study in the US where there are so many options for financial aidand repayment terms. There are plenty of paid services which will help you find financial aid, but a lot of the information they offer is often available for free online.

Alongside these paid services, however, are companies trying to scam you. If it seems like a company is offering something that sounds a bit too good to be true, it might well be.

Here’s what you should look out for to spot some of the most common student loan scams:

How to spot the most common student loan scams

Almost every student takes some kind of student loan. For this reason, students are often victims of fraud and other scams. For many students, the world of student loan applications and repayments is an incredibly complicated one to navigate, but it’s easy to avoid getting scammed if you know what you’re looking out for.

Here are just a few of the most common student loan scams:

Advanced fee scam​

The advanced fee scam is where a fraudulent company promises a large sum of money to students in the form of a loan. They say that in order to access this loan, you have to pay an upfront fee. You may be told that this fee is refundable and that this is standard procedure for loans. In reality, it’s not standard procedure and you definitely won’t get this money refunded.  

This is one of the most common student loan scams, as the company is often quite believable, and the request doesn’t seem unreasonable. The company may even try to get you to make several more payments before you realize you’ve been scammed. 

If you haven’t heard of the company before, look them up. Make sure they have a legitimate street address, website and direct telephone line. Fraudulent companies are also keen for you to make the payment immediately, so make sure you look over documents available before entering into an agreement. 

Loan consolidation scam

If you study in the US, once you graduate you might decide to combine your student loans into one big loan, called a consolidation loan. There are lots of benefits to doing this, for example, it makes it easier to manage your loan and you might get access to longer repayment terms. Be aware, however, that there are plenty of firms trying to scam you.

These fraudulent firms often charge a consolidation fee, which they claim will cover the cost of processing and administration, but these costs actually do nothing.

These fraudulent firms often target private student loan holders, as federal student loan holders can consolidate their student loans for free at StudentLoans.gov.

Student loan debt elimination scam

Some fraudulent loan companies may promise to eliminate your student debt. Sadly, this is one of those cases where it sounds too good to be true. Your student debt won’t be cancelled unless you have a generally qualifying reason (such as your death or if the university closes). 

There is no such thing as fast loan forgiveness, although the federal government offers several student loan forgiveness programs. These student loan forgiveness programs often feature income-based repayments and you only receive the forgiveness after a certain amount of time (for example, after 40 years).

If in doubt, contact your student loan provider.

Lawsuit student loan scam

Here you will be referred to a law firm from a fraudulent student aid company. The company will claim that the law firm will be able to settle your student loan for much less than you owe.

The law firm will ask you to transfer over as much money as you can afford to them and say that they will negotiate with your lender to sort out the remaining money. The law firm will keep the money and you’ll go into default on your student loan. This will also destroy your credit score.

Be very wary if a student aid service suggests this, and never send any money to a firm unless you’re sure they’re the real deal.

Six things to do to avoid student aid scams

So, what can you do to avoid these scams? Although scams are never 100 percent avoidable, there are a few things you can do to minimize the risk of being subject to a student loan scam.

Find out which companies the US Department of Education works with

Don’t immediately trust a company which claims to have a relationship with the US Department of Education. Third party companies offering private loans don’t have any affiliation with the Department of Education.

However, if you have a federal student loan, there are private companies who handle the billing and other services, such as repayment plans, on behalf of the US Department of Education. Private collection agencies also help federal student loan borrowers, by telling them their options.

Look up your student loan servicer

Student loan servicers manage your student loan debt on behalf of your lender (which may be the US Education Department if you have a federal loan).

You can use your student loan provider to answer any questions about your loans, help you decide which repayment plan suits you and help you switch to a new plan at no cost.

It’s a good idea to find out who your student loan servicer is and what their contact details are. If you have more than one student loan, perhaps a mix of federal and private student loans, you may have multiple student loan servicers.

You can find your federal student loan adviser by visiting StudentAid.gov. If you receive an email and are unsure whether it really came from your student loan servicer, check the web portal or call your servicer to confirm.

Don’t pay to make changes to your student loans

As stated previously, your student loan servicer will help you change your student loan plan at no cost, so you really don’t have to pay anyone to help you with this. 

If you’re looking for more guidance about your student loan, the Federal Department of Education will provide this knowledge for free and will help you process applications for income-driven repayment, consolidation deferment and forbearance – all for free!

Don’t believe companies which say they can reduce or eliminate your student loan

There’s no shortcut to student loan forgiveness and these companies will just try to extract money from you without making changes to your student loan debt.

Protect your personal information

Your student loan servicer, government contracted private collection agencies, and the Department of Education, won’t contact you to ask personal information.

If you get asked for your bank account number, your credit card number, your date of birth, FSA ID number and password or your social security number, the company may be attempting identity theft.

If you think you might be being scammed, call the service provider directly to ask about any queries.

Change your password if it has been shared

If you have given out personal information to someone claiming to be a student loan servicer over the phone, you should change your Federal Student Aid (FSA) ID password immediately. You can change your password here.