WSJ – Soaring Student Debt Opens Door to Relief Scams – Jean Eaglesham, Michael Tobin, and Coulter Jones 8/26/19
Student debt is soaring—it is now nearly $1.5 trillion—and defaults are at a record. That has been fertile ground for companies that promise to help stretched borrowers by navigating the maze of federal programs that can reduce or forgive debts for those who qualify, such as public-service workers or people on low incomes.
Some companies operate legally, although there is nothing they offer that borrowers can’t get free, regulators say. Other firms are outright scams, or make promises to borrowers that are illegal, regulators and consumer advocates warn.
A record $89.2 billion of student loans was in default at the end of June, New York Federal Reserve data show. Of the $1.48 trillion outstanding, 11%, or $160 billion, was at least 90 days behind on repayments—and the true rate is likely double that, because only half the loans are currently in repayment.
“We’ll do the work for you,” Financial Preparation Services says on its website. “No more drowning in a sea of confusing paperwork and processing!” Its fee: $1,195 for document preparation, then $40 a month for almost 20 years—a total of $10,555—according to a 2018 client agreement reviewed by the Journal.
Many of the FTC cases allege that the companies charged upfront fees for debt relief, which is illegal, or engaged in other prohibited practices such as masquerading as being government-approved, or faking information on applications for federal relief.
Red Flags for a Student Loan Debt-Relief Scam
The Federal Trade Commission says borrowers should beware of companies that:
- Charge upfront fees. It is illegal for companies to make you pay before they help you.
- Promise fast loan forgiveness. Scammers may pretend to offer an easy way to wipe out loans—it doesn’t exist.
- Pretend to have official endorsements, such as using Department of Education logos. The government doesn’t approve any debt relief companies: it advises if you have federal loans to go direct to https://studentaid.ed.gov/sa/
- Try to rush you into signing up. Companies may say you have to act fast to qualify for programs: Check them out before you commit to anything.
- Demands your student loan ID, or asks you to sign a power of attorney, to deal with the government on your behalf. You can lose control of your finances, and be cut off from information on what’s happening to your loans.