Defunking the truth and lies of the student loan industry
Here’s why there’s so many student loan scams in the industry and how borrowers can protect themselves from falling victim…
The promises made by many student loan relief companies are tempting to countless graduates drowning in debt. As the pool of desperate borrowers grows, so do the predatory student loan scams. However, tread carefully and it is possible to find genuine help with the right company.
On one side you have legitimate student loan relief companies whose sincere intention is to help borrowers manage their burdensome debt. On the other end of the spectrum you have corrupt organizations preying on the vulnerable and financially strained borrowers who don’t know where else to turn.
Student debt relief companies exist because filling out the necessary paperwork, being knowledgeable of all your options and navigating the world of government loans can be complicated and time-consuming. Many of these student loan relief companies offer invaluable services and can assist graduates in getting their finances back on track. But not all have such honorable intentions.
Beware of the deceptive practices that pervade this industry in order to protect your financial well-being…
A road paved with promises:
- Promising to get you a lower repayment amount than anyone else can. The reality is that all the repayment options are available to you through the federal government and each company can only assist within the guidelines of those repayment plans. Your payment will be dependent on your income and family size and is not dependent on who is assisting you with your federal student loans.
- Promising immediate Student Loan Forgiveness. No one can guarantee this and there are no loan forgiveness programs that allow you to just stop making payments. All of them are tied into a repayment program, which need to be fully completed before forgiveness can be considered. You might qualify for a $0.00 payment, and at the end of your repayment term, you may see the remaining balance forgiven- but just because you’ve been enrolled into a repayment program which offers student loan forgiveness doesn’t mean the loan has been forgiven.
Another important thing to take note of is that a borrower will not be granted forgiveness at the end of the repayment term (usually 300 or 120 payments) if there are any missed or late payments, or defaulted loans during the repayment period. The borrower must make their established monthly payment ON-TIME, EVERY TIME, FOR THE WHOLE REPAYMENT TERM to receive forgiveness. In addition to this, they also must re-apply every single year for the correct forgiveness program in order to receive forgiveness.
(Pro Tip: We could go on for days talking about the ins and outs of student loan forgiveness, but it’s even easier to go download the free guide to find out how to qualify and what you must do in order to attain that forgiveness plan status. Click here to elarn more and to get the guide.
- Promising they have a way to get your loans cleared through bankruptcy. This is nearly impossible. Federal and student loans are unlike all other forms of debt and can only be processed through bankruptcy court with an “Adversary Proceeding”. This requires a lawyer and extensive time in front of a judge. And lots and lots of court costs.
- Promising a year of no payments for the first year after consolidating. Some debt relief agencies will offer this “special” benefit, when in reality, there’s nothing unique about it. What they’re doing is putting a borrower’s loans in general forbearance, after their consolidation is complete. You
Suspicious business strategies that should raise red flags:
- They are ambiguous and/or dishonest about their fees. This is a biggie. Many shady companies tell borrowers that the costs for their help will be going towards the principal of their loan balance, and a monthly payment made thereafter will be the borrower’s new low monthly payment. But in fact, this isn’t true. There is usually a one time fee for completing the document processing for the consolidation, as well as a monthly fee as high as $59 which comes as a “maintenance fee.”
The truth is, you can do all forms of student loan relief including a consolidation, lowering a monthly payment, deferments, forbearances, or a repayment program change all on your own for free through your loan servicer or the the Department of Education.
A trustworthy company will have this stated on their website but a dishonest company will try and hide this knowledge from you.
Let’s be clear here…
If you’re a real “go-getter” and know a great amount about your student loans, you can do this all on your own, without paying a single penny for anyone’s help.
But it’s important to understand that it is okay to want to pay an outside company to do these services for you. After all, it’s not exactly a walk in the park and borrowers have found that loan servicers aren’t always all that helpful at finding them the relief they want or need.
So if you do choose to receive outside help, be absolutely sure on what your money is being spent on. If the company or representative tells you that the one time processing fee is going towards your loan balance… It’s not. A typical consolidation takes about 60-90 days and this paid amount will be dispersed among the many working hands, that are part of that company, who are helping you with a service and making sure that your consolidation will be a successful one.
Be sure to also ask what the new monthly payment is. Sometimes the representative will include their own “fee” in the student loan payment, which is normally okay- you just have to be sure they let you know that a portion of that amount is going to the company. So ask them that. This “monthly maintenance” fee is for the updating of your loan account, providing valuable information and resources to consumers, and if needed, the reprocessing of your repayment option in the future.
- They are pushy and use high pressure sales tactics. Dishonest student loan debt relief representatives are often extremely pushy and in a rush to sell borrowers on consolidating their loans. They may make “limited time offers” on the new monthly student loan payment that they quote a borrower to try and rush them into making an impulsive financial decision. Remember, your monthly payment is determined by your family size and income; unless that changes your payment will never change.
An unethical company will use your financial distress with a student loan payment as leverage to consolidate your loans, but an ethical, legit company will try and help you even with their one time processing fee if need be to get you into a better financial spot.
Keep in mind, the customer service agents at these unethical companies are often well-trained sales representatives and have their bottom line, not a borrower’s financial benefit, in mind. If the representative does not have your best financial interest at heart, they are not who you want to be speaking with.
You need to find a company and a representative you can trust and who won’t pressure you into a consolidation if it’s not going to benefit you- because no, a consolidation is NOT for every borrower (see red flag bullet #3). Be sure the company you choose and the company’s representative working with you is patient enough to help you understand not only what is going on with your loans right now, but also what will happen with your loans in the future for each individual relief scenario.
- They don’t educate borrowers on their options. Unethical debt relief agency reps rarely take the time to educate a borrower on what consolidation really means, on the different types of consolidation and whether it’s really right for them at this time. Consolidation has a number of benefits for the right candidate, but also a number of significant drawbacks for the wrong candidates.
This goes hand in hand with high pressure sales environments. An unethical representative won’t have the patience or waste their own precious time on a borrower who asks lots of questions about the consolidation process and options. To them, you as a borrower, are just another sales commission check. That’s why you want to educate yourself on the basics of a consolidation and how it will affect you.
A good, ethical company and rep will help answer your questions and even direct you to the resources outside of that company where you can find the answers on your own. Trustworthy companies know that everyone gets in a financial bind every once in awhile, and that you’re not just another “sale,” but a real human being who’s just asking for help with their current financial bind with your student loans.
- They use predatory marketing and advertising techniques such as “Obama Student Loan Forgiveness.” This is also a huge one. This industry is booming and companies offering student loan help are sprouting up everywhere. Unethical companies who are just trying to make a quick dollar off of you, often use terms like this in their advertising in order to overcome the high barrier to entry. In other words, unethical companies will use President Obama’s name as a way to lure in borrowers and gain their trust quickly.
This one really ruffles the feathers of our marketing department here because they know how predatory this phrase, in particular, is. An ethical company will never use terms like this. It is wrong, fraudulent, and unfortunately a common practice in this industry. A company that really wants to help borrowers will aim to educate borrowers, not “sell” them by using “Obama Student Loan Forgiveness”.
There is no such thing as “obama student loan forgiveness.”
Obama did not come up with these programs and he is not part of any third party company offering student loan help to borrowers. If a company uses predatory tactics like these, it’s a quick sign that they won’t hesitate to use other predatory sales tactics on you and you should avoid them.
So what can you do to protect yourself?
In addition to the advice we’ve given you throughout this article:
- Make sure the company’s work is guaranteed. If they did not properly qualify you for the program and you are not able to get any relief, is the service fee refunded in full? If it’s not, find one that is.
- Make sure that you have the right to cancel at any time.
- Double check logos, websites and company names. Unreliable companies will copy logos and websites as closely as possible in order to convince people that they are the loan holder without actually breaking the law and stating so. Know your loan holder institution, the person managing your loan and the status of your loan accounts. Here’s an entire list of loan holders and contact numbers. *Note that if your loans are with Sallie Mae, your loan holder is Navient.
- Does the company disclose to you they are a private company not affiliated with the Department of Education? No “student loan help” company is associated with the government. Only loan servicers are backed by the D.O.E
Hopefully by providing this information, it will help the legit and ethical student loan help companies emerge beyond the muck and mire of the many scams that unfortunately take place in the student loan industry.
Thoughts, feelings, concerns, or questions about any of this? Let’s talk it out! Leave us a message in the comments section below or give us a shout at 877.433.7501.
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