On December 7th, 2020, both the House and the Senate have approved new legislation intended to establish criminal penalties for those who knowingly access student loan information from the U.S. Department of Education (ED) information technology systems for “commercial advantage” or their own financial gain. Violators can be subject to fines, a prison stay of up to five years, or both.
The bill, which has been dubbed the Stop Student Debt Relief Scams Act, would also expand requirements for loan exit counseling for colleges and universities that participate in federal student aid programs.
This exit counseling intends to curb fraud even more by warning students about so-called student debt relief companies. The law would also require the Department of Education to prevent hackers and thieves from accessing their database for student aid, and to warn students if anything fishy is noticed with their accounts.
With the Covid-19 student loan forbearance set to end on January 31, 2021, it’s expected that we will see a rise in these companies trying to prey on scared borrowers.
Why You Should Be Vigilant About Student Loan Scams
It remains to be seen if the Stop Student Debt Relief Scams Act will become law, but even if it does, student borrowers should start keeping their eyes out for new (or old) student loan scams. While the worst offenders have been laying low since interest and payments were paused on federal student loans through January 31, 2021, we can expect the same phony student debt relief companies (and perhaps even some new ones) to be back in full force after the beginning of the year.
To avoid student loan scams, first things first. According to the U.S. Department of Education, the underlying theme is this: “You never have to pay for help with your federal financial aid or student loans.”
Unfortunately, way too many companies masquerade as debt relief firms who can offer some type of help for student borrowers. Often, these companies will try to charge you $1,000 or more for services you can get from the U.S. Department of Education for free, and they may even try to steal your personal information or your identity.
You can usually spot fraudulent companies easily since they tend to make wild claims, but it does help when you know what to look for. These companies might say you have to pay for their help now, or you’ll miss the opportunity altogether. Others might guarantee you’ll qualify for more financial aid, which is just plain sketchy since there’s no way a third-party company can do that.
Some companies may be more interested in obtaining your personal information instead of helping you out. For example, they might promise to erase some of your debt or help you qualify for more aid, but only if you give them your credit card number or bank account information.
With all this being said, you will absolutely know you’re dealing with a fraudulent company if any of the following happens:
- You’re asked to pay an upfront fee or monthly fees for assistance. It’s actually illegal for these companies to ask for upfront fees for debt relief help. If a company asks you to pay anything, that’s a huge red flag.
- The company you’re working with makes claims about having your loans forgiven. According to the U.S. Department of Education, “no one can promise immediate and total loan forgiveness or cancellation.” Not only that, but the bulk of government forgiveness programs require several years of qualifying payments and/or employment in an eligible public service position. If a company says they can work out a special deal, they’re not being honest.
- You’re asked to provide your FSA ID or password. Also be aware that the U.S. Department of Education will never ask for your FSA ID or your password. If a company has access to this information, they can use it for plenty of nefarious purposes, including making changes to your account.
- They want you to grant them power of attorney. This is a very obvious sign of fraud. If a company is asking for legal authorization to make decisions on your behalf, you should run.
- Their communications don’t look professional. If you receive printed information or an email from a student debt relief company and it is full of grammatical errors, that’s a good sign the company is not legitimate.
According to the Federal Communications Commission (FCC), you may also receive robocalls from people making claims about your loans and promising better student loan repayment plans. The reality is, you can only make changes to your federal student loans with your loan servicer and in conjunction with the U.S. Department of Education. If anyone from any company tells you otherwise, you should stop communicating with them right away.
The Right Way To Get Help With Your Student Loans
At the moment, all payments and interest are being waived on most federal student loans until January 31, 2021. This means that, if you have eligible federal student loans, you can continue skipping payments without having to worry about interest accruing or other consequences until February of next year. It’s also possible that this temporary forbearance for federal student loans could be extended beyond the end of January 2021, so make sure to check with this FSA page on coronavirus updates regularly.
Also, remember that you may be able to change some of your loan terms by reaching out to your loan servicer. As an example, you could switch from a standard ten-year repayment plan to an extended repayment plan that lets you secure a lower monthly payment. You could also see if you qualify for loan forgiveness programs targeted to specific professions, or service-based programs like Public Service Loan Forgiveness (PSLF).
Finally, you could explore the possibility of repaying your loans on an income-driven repayment plan. Whatever you do, don’t fall for the hype if you start receiving mail or calls from a company that says they can make your student loan debt problems disappear. They absolutely cannot help you in any way and they may actually plan to steal your assets or your identity, so don’t waste your time or your money.