The Consumer Financial Protection Bureau (CFPB) made a splash earlier this month by taking action against two student “debt relief” scam companies, banning one from the industry and suing another. While this isn’t the first time this year that these companies have come under fire for their predatory business practices, it is the largest action taken to date to prevent them from burying borrowers under massive debt.
In January 2014, New York was the first state to actually take action against these companies at the local level, creating the first “Student Protection Unit” in response to the growing number of for-profit companies offering to eliminate debtors’ student loans or lower their monthly payments. Now the CFPB has joined in at the federal level as well.
Claims against the companies include charging illegal advance fees, falsely promising lower payments, falsely promising debt relief and misleading debtors about the cost and terms of enrollment, ultimately tricking borrowers into paying up-front fees for federal loan benefits. The companies claimed to help borrowers manage and lower their debt, typically by helping them enroll in free government programs, like Income-Based Repayment and Pay As You Earn, yet investigations found the companies were completely misleading borrowers about their options… and charging them for it.
In recent months, companies that offer similar services began proactively reaching out to borrowers directly, falsely claiming exclusive limited-time offers to enroll in these programs. Unfortunately, the companies have cropped up because student loan servicers contracted by the Department of Education continue to provide substandard service, and the both the department and the servicers fail to reach out directly to borrowers about their repayment options. As a result, many of these scam companies are the only voice that student debtors hear from. Thankfully, the CFPB has made it clear that they won’t stand idly by as debtors face more and more challenges in repaying their debt, those with student debt:
Warning signs that a student loan debt relief company may be trying to rip you off:
Pressure to pay high up-front fees. It can be a sign of a scam when a debt relief company requires you to pay a fee up-front or tries to make you sign a contract on the spot. These companies may even make you give your credit card number online or over the phone before they explain how they’ll help you. Avoid companies that require payment before they actually do anything, especially if they try to get your credit card number or bank account information. Not only is free assistance available through your student loan servicer, many times taking payment for debt relief services before providing help is illegal.
Promises of immediate loan forgiveness or debt cancellation. Debt relief companies do not have the ability to negotiate with your creditors for a “special deal” under these federal student loan programs. Payment levels under income driven payment plans are set by federal law and, for most borrowers, loan forgiveness is only available through programs that require many years of qualifying payments.
Demands that you sign a “third party authorization.” You should be wary if a company asks you to sign a “third party authorization” or a “power of attorney.” These are written agreements giving them legal permission to talk directly to your student loan servicer and make decisions on your behalf. In some cases, they may even step in and ask you to pay them directly, promising to pay your servicer each month when your bill comes due.
Requests for your Federal Student Aid PIN. Be cautious about companies that ask for your Federal Student Aid PIN. Your PIN — the unique ID issued by the U.S. Department of Education to allow access to information about your federal student loans — is the equivalent of your signature on any documents related to your student loan. If you give that number away, you are giving a company the power to perform actions on your student loan on your behalf. Honest companies will work with you to come up with a plan and will never use your PIN to access your student loan information.
If you have feel you have been the victim of a student loan debt relief scam or if you’re facing issues with your student loan servicer, you can reach the CFPB at (855) 411-2372.