Unfortunately, when you face a complicated problem in today’s world, the snake oil salesmen are never far behind - offering mysterious and always pricey cures for what ails ye:
If you’re overweight or depressed, the vitamin salesman will sell you mystical formulations that are little more than “expensive urine.”
If you’re in trouble with the IRS, the tax settlement scam artist will promise to cut your tax bill in half… for the low, low price of your entire life savings.
If you need more online business, there are millions of SEO and marketing specialists who will drive tons of traffic to your site (and get it sandboxed by Google as well).
In the student loan world, the equivalent scammers are the people who call you at all hours promising to get rid of your debt. They are usually ex-mortgage professionals, debt collection or debt settlement people looking for another income stream. Sometimes, they’re just con artists who see an easy mark.
44 million people have student loan debt in this country, and fewer than 10% take advantage of the government programs to lower their payments and get set up for forgiveness. So disreputable people see a complicated system that most people don’t want to learn… and a huge pile of money for the taking.
What’s sad is that so many good people need help. They are crying out for honest solutions. But these greedy scam artists would rather hurt them more than make money fairly by providing value and helping them deal with their debt effectively. They overpromise and under deliver… if they do anything at all for their clients.
Here’s the reality. Most scam companies see this industry as a short-term opportunity to get as much money as they possibly can from any unsuspecting sap foolish enough to give it to them. But the tragedy is that playing by the rules is not only morally superior—it’s also a good business strategy! This industry is not going anywhere. The student loan problem is only growing, and we need real leaders—who can and should be paid handsomely to light the way.
Unfortunately, until Congress (or other powers that be) decides to legitimise my profession and license those who help with student loan debt, we are pretty much stuck with these scammers.
So how do you avoid being scammed? This article can help. It will teach you how to distinguish who’s there to help you and who couldn’t care less about helping you. You’ll learn to discriminate between the shysters and the good guys. And you’ll get to know the most common pitfalls that ensnare so many good people.
1) Impersonating the Government
This is the most common and most dangerous scam artist trick of all. There are two separate ways this scam is practiced.
The first way is you get a letter in the mail that looks very official, like it’s directly from the Department of Education. It might even have their seal of the tree in the upper left-hand corner of the mailer. It also might be worded just like any other official document that you ever get from the government. Telling you to Call this number to pay your student loans. Or to lower your payment. I have even seen some of these that are printed on pink paper saying Final notice, call immediately! Your loans are about to fall into default! These are all clever tricks designed for you to pick up the phone and call one of these scam companies. When they answer, they’ll even sound like a government worker—bored, slightly grumpy, overworked, underpaid, a little frustrated, and monotone. All a clever ruse designed to get your money.
Some of these companies will even say they are affiliated with Department of Education itself, but that is a complete lie. The Department of Education does not employ ANY company for outreach to inform borrowers about their rights or the new programs available. Only the servicing companies who handle your loans are “intended” to do that. That is why, for instance, everyone at my company says very boldly and proudly that we are in no way affiliated with the Department of Education or its subsidiaries. But these scam artists have designed this trap to get around trust building with potential clients. If you believe that you are calling the Department of Education, you could freely hand over your Social Security Number, your birthday, your address, your phone number, your email and your credit card number. This happens every day.
The second scam involves phone calls. The introduction when you pick up (or get the voicemail) will sound like this “Yes, this is Barbara Washington. I’m calling in reference to your federal student loan. I need to discuss your repayment options with you as well as a few new changes that have taken place. Be sure to give me a call at 866-277-5599 with your reference number 02025. Thank you.”
These people have taken a lot of time and energy to sound just like your servicing company, but they are not. I’ve had clients call me and say, “Hey why is my servicing company calling me about the student loans?” Then after hearing the message, I know it’s a scam artist. Because it is extremely rare for a servicer to leave a voicemail. The federal servicing companies first like to communicate via email, second by mail, and finally by phone. The servicers’ systems are built on simple efficiency, because they handle millions of clients. Email and mail can be automatically generated when something is triggered within their system. But a phone call takes real human cognitive thought, which costs money and time. Plus, their systems are so designed that you can’t call and get back to any specific representative that might have called you. They don’t use extensions. So that is why they don’t leave voicemails.
How to Beat It
1) Know your servicer. The Department of Education subcontracts all its money handling to outside servicing companies. The big four are: Navient, Great Lakes, Nelnet, and Fed Loan Servicing. The lesser-known are: ACS, AES, MOHELA, and Ed financial. These are the only companies that are ever going to call you about your federal student loans, so you need to know who they are. The best way to do that is to create an FSA ID (Google FSA ID) and go to the NSLDS site. Under financial aid review in the NSLDS, you will find all your loan data, including servicers, when you click on each individual loan. You can also go to studentaid.ed.gov, and they will show it similarly.
So if anyone who is not your loan servicer calls to talk to you about your federal student loan, beware! You are dealing with a scam artist. The Department of Education will never call you. Only your servicers will call—and they’ll only call if they need anything, which is rare. There is no outreach to try to inform you about income-driven repayment and forgiveness by the federal government.
2) Know how default works. The Department of Education will never send you any mail—unless for some reason you’ve fallen into default. So if you know you’ve been paying your student loans, and if you know you’re not behind, then you will never get anything from the Department of Education. Everything is handled by your servicing company.
If you suspect that you are in default, then you can go to the NSLDS site to confirm. But you still will never get a phone call from the Department of Education. You can also call the default resolution group, which is a department within the Department of Education, to know for sure if you indeed have a defaulted student loan. That phone number is 1-800-621-3115. If you are in fact in default, you might get phone calls from a debt collector attempting to collect on the debt. If that is the case, when they call, they must by law inform you that they are in fact a debt collector. Again, you can verify that they are the debt collector contracted on behalf of the Department of Education to collect on your defaulted student loan by calling the default resolution group.
2) The Lawsuit Scam and/or School Closure Scam
These scams are relatively new. They play off the common hatred we all have for the student loan servicing companies and shoddy schools. Most notably Navient—as of today, the most hated financial company in all of the United States. They’re loathed not just in the world of student loans but also throughout the finance sector. Or the scam might play off a known, defunct terrible school, like ITT Tech or Marinello College.
The Lawsuit Scam goes like this. You get an email, a mailer, or a call that says:
“We’d like to add you to the Navient class action lawsuit. You might have heard that the Consumer Financial Protection Bureau is currently suing Navient, and you can be a part of that. Add your name to this lawsuit, and you might possibly see a settlement or even your student loans completely wiped out.”
Or something to that effect.
Relatedly, the School Closure Scam goes like this. You’ll get an email, mailer, or call that says: “I am reaching out to let you know that the Department of Education (DOE) has added your school to a list of schools that file a "Cause of Action" claim. This is a Discharge of all Federal Student Loan Debt for students who feel misled or defrauded when it comes to their school experience.”
Boy, I’d love it if either of these were true. But the truth is that while the Consumer Financial Protection Bureau (as well as some other various states and local entities) are indeed suing Navient—for gross misrepresentation of consumer rights on repayment options—no matter what fine Navient is eventually forced to pay, that money will never trickle down to you. At the end of 2015 and the beginning of 2017, the Consumer Financial Protection Bureau sued them twice. Navient was forced to pay 50-60 million each time, but the money didn’t go back to the debtors who were harmed. So, these are simple ploys to get you to pick up the phone and call and hand out your information. They want to sell you a lower payment in the form of income driven repayment or just simply get your social and information.
Now, there is student loan debt forgiveness for school closure—if the closure happened while you were in the school or shortly after leaving, or if you truly feel your school defrauded you. Both kinds of forgiveness are extremely hard to get (albeit not impossible).
How to Beat It
Simple. Avoid anyone or anything requesting to add your name to a student loan lawsuit, no matter how good it sounds. The most recent company I found doing this is one called Student Service Center. Avoid them!
If you feel your school has defrauded you, or if you would like to apply for school closure forgiveness, call the Department of Education directly, and work with them. Call 1-800-872-5372.
3) They Promise Everyone Can Get A $0.00 Payment
There is a very well-known and rather large company that just got shut down for doing this. They would advertise on their site—and in all their marketing—that they can lower everyone’s payments and get everyone $0-dollar payments toward their student loans. What they are actually doing is just marking everybody unemployed or no income on the government forms, so that they don’t have to go through the sometimes-difficult step of verifying income.
This happened to a client of mine. She was very happy with the $0-dollar payment that they got her but was absolutely horrified when I told her how it came about. They lied on her government documents and committed fraud in her name. While plenty of people do qualify for $0-dollar monthly payments (who don’t know they do), you want to get to this solution honestly.
This scam is kind of funny to me. Maybe it’s just that I’ve been in the industry too long, so I’m jaded. I say that because about half the people I talk to seem to put up resistance—they think what I’m doing sounds too good to be true. After all, income-driven repayment and debt forgiveness don’t really exist anywhere else in the world of finance. So superficially, they do sound too good to be true. I totally understand that. However, these programs do exist. That being said, to say that you can get everyone a $0-dollar payment is taking things a bridge too far, and then some. It means that you literally need to lie on every government document that ever comes across your desk. Not a great long-term business plan.
While I’m happy this fraudulent company got shut down, I know that there are hundreds of others out there doing the exact same thing. It’s an easy pitch: promise someone who’s currently paying $500 a month (e.g.) to lower their payment to zero—without using forbearance or deferment—and if the pitch is believable, you’re in the money. $0-dollar payments with no catch are easy to sell, last I checked. But for me, I would never put myself my company—and especially not my clients—in jeopardy by committing financial fraud.
How to Beat It
Go to this repayment estimator—the official calculator of the Department of Education. It will show you what your new repayment plan’s monthly payment will be, once you input your adjusted gross income and family size. Now it is possible that you may indeed qualify for a $0-dollar payment, assuming you make well below the median income for our nation. But like I said, you want to get to this conclusion the right way.
In addition, avoid any company that doesn’t ask for your income documentation if you are indeed working and making income.
4) They’ll Pay the Lender on Your Behalf
If you want to pretty much ensure that your student loans wind up in default, then this is the scam for you.
The scam works like this. The average person doesn’t know that income-driven repayment even exists—or how to get into it—let alone what their new payment could be using the new repayment programs. Plus, they’ve never heard of or seen the repayment estimator that we discussed in the previous How to Beat It. So, the scam artist will simply mark up what your payments are going to be and keep the difference. For example, let’s say you’re currently paying $500 a month, and your new payment under the REPAYE plan would be $50 a month. The con artist will then tell you your new payments going to be $150 a month, and they will take on the responsibility of paying your lender. Then they pocket the extra hundred dollars a month, because if you saw that your bill was only going to be $50 a month from your loan servicer, you would catch on. Sadly, at least half the time, they don’t even pay the lender, and the victim falls into default.
I’ve seen this sickening scam more times than I can count, and I’ve had to get numerous victims out of default. When people sign up to work with us, we boldly and plainly state that you will still be paying your student loan payment to your loan servicer and that it is your responsibility to do so. I make this statement not just to differentiate my business from scam companies but also to empower and educate people. For instance, what if a client wants to stop working with us? Or what if something happens to our company, heaven forbid? I want my clients to know exactly where to make their payments and what to do.
How to Beat It
Pretty simple. If you are shopping student loan companies—looking for someone to help you with your student loans—avoid any company that says it’s going to pay your student loans on your behalf. Work with someone who does not take on the responsibility of making your payment each month to your federal servicer.
5) A Low Monthly Fee for the Rest of Your Life
This is another back-end scam. It works like this. A disreputable company gives you a contract that’s so long and thick with fine print, it puts old school stereo instructions to shame. It does this on purpose. The company doesn’t want you to read the contract or examine the details. Why? Well, these contracts basically absolve the company from doing much of anything for you. On top of that, the contract makes it very difficult for you to terminate the agreement or contract. They try to make it so you can’t get out of the contract. Also, there is no term of the contract, meaning it will go on indefinitely, forever. This way, they can collect monthly fees until you die. For some reason, the industry standard is $39 a month. I have no idea how they came up with that number, but that’s what it is. So you essentially sign up, pay some upfront fee for services and get $39 a month forever.
Their business model is similar to a gym’s. You pay them every month for them to do absolutely nothing. After they’ve established your new payment plan and gotten you into a forgiveness plan—if they even do all that!—then they just sit back and collect their $39 a month forever.
While I have nothing intrinsically against subscription business models, I don’t understand how this model helps the client. Charging a fee for your services -the time, energy, and effort involved- I completely understand. If you provide a valuable service, you should be compensated for your time and expertise. However, charging someone indefinitely is ridiculous. It’s just bad business! I want my clients to feel that I have their back at any time, anywhere with any student loan related problem. But I don’t see the need to charge someone every single month until the end of eternity to do that.
Think about tax professionals (our model is somewhat similar). You pay the professional at tax season to prepare your taxes. You don’t pay them a monthly fee forever to help you with your taxes at tax time. This is just an outright scam.
How to Beat It
When shopping for a student loan company to help, ask them two basic questions:
1) How long is the term of the contract? (Every contract has a time limit.)
2) Is the fee for your services a onetime fee, or is it continuous?
Never sign a contract that doesn’t have an end date or term limits -in any industry- and never pay a monthly premium for these services.
Now, again, I do charge a fee. I even have a payment plan available to break down that fee into monthly payments. But there’s always an end date. There’s always a goal or a total that we’re trying to reach. And of course, once we reach that total, the fees stop.
I think this is simply a sign of our times. Everything from our cell phone plans to our cars to our houses seems to be on an indefinite monthly payment plan. These student loan scam companies just want to add onto that burden and disappear another $39 a month from your too-taxed bank account.
6) The Hero Scam - Telling You to Refinance Federal into Private
This one is possibly the sneakiest one of all. It can require a true industry expert like myself to even see it. It goes unnoticed, because it places all responsibility on the consumer or debtor to know their rights. In some ways, it’s like a fractal reflection of the student loan industry as a whole.
This scam I call The Hero Scam, because it involves a gentleman out there calling himself a “hero” when in fact he’s scamming people. He has woven an intricate web -using sophisticated marketing tactics- to catch his victims.
The scam works like this. Articles, videos, fancy websites, and radio shows all attract you to his website. There’s nothing wrong with these marketing tactics, per se. I use them myself. But here’s where it gets interesting. Once you go to the site, you’re greeted by a massive wall of information -all confusing and laid out terribly- designed to make you believe he is the expert and he’s there to help you. The main goal of this website is to get you to click on one of the various private lender refinance buttons. The site is a funnel directing you to refinance your student loans.
You might say: “Well, Larry, that’s not such a terrible thing. What’s the big deal?” The big deal is that turning a federal student loan into a private student loan is the worst possible thing you can do in the student loan world. Because there are so many amazing programs that come with federal loans—for instance: forgiveness, income-driven repayment, deferment and forbearance—that turning federal loans into private loans will shackle you to your debt. The switch will make your loan so much more difficult to pay off and so much more difficult to work with. Private student loans are, to be blunt, just a pain in the ass. Without getting too much into the detail, you just have to trust me that this is a very bad thing.
So anyway, this “hero” gets referral fees for the amount of traffic he drives to the private student loan lenders. He is simply an affiliate marketer for companies like SOFI, Credible, Lendkey, Common Bond, and so forth. Now I’m not bad-mouthing private student loan lenders. Not at all. I use them to help people who have private student loan debt to refinance. But because the average American doesn’t know much about the student loan industry, they compare student debt to every other type of debt. In that, everybody thinks the lowest interest rate is the way to go. That couldn’t be further from the truth when it comes to student loans. The interest rate doesn’t matter nearly as much as the flexibility and benefits of the federal system. This scam takes advantage of the average consumer’s lack of knowledge—like all scams do, I guess—and puts the borrower in a much worse position. All for the purpose of making some affiliate marketing fees.
How to Beat It
Never ever, ever under any circumstances whatsoever refinance and turn a federal student loan into a private student loan. This is the absolute worst thing you could ever do to your federal student loans. (On the flipside, if you have private student loans, and you want to refinance your private student loans, then by all means, look at all the lenders. See if you can do better than what you currently have.)
If you take nothing else away from this article, remember this: never turn a federal student loan into a private student loan, for any reason!
To Wrap Up: Why Isn’t Anybody Doing Anything About These Scam Artists?
As you’ve been reading this article, you’ve probably been asking yourself: “Why doesn’t someone do something about these con artist companies? Why doesn’t the Department of Education or the FTC or the CFPB crack down on these people and save us from the scammers?”
Short answer: they are working on shutting scam companies. Scams One, Two, Three and Four are actually grounds for federal indictment and prison time. But unfortunately, the government just doesn’t have the time, resources, or backing to make this a priority. So just like every other scam out there—from the used-car salesman to the pesticides in our food—we’re on our own. We’re just going to have to educate ourselves and protect each other.
So please help me in spreading the word. Spread this article around. If you truly need help with your student loans, there are honest people out there like me and my team and a handful of other companies who have integrity and who want to make a difference. We always give free consultations, free advice and free planning. Only when people choose us to do the heavy lifting do we charge a fee.
Benjamin Disraeli famously warned that “Nine-tenths of the existing books are nonsense and the clever books are the refutation of that nonsense.” I’d like to extrapolate and say that nine-tenths of the existing information on student loan solutions online is nonsense. I wrote this article to serve as a refutation of some of that nonsense. Hope it helps you and others out there. Good luck, and God bless!