Introduction to Student Loan Scams

Student Loan Scams can be found all over the Internet.  Some talk of being able to get rid of your Federal student loans. Others talk of being able to settle that debt. The scams come in all different forms as well. Some are about the loans, some are about the payments and some are about the documents.

It is important that you read the websites of these companies before you contact them and that you ask lots of questions. You need to control the conversation, so they do not leave out the important decision-making factors which they often do.

Student Loan Scams – Loans

When researching a way to lower your Federal student loan payments, be wary of refinancing claims. If a servicer, finance company or debt consolidator discusses refinancing your loan there are several implications they never mention. This lack of information gives the appearance of a Student Loan scam as it leads you to make a decision that is not in your best interests.

Some of these include the fact that if you refinance a Federal student loan into a private loan, you lose the repayment options, solutions and forgiveness options that only Federal loans maintain. Those companies who say they can settle or get rid of your federal loan are also selling you short.  Federal loans are rarely settled for less than 90% of value and in many cases are not dismissible even under a bankruptcy. Additionally, any amount you do not pay is often taxable, which means you are shifting your debt from a loan to the IRS.

Student Loan Scams – Payments

When looking to lower your payments you need to watch for all types of Student Loan scams.  This group of scammers often implement loan, repayment and document preparation misguidance together.  They may discuss the 9 repayment options available to you for your Federal student loans without telling you all the negative aspects of the programs. Instead, they focus on one negative in order to have you discard that option in favor of their own program. The result of this action may include:

• Tax implications
• Loan protection issues
• Loan length implications

If you take your Federal loan and turn it into a private loan you lose certain protection. Never get into a program where you are asked to pay money to these companies who then make payments on your behalf. Also remember, not all loans are dismissible in bankruptcy.

Student Loan Scams – Documents

Call-In Documentation preparation is one scam which can be easily detected. Call In companies typically require you to either call or complete a form so they can call you. When you see this method, the first thing to do is to read their entire site. See if it tells you what the document preparation fees are going to cost. In most questionable and scam situations, they will not disclose the price to you. During the call, they will discuss your situation as a service to you for free.

However, they are not actually helping you, they are assessing how much they can charge you to prepare your documents.  They make claims indicating that scenario A has more documents necessary than scenario B so it will cost more. Then they tell you they will follow up and monitor the process, except, the process goes through you. They have no way to know what is going on with your process since you submit the forms and the responses to your submission comes back to you directly. The only exception is if they ask you to sign a document giving them power to represent you. Do NOT do this unless you work through a Student Loan Lawyer. The best document preparation sites charge a flat fee under $100 and empower you to Do-It-Yourself.