Scam of the Month: Student Loan Fraud Rising Again?
Student loan scams are probably as old as…well…student loans themselves. It's easy to imagine landing a terrific job and earning a lot while you're in college borrowing the money, but the reality is often different. Then a pandemic comes along, adding a new layer of challenges during a time of massive unemployment. Unfortunately, our second year of the pandemic could trigger a different round of new student loan fraud.
Today's student loan holders have extra factors to juggle while they find ways to pay back those debts, but many haven’t given those loans a thought in over a year. They should do it now.
In March 2020, college students and recent grads—some still looking for their first job—were granted a reprieve on student loan debt. As the pandemic ramped up, the federal government hit the brakes on both monthly payments and interest charges. However, this pause is scheduled to end on September 30th unless President Biden extends the hold. If that extension does not occur, students should be more vigilant than ever. Scammers are already planning for one more grab at millions in cash and designing frauds that could monetize a new, confusing situation.
Numbers Up and Up
Student loan scams started to soar before the Coronavirus hit. Between 2018 and 2019, complaints involving federal loans jumped 188%, according to the 2019 Consumer Sentinel Network (CSN) report. Gripes about non-fed loans also rose. The CSN received an even larger number of complaints in 2020—adding another 88% jump to the staggering 2019 figures.
The pandemic probably contributed to the lesser rise in student loan claims, but even that 88% year-over-year increase is grounds for concern. Imagine what con artists can do once the federal government starts expecting loan payments again.
Spot that Scam
Could you spot a student loan scam? It may be more complex than you realize. For example, companies often claim connections they don't possess; they even claim ties to the U.S. Dept. of Education.
In 2017, the Federal Trade Commission and numerous stage agencies conducted Operation Game of Loans, a crackdown on student loan scams. Dozens of those complaints are now reaching the settlement phase; they provide a clearer picture of how these student loan scammers operate.
The Federal Trade Commission (FTC) recently settled its Operation Game of Loans complaint against Student Debt Relief Group, in which the firm agreed to a $1.7 million repayment. The case highlights all the things that can and did go wrong.
FTC officials said the company allegedly "tricked people into thinking the company was affiliated with the Department of Education, charged consumers illegal upfront fees, and collected monthly fees they falsely claimed would be credited toward consumers' student loans."
The reality was different; operators pocketed loan payments and changed the firm's name when students complained. As a result, students lost an estimated $7.3 million, and while partial refunds are on the way, the damage to credit scores and wallets will take longer to repair.
A second company dubbed Student Advocates Team (SAT) also settled significant fraud charges this spring following an FTC investigation. In this case, desperate students paid over $24 million looking for relief.
SAT allegedly charged illegal upfront fees—arranging high-interest loans to cover those fees. The operation also falsely promised that students' debt loads would decrease.
In both 2021 settlements, the companies and their leaders agreed to abandon the debt relief field and not launch such plans in the future. But, while these and other cases filed by the FTC have taken a big bite out of student loan fraud, complaints have continued to rise--a lot.
Relief Could Be Free
If you get a cold call from someone offering you a consolidation loan, stop and ask yourself how this individual knew you had a student loan. Were they just making random cold calls, or did they know your name? If a con artist knows your date of birth, they can calculate the odds you have loans. However, even folks over 60 report receiving these calls.
There are free student loan relief options to consider before making a move that might increase your total payment over time or cost you something but accomplish nothing. The time to investigate is before you end up in default, not after that occurs.
If your career path might make you eligible for Public Service Loan Forgiveness, a consolidation loan will cancel that option. Do some research first. Your choices will vary from those of other students depending on your debt total and other factors, and many solutions won't cost you anything but time.
If you get scammed out of some money, act fast. The sooner you report the fraud--to a credit card company, bank or other financial entity--the more likely you can claw back some or all of your cash. The FTC offers guidance on fighting scammers for a refund, but in all cases, the clock is ticking, so proceed rapidly.
Never disclose your Federal Student Aid ID number. It offers far too much access to your financial files. And never pay an up-front fee. It's a huge red flag that reads, "Scam in progress." Instead, start at studentaid.gov and learn about free assistance first.
Debt relief and credit repair schemes also flourish in the auto lending industry and other fields where monthly payments can run high. You can utilize rules for spotting one variety of scams to detect scams in another area.
At IDShield, we track your contact and identifying data to alert you when it ends up where it shouldn't be. Knowledge like this can limit data scammers collect about you. It's a valuable way to reduce your risks and the nuisance calls.
Our family plan covers your former students up to age 26. It's valuable protection as they learn all they should about dodging scams and spotting the miscreants who run them.
IDShield is a product of Pre-Paid Legal Services, Inc. d/b/a LegalShield (“LegalShield”). LegalShield provides access to identity theft protection and restoration services. For complete terms, coverage, and conditions, please see an identity theft plan. All Licensed Private Investigators are licensed in the state of Oklahoma. This is meant to provide general information and is not intended to provide legal advice, render an opinion, or provide any specific recommendations.