I was recently interviewed by MarketWatch about the rise in student loan “relief” and “assistance” companies that purport to help student borrowers manage their debts, but often turn out to be predatory.
The problem, as the article points out, is that the rapid increase in student debt burdens, combined with the dearth of resources to assist borrowers, has resulted in an explosion of various companies promising (sometimes falsely) to help student loan borrowers manage, or even eliminate, their debts.
Many of these operations have recently gotten into big trouble because of their predatory nature. State attorneys general have been filing suit against some of the companies that have been essentially functioning as high-priced student loan document processing mills, blindly performing routine tasks such as federal loan consolidation and repayment plan selection, without providing any relevant counseling or competent advice, and often messing up. Other companies, such as GL Advisor, have been cited for poor customer service and actively defrauding their clients and investors. Still other companies are simply scammers: shell corporations set up to take as much money from student loan borrowers as possible, while providing minimum (if any) real services.
All that said, there are also legitimate people out there providing real, valuable assistance to borrowers.
So how can you tell the difference between a student loan assistance firm that may be legitimate, and one that may be predatory? Here are a few things to look for:
Did the firm market to you directly, or did you find them yourself? Ethical rules often restrict how certain professionals (such as attorneys, accountants, and financial planners) can advertise their services. Non-professionals (who tend to be the ones engaging in predatory student loan practices) have no such restrictions and thus advertise their services directly to borrowers.
Correspondence That Looks “Official”
Did you receive a letter that looks like it’s from a government agency? Does the company’s website sorta-kinda look like an “official” website? Is it unclear or ambiguous? These are giant red flags, and many student loan “relief” firms are getting in trouble for deceiving borrowers into thinking that they are somehow connected to, or acting on behalf of, the federal government. Don’t ignore communications from your loan servicer or the U.S. Department of Education, but scrutinize all correspondence carefully. You can always contact your loan servicer directly to confirm whether a letter came from them.
Does written or verbal communications from the company seem to be pressuring you into taking action? Phrases such as “limited time offer,” “act now before it’s too late,” and other pressure-type language should inspire caution. Again, you don’t want to ignore legitimate communications from your loan servicers, so if you’re unsure about what’s going on, contact your loan servicers to get more information. But federal student loan management programs (such as Direct loan consolidation and Income-Based Repayment) do not have arbitrary deadlines for signing up. Don’t fall for pressure tactics.
References to “Obama” or “The President”
Be very wary of language that references “Obama’s new repayment program” or “The President’s new loan forgiveness program.” President Obama has proposed an expansion of an existing income-driven repayment program, but that expansion has not yet gone into effect, and the regulations governing the program are still being written. Communications from your legitimate loan servicers are unlikely to include any direct references to President Obama or the proposed program expansion, so this should be a warning sign.
Promises of Loan Forgiveness or Reduced Payments
Outside of some truly exceptional circumstances, you are not going to get your loans forgiven overnight. There are legitimate loan forgiveness programs available for certain federal student loan borrowers, but the eligibility requirements are often complex, and they require years of enrollment before any actual loan forgiveness occurs. Any communication from a company that is promising you loan forgiveness thus should be viewed with suspicion. Similarly, promises of reducing your monthly payments should also be viewed skeptically. There are plenty of federal student loan repayment options, including several income-driven plans, but whether your monthly payment can be reduced depends on your circumstances. No one can legitimately promise you that your payments can be reduced without first reviewing your circumstances in detail.
No Named Employees or Owners
Look carefully at the letter you received, as well as the company’s website. Does it just provide a generic “800” phone number, and maybe some stock photos of happy, smiling people chatting on the phone or wearing graduation caps? Red flags! Failing to name the specific person or people running the firm or company, and failing to describe their relevant credentials and background, robs you of the ability to check up on them and see if they are truly qualified to provide assistance. This is especially true of the student loan “paper processing mills” that have recently been getting in trouble.
No Licensed Professional or Relevant Credentials
This may be the biggest one to watch for. Certain professionals, such as attorneys, Certified Public Accountants (CPAs), and Certified Financial Planners (CFPs), must go through rigorous education, training, and testing in order to provide services to clients. These professions are also licensed, meaning that there is a regulatory board that issues professional licenses and monitors compliance with ethical regulations. Licensed professionals must meet ongoing requirements (such as ethics and continuing education) in order to maintain their licenses, and if something goes wrong, there’s oversight and accountability to the regulatory body. Not only does this provide a potential client with confidence that the professional is legitimate, but it also holds the professional to a higher standard of conduct, given the oversight and licensure regulations. Watch out for any purported student loan relief or assistance services not offered by a qualified, licensed professional with real credentials.