What to Know about Student Loan Debt Relief Scams

MEFA regularly highlights the work of some of our amazing higher education partner colleagues. I had the opportunity to interview Scott Lause, Assistant General Counsel at the Missouri Higher Education Loan Authority (MOHELA), to talk specifically about the rise of student loan debt relief scams, a topic on which he has some expertise. These scams can be harmful to student loan borrowers, and it's important to understand how they work and how to best avoid them.

Jonathan: We've been hearing a lot about debt relief scams recently. How did you start learning more about them?

Scott: MOHELA started seeing some strange complaints from borrowers. One example was third parties requesting information from borrowers that was either inaccurate, meaning the language they used was not correct, or requesting information that no companies should be asking for. We decided to start exploring more. What we found was MOHELA borrowers that had signed up for services through these debt relief companies. From speaking with borrowers, many did not realize what they had signed up for and certainly they were not aware that they could be a scam.

Jonathan: So how do these debt relief scams work? What do scammers (generally) do?

Scott: Most debt relief scammers call borrowers directly. The borrower gets a phone call, out of the blue, randomly offering student loan forgiveness. The scammers might use language like "hey you are eligible for this, but you need to sign up immediately."  They will use high pressure sales tactics, asking for a lot of borrower information (loan debt amount, SSN, user ID, passwords, etc.), and say the borrower needs to act now.

Jonathan: Why are companies doing this? What is their end goal?

Scott: The short answer is money and control over borrowers' accounts. A lot of these companies seem to be connected to each other, and the payment structure, between high initial upfront fees and monthly fees, can be quite lucrative. The goal is getting a lot of people to sign up and a lot of upfront money. Because of this, companies will trick borrowers to think some, or all, of their money is going towards their loan repayment when in reality the money is really reserved for processing fees.

Jonathan: Wow, that's awful. So how can borrowers protect themselves from these scammers?

Scott: They should never sign up for something unless they take some time to research it more. It is also incumbent upon borrowers to make sure they ask the right questions. What are the true servicers?  Why can't my student loan servicers not provide this? What makes you different? Additionally, it is important to read everything the debt relief scammers ask you to sign. Be vigilant about not giving out your student loan information. If someone is asking you for it, it's most likely not legitimate (unless you made the outreach yourself). Keep track of all communications. And know all your options. Nothing that these companies provide you is anything different than what your servicer can provide.

Jonathan: This is great information Scott. Where can folks get more information?

Scott: For federal student loan borrows, studentaid.gov is a great resource. They have a section dedicated to debt relief scams. In addition, many student loan servicers have information right on their site. At MOHELA, we have an entire section of our site with information about avoiding student loan scams. The FTC also has information about these companies and some things to be aware of. Finally, studentloanscam.com has lots of information about what to look for, tactics, etc.