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What are the signs of student loan scams?

Even though a new party is in power in Washington, companies are still using the hook of the previous president whose administration introduced programs to reduce student loan burdens. By invoking the Obama name and the association of repayment plans based on income, they make debt relief promises that they cannot keep.

These companies take advantage of complex and confusing federal loan repayment and consolidation plans. They engage in exploitation through illegal activities that range from deceiving their customers about actual costs to guaranteeing protection from default or garnishment. Some go as far as falsely claiming an affiliation with the U.S. Department of Education.

Specific examples include:

  • Advertisements that hype “benevolent” companies named “College Education Services” and “Student Aid Institute” to gain immediate legitimacy. Upon any level of scrutiny, these fly-by-night operations fight to stay one step ahead of any authorities. They disappear through bankruptcy or name changes and start over.
  • So-called middlemen who claim to work as liaisons between the debtor and the student loan company. In reality, these companies are document processing services that perform unnecessary tasks. They charge fees for generating documents that any student can do free by going online.
  • Companies that demand upfront payments or monthly installments to lower interest rates. Their actual service is to place loans into temporary forbearance, effectively postponing the loans and delaying payments for a few months.

So-called student debt relief companies that advertise the non-existent “Obama student loan forgiveness plan” continue to play upon the stress that comes with delinquent student loans. Until they are stopped, they will continue to falsely raise debtors’ hopes for any type of change.

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