As of mid-2022, about 43 million people, including 8.9 million age 50 and older, had outstanding federal student loans, with the average debt burden topping $37,600, according to data from the U.S. Department of Education’s Federal Student Aid office (FSA).
At the same time, the student debt landscape is undergoing big changes. On Aug. 24, President Joe Biden announced a plan to forgive up to $20,000 in student debt for millions of borrowers. For those who still have outstanding loans, federal repayments are set to resume Dec. 31 after a nearly three-year pandemic moratorium. Many have new payment arrangements amid a reshuffle of student loan servicers (companies contracted by the government to manage repayments).
Circumstances like these can breed confusion and financial anxiety, a combination that gets high marks from scammers. They barrage borrowers with robocalls, emails, texts and social media messages touting sketchy strategies to quickly reduce monthly payments or procure loan forgiveness.
Some of these schemes involve sham debt relief companies of the kind that also target people in arrears on mortgages, credit cards or medical bills. Other scammers pose as student loan servicers or representatives of the U.S. Department of Education.
The common thread is that they will solicit an upfront payment or request personal information, like your FSA account credentials or Social Security number, supposedly to secure your freedom from student debt.
Dodgy debt relief companies
There are legitimate companies and organizations that can help you navigate the complexities of the student loan system — for example, by sifting through myriad federal and state repayment and forgiveness programs to see if you qualify. Their tips and tools may save you time and money.
But remember that there’s nothing a debt relief company can do to reduce or restructure your student debt that you can’t do yourself, for free, by contacting your loan servicer or the Department of Education. And if a company charges in advance to tackle your debt, that’s a sure sign of a scam: It’s illegal for debt relief firms to collect payment from you before they get results.
Student debt scammers claim special skills to get you a more affordable repayment plan or “exclusive” access to loan consolidation or cancellation programs. They piggyback on the public interest and political debate around student loan policies, citing supposed “new laws” to benefit borrowers like you or pressuring you to act fast before an existing program is terminated.
If you do, the scammers might simply pocket your fee and vanish. But some continue the con and assume "management” of your loan, collecting your monthly payments but keeping most or all of the money instead of paying down your debt. One such operation proceeded in this fashion for years, siphoning more than $23 million from borrowers before it was shut down in 2020, according to the Federal Trade Commission (FTC).
Student loan foregiveness scams
Nearly 8 million borrowers may be eligible for a measure of automatic debt forgiveness under the Biden administration's new plan. Existing federal forgiveness programs can erase part or even all of outstanding student debt under certain circumstances or conditions — for example, if you go into public service work or suffer a total and permanent disability.
These programs have complicated rules and may require years of regular payments or steady employment in certain fields before you qualify to have your loan terms changed. Scammers, presenting themselves as debt relief pros, loan servicers or government agents, promise instant, easy access to forgiveness if you act fast and pony up a payment, or turn over sensitive data that can be used for identity theft.
The pandemic pause in student loan repayments fueled new variants of this scheme, with con artists promoting supposed “COVID-19 forgiveness.” Any such offer is a scam. As the FSA office states, “There is no coronavirus-related loan forgiveness for federal student loans.”
- You receive an unsolicited message from a debt relief company or student loan entity promising to quickly reduce your payments or get you loan forgiveness.
- You’re asked to make an upfront payment or pay recurring fees to get your debt reduced.
- You’re asked to provide your Social Security number or FSA ID (the username and password on your loan account). Federal agencies and loan servicers will not ask you for this information.
How to protect yourself from this scam
- Do visit the Department of Education's StudentAid.gov site for free information on getting help with federal student loans.
- Do contact your loan servicer to learn about and apply for repayment and forgiveness programs, at no cost.
- Do check out a debt relief firm before giving it information or signing any agreements. Ask your state consumer protection office about the company and use the Better Business Bureau’s directory to look up reviews and complaints.
- Do be skeptical of calls and emails claiming to be from or affiliated with the Department of Education. Scammers impersonate or feign ties with government agencies, sometimes appropriating official titles or logos to appear legitimate.
- Do log in to your FSA account and change your ID if you think it’s been compromised, and contact your loan servicer to make sure no unwanted actions were taken on your loans.
- Don’t share your FSA ID. Bad actors can use that information to log in to your student aid account, change your loan information and even divert your payments.
- Don’t pay a debt relief company before it’s done any work for you.
- Don’t give a company third-party authorization or power of attorney to talk to your loan servicer and act on your behalf. Scammers seek such permission to conceal from you that they aren’t paying your bills.
- Don’t be rushed. Scammers will tell you to act fast to avoid missing out on a new forgiveness program or one that’s being discontinued. Take your time and look up the programs yourself.
- Report suspected student loan scams to the FTC, the U.S. Consumer Financial Protection Bureau and your state’s attorney general. You can also submit a complaint to the Federal Student Aid office.
- The federal government’s FSA site has a wealth of information on managing and repaying student loans, including options for easing your debt burden, all available for free.
- The FTC publication "Coping With Debt" offers background information and advice on debt relief services, credit counseling and other tools to help you overcome financial liabilities.
Updated August 25, 2022