How to Spot & Avoid Student Loan Scams
5 min

How to Spot & Avoid Student Loan Scams

5 min
Uploaded on
Mar 21, 2023
Last updated on
May 11, 2023
Uploaded on
Mar 21, 2023
Last updated on
May 11, 2023
How to spot and avoid scams
Scam Busters

There are thousands of students all over the world that have utilised student loans to get a top-notch education. Student loans can seem pretty scary and intense, and the process doesn't make it any easier. As a lot of students don't really get any guidance on this topic, they might fall prey to some of the student loan scams that are floating around. This blog hope to make sure you do not fall for those by helping you spot and avoid student loan scams. Here is our guide to federal student loan forgiveness and discharge for help.

What are Student Loan Scams?

With so many students taking student loans every year to help themselves financially, there are a lot of scammers that try to take advantage of them and scam them by offering services that they don’t fulfil or that they don't know how to fulfil. There are always warnings being issued to warn students about these student loan frauds. Scammers promise to make it easy and quick for you to get a loan, and reduce or forgive your loan debts. These promises are usually fake and are made to steal your money or personal information. Scammers may offer to help you with your student loans, but they charge very high fees, usually for services that you can get for free from the government. These scams can cost you a lot of money and make your debt problems worse. If you need help here is how to get a student loan. 

types of student loan scams

Types of Student Loan Scams

There are a number of types of student loan scams that students can fall prey to and should look out for. From Loan Consolidation Scams to such Bad Service that it feels like a Scam, here is a list of the 5 most common student loan frauds or scams you will come across.

1. Loan Consolidation Scam

This is one of the most popular student loan scams that happen. After graduation, a lot of students might what to consolidate their loans, but here, some companies might try to charge consolidation fees which doesnt actually do anything to help you. Processing fees, consolidation fees or administrative fees are what they can be called. In reality, there is no fee at all for federal student loans, and loan debt consolidation can be done for free on the official website. If you have a private student loan, some lenders can refinance both your private and federal loans. Refinancing means that a new lender pays off all your existing loans and gives you a new loan. Credible is a tool through which you can compare offers from different lenders in one place. 

2. Advanced Fee Scam

Some student loan frauds will offer a good interest rate and loan terms for your student loans, but they will ask you to pay a fee upfront first. Even from private lenders don’t ask for any upfront fees. There are two fees that you might have to pay with your loan but not upfront. Federal student loans charge a 1% default fee, and most private loans charge some type of disbursement or origination fee, but these fees are usually deducted from your loan amount or included in your repayment amount.

If you are working with a third-party company to help you with your student loan debt, they might take a fee upfront, but this fee should go into an escrow account, and the company should only get paid once they prove they’ve helped you sign up for a program. Some scammers are now offering a second personal loan instead of a direct upfront fee. This loan is also a fee, and you should be careful because there are repercussions if you cancel or don't pay it back. So, it is very important that if you use a third-party company to help you with your student loan debt, make sure you understand the pricing and payment structure before agreeing to anything.

3. Student Loan Debt Elimination Scam

It's very important to remember that you must always repay your student loan debt, and it cannot be eliminated unless you have a very good reason, like death, permanent disability, school closure, or fraud. Don't believe any company that promises to get rid of your student loan debt, especially if they say they can do it just because of the college you attended, because those are usually scams. If your school closes or you have other issues with your loans, there are some forgiveness programs that can help you, but be careful if you pay a company to help you and make sure you understand exactly what they are doing for you before you give them any money.

4. Law Firm Lawsuit Student Loan Scam

This is a student loan fraud where a law firm that is typically referred to by a student aid company claims to be able to settle the student loan debt for a lot less money than you owe. The law firm might ask you to pay the whole amount you owe or whatever you afford to the firm itself and then say they will negotiate a settlement with the lender. The law firm usually, though, doesnt make any payments to the lender while negotiating and so making the student go inti default on their student loans, and then they claim the student can't pay the bills and try to get a settlement based on that. This instead makes the borrower's credit score get destroyed, and still, there is no guarantee that the loans will be settled by them. It might take years for the process to get through, and even then, the settlement will have to be dealt with. 

5. Bad Service Scam

These are student loan scams where they aren't exactly scams, but the services they provide are so bad that they feel like a scam. The customer service is either unreachable or extremely chaotic and bad, or they lose your paperwork or important documents. These typically aren't scams but instead are companies just looking out for their best interests instead of both their own and the customer's. They are poorly run organisations and have a program that is full of payment incentives. 

How to spot Student Loan Scams

Now that you know what some of the common student loan scams are, here are some things to look for to make sure they are scams or frauds. As it is important to understand how one can spot these loan scams only then a necessary action can be taken. Often people lack insights in understanding student loan scams which later makes them a victim of the same.  After all these years of research and understanding many aspects of student loan scams, we have finally understood a few things that one needs to know to spot student loan scams.

1. Immediate loan forgiveness or cancellation.

This is one of the most important aspects one needs to keep in mind while spotting student loan scams. A student loan company may call you and claim to forgive your student loan however, stay alert and aware of such scam calls. Such student loan forgiveness programs offered by the government are very rare and take years to execute. Hence, don’t fall prey to such calls.   

2. Loan forgiveness due to discontinuation of School

Another student loan scam to look out for is such calls that claim to forgive your student loan. These spam companies get the records of your school and specifically target you if your school is discontinued or if the school is being sued by another company. Beware of such scam calls as they may lead you into fraud and you can lose out a lot of your money. 

3. A company offering to settle down your loan

Well, some loan scams may call you and offer to settle down your loan either by suggesting that they will buy your loan some other way. Such scam calls may come up with a proposal of settling some of your loan amounts. Our advice is don’t pay attention to such scammers as all they are trying to do is to lure you into such schemes and get money out of your pocket. 

4. Claims to be working with the Department of Education

Another strategy that scammers have started using is claiming to have a relationship or collaboration with the Department of Education. Such calls are made keeping in mind the importance and influence of the Department of Education hence, they use its name to wow you and rob you of your money. 

5. If a company promises you a set payment or forgiveness.

Well, the aim is to lure students into their scam hence such companies may call you and claim to forgive your student loan. This usually doesn’t takes place, if you have taken a loan then you are required to pay it off. Don’t fall for such scammers instead spot them and report them. 

How to Avoid Student Loan Scams

After understanding these student loan scams and knowing how to spot them, the next step is to learn how to avoid these scams. Here are some ways to void Student Loan Frauds and scams:

  1. Avoid signing up for quick loan forgiveness: Scammers might tell you they can help you get rid of your loans even before they understand your situation. They may offer a loan forgiveness program that most people don't qualify for or claim they can clear your loans by disputing them, but they cannot get you into a loan forgiveness program if you don't qualify for it or erase your loans in this way.
  1. Don’t pay an up-front fee: It is illegal for any company to ask you to pay money before they have provided that service or before they help you. Paying before you get your services upfront may lead you to not get any help and no refund either. 
  1. Don’t rush yourself: Scammers might tell you to act quickly by telling you that you might miss repayment plans, loan consolidation, or loan forgiveness programs if you don't sign up immediately. Don't fall for their tactics, and take your time to check out the details before making any decisions.

Now that you have read all about scams, the types of student loan frauds, and how to spot and avoid them, we hope that you won't fall prey to them. It's important to keep track of such important information to avoid becoming a victim of such fraud. Make sure to spot such scammers on the spot so that you will not entertain them any further. Hence, it is essential to be aware of such patterns so that you can protect yourself and even help your friends in spotting such scams.

Frequently Asked Questions

What are some common signs of student loan scams?

What are some red flags to look out for when dealing with student loan servicers?

How can I check if a student loan forgiveness program is legitimate?

What should I do if I suspect I'm being scammed?

How can you protect yourself from student loan scams?