How to Spot and Avoid a Student Loan Scam in Debt Consolidation

The increase in student loan debt has been precipitated by two things; easy availability of loan products and an increasing demand for university education among all age groups. According to the U.S Bureau of Statistics (BLS) the average class of 2016 student has a loan debt of $ 37,172. The total student loan debt is around $1.26 trillion.

Over 44 million Americans have student loans and it is no wonder there are so many companies out there promising to reduce your loan amount or wipe it off completely. Whether you are applying for your first loan or trying to repay your loan it is important to understand the industry is fraught with risks. With the advent of online loans things are even more complicated.

You need to learn everything about student loan scams in order to avoid them. Millions of students have filed complaints but these always come too late. Most of the scam companies will close shop once they have scammed several students and mutate as a new company offering similar services.

The only way to avoid a scam is to understand the risks and learn how to identify a scam from a mile away. Here are some pertinent points to guide you.

Types of Student Loan Scams

There are many variations of student loan scams some which seem very genuine. The most common include:

  • Loan consolidation scams: This is one of the most common student loan scams and a company will advertise an offer that looks so good to resist. Once you have communicated about the number of loans you want to consolidate the company will offer the best interest rate in the market to consolidate your loans. But there is a catch; you have to pay an upfront fee which is disguised as an administration or processing fee. Once you pay this fee the company does nothing and you lose your money. The best company offers easy methods of consolidation without charging any fees.
  • Debt elimination: There is no way you can eliminate your student loan because you singed a legally valid contract. If a company offers student loan elimination ideas keep running and don’t look back. This is an easy scam to fall for and it comes with initial fees. Once the company collects such fees from thousands of students it disappears.
  • Advance fee scam: This is the most common scam in the industry. A company will approach you with the promise to get you the best loan rates in the market but you will have to pay an advance fee too enjoy the lower rates. The Consumer Finance Protection Bureau is now prosecuting these companies because they make a promise they can’t deliver. Legitimate student loans from any quarter don’t require any fees and you should never fall for such a scam.
  • Debt relief and forgiveness: This scam involves a promise to get most of your loans forgiven or getting you a lower rate. What actually happens is that the firm goes for the option of consolidating loans and you will never realize until you contact them later. In most cases you will have to pay for these services.
  • Law firm scam: While loan negotiation might sound like a good idea you might end up losing your money. A law firm will convince you that they have the expertise to negotiate with lenders and while this might be true they don’t repay the money during these negotiations. Your credit score will take a hit and eventually the law firm might even abandon the negotiation meaning you will start from scratch.

There are also companies which offer legal but unnecessary student loan services at a fee. For instance filling out your online government loan is free but such companies make it sound too complicated. At the end of the day you will be losing money while the priority should be saving every dollar.

Warning Signs for Student Loan Scams

Here are some ways to spot if you are about to fall for a student loan scam:

  • Need for payments: Online scams are after a quick buck and all their services come with upfront fees. Applying for a student loan from the U.S. Department of Education is free and anyone charging you to consolidate your loan is out to make a profit from you. Debt consolidation from studentloans.gov is free and this should be your first stop.
  • Persistent calling: If you contact an online company asking for loan assistance they should provide what you need and that should be the end of it all. However, if they start bombarding you with calls and texts it is highly likely the company is a scam. A loan company should be professional and must not harass you into taking a loan.
  • Who initiated contact? If a loan service calls you that by itself should be a red flag. You are the one in need of a loan service and you should initiate contact. You don’t know about the company and you should immediately terminate any contacts.
  • Claim of official connections: If a company approaches you with official sounding titles or claiming to have a connection with the U.S. Department of Education or official loan consolidation platforms run and don’t look back.
  • Paying on your behalf: This is the easiest scam which the Consumer Finance Protection Bureau warns all graduates about. There is no logic in someone holding your money as they negotiate on your behalf with creditors. Such companies will claim they are still negotiating as you continue depositing monthly payment to their account. They then go under carrying thousands of dollars from unsuspecting clients.

If you are to avoid a student loan scam you need to take time and research.  You need to understand what loan consolidation is about and the best providers of such services. Carry out background research for any company you intend to contact. More importantly check the company’s BBB rating, reviews and any mention on online scam platforms.

Loan consolidation companies should offer advisory assistance for you to get the best services but are not a magic wand to eliminate your debt.