Although there are plenty of legal, legitimate businesses that can help you manage your student loans, there are also predatory scammers out there looking to make a quick buck at the expense of borrowers.
As a student loan borrower, you must be able to signs of a student loan scam so you don’t get tricked by empty promises — or even worse, have someone steal your money or identity.
Before passing over any personal information to a company that promises to help you consolidate your student debt, watch out for these four major red flags.
Red flag #1: If it seems too good to be true, it probably is
Just like an email from a foreign prince who promises to pay you $10 million if you transfer him $5,000 first, student loan scammers make offers that are way too good to be true. And as with nearly everything in finance, if an offer seems too good to be true, it probably is.
If someone tells you they can magically wipe away your debt or reverse your default, be wary. While there are ways to get your student loans forgiven or rehabilitate a defaulted loan, they probably won’t happen overnight.
If a company is promising to make your debt go away right away, it’s probably a scam. These companies know how desperate some borrowers are to wipe out their student loan balances, and they take advantage of that.
But unfortunately, falling for a scam like this could cost you, and potentially leave you in an even worse position than before.
Red flag #2: You have to pay an upfront fee for services
Consolidating federal student loans is a useful way to simplify debt by combining multiple loans into one. It also allows certain loan types to become eligible for income-driven repayment plans, and can even help get defaulted loans back into good status.
But you don’t have to pay a fee to consolidate your student loans — you can apply for consolidation for free at StudentLoans.gov. So if someone asks you to pay a fee to consolidate, you could be dealing with a scammer.
That said, there are legitimate student loan counselors that charge a fee for their time and services. But you typically shouldn’t have to pay that money upfront — you would pay after they’ve completed their work.
And remember that you don’t have to pay for anyone’s assistance — the consolidation application, and information about the process, is easily available online at no charge.
Red flag #3: Poorly written, unprofessional offers
Along with over-the-top promises and sketchy fees, you might notice that a student loan company’s website or ads are littered with spelling mistakes or grammatical errors.
Legitimate companies will look professional and use impeccable language. If you’re seeing poor writing and unprofessional advertisements, think twice before handing over any of your personal information.
Private student loan consolidation programs should always be clear about what they offer, what costs and commitments are involved and how your student loan payments are changing. If anything is unclear or sloppy, take your business elsewhere.
Red flag #4: You’re getting threatening phone calls
Although most student loan scammers will try to sweet-talk you with empty promises, others go the opposite route and threaten you with severe consequences if you don’t fork over your personal information.
For instance, you might get a call that says you’ll be arrested if you don’t make an immediate payment on your student loans. But if you hand over your credit card information, you’ll soon realize it was a mistake.
No one is ever going to arrest you for not paying a student loan, and scammers like these are just trying to get their hands on your credit cards, bank account or Social Security number.
That said, it is possible to get sued if you default for a long time on a private student loan. If you stop paying and responding to communications, a private lender could bring you to court to collect the balance.
Before this happens, speak with your lender about ways you can avoid default or get your loan back into good standing.
How to consolidate or refinance your student loans for free
Although there are some legitimate companies that will help you manage your student loans for a fee, you can consolidate or refinance without the help of a third party. Consolidating your federal student loans can be a good strategy for simplifying debt or getting out of default.
If you’re looking to combine multiple loans into one, you could also consider refinancing your student loans. You’ll refinance with a private lender, and both federal and private student loans are eligible.
Basically, the lender will take your old loans and issue you a new one in their place. Depending on your credit and income (or your cosigner’s), you could qualify for a lower interest rate than you have now.
You’ll also get the chance to adjust your monthly payments and choose new repayment terms. This opportunity to restructure your debt could be helpful if you need relief from your monthly bills, or conversely, are looking to pay off your debt faster than scheduled.
You can apply for refinancing offers directly with lenders like SoFi, CommonBond, Earnest, Laurel Road or Citizens Bank. Most of these lenders make it easy to get a rate quote with no impact on your credit score.
Before selecting an offer, though, make sure you understand that refinancing federal student loans means turning them private. As a result, you would lose access to federal loan benefits such as forgiveness programs, repayment plans and loan consolidation.
Whatever you choose, remember that you don’t need the help of a third party to apply for consolidation or refinancing. Although you might rely on them to learn about your student loans, you’re able to apply for consolidation or refinancing on your own for free.
With student loan consolidation scams, follow your gut
While there are laws preventing such cons, and some states have taken action against student loan consolidation scams, the best line of defense is your own good judgment and common sense.
If you do find yourself in a bad situation, reach out to your state attorney general and contact the Federal Student Aid office right away to see if you can get help before it’s too late.
Above all, be informed and vigilant. By understanding how student loans work, you can protect yourself from scammers who are making promises too good to be true.
Eric Rosenberg contributed to this report.
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