This week I received two letters in the mail promising “total loan forgiveness”, lower interest rates, and $0 per month student loan payments. The company behind them did well to make them appear to be entirely legitimate. They knew my total federal balance, they had my name and address, and at first glance it looks like legitimate student loan paperwork. However, both of the letters were also full of red flags.
The Red Flags
No Company Name Listed – One of the letters didn’t have the name of the company listed at all. In the fine print at the bottom it used the term “The Company” without ever saying the name of the company. If someone wants your business they should attach their name to it. If you can’t even look up the company name, it is because they don’t want you to.
Instructions to create your Federal Student Aid ID – One of the letters included instructions for me to create my FSA ID. The only reason they would want me to create this ID is if they were eventually going to ask for it. This is information that should never be shared with anyone, according to the department of education:
“Your FSA ID is used to sign legally binding documents electronically. It has the same legal status as a written signature. Don’t give your FSA ID to anyone or allow anyone to create an FSA ID for you—not even your parent, your child, or someone helping you fill out the FAFSA. Sharing your FSA ID is like teaching someone to forge your signature; and it could put you at risk of identity theft!”
New Laws Just Created – This is another common scammer tool. They tend to announce new laws that were just put into place that only they know about. There is no new student loan law. If there was, you would know about it from watching the news, reading a newspaper, or visiting sites like this. If you cannot verify any new student loan law from a reputable news source, then odds are very high you are looking at a scam.
Document Preparation and Application Assistance – The fine print on both of these letters makes it clear that the only thing they are actually doing is helping you submit applications or process paperwork. If you call them, I’m sure they would compare it to having an accountant fill out a tax return. This is a scam. There is one website for federal direct consolidation, and it is on the Department of Education’s site. This form takes about 20 minutes to fill out and it is done. There is no math involved, nor are any of the questions even remotely difficult. The document preparation companies will charge you hundreds of dollars hoping that you don’t realize they are just filling out a 20 minute form. They almost certainly will never suggest that consolidation of federal student loans may not be the best decision for everyone. They just want you to pay them hundreds to fill out a simple form.
Important Deadline – If there was an important deadline for your student loans, you would hear about it directly from the Department of Education or your loan servicer. If the first you are hearing about this “deadline” is from an advertisement or letter from an unknown company, odds are very high that it isn’t a real deadline at all.
If you get a letter and question its legitimacy – One method that is somewhat effective is to google the name of the company (if they don’t have a name listed on the letter then you already know it isn’t legitimate). However, this method will not root out 100% of the bad apples because some of these companies are good at posting fake positive reviews and burying the very real complaints. The Consumer Financial Protection Bureau had some good advice for evaluating these companies.
If you think they took or are about to take your money – If you have already gone down the rabbit hole and want to get your money back, it will be very tricky. Regardless of what happens with the scammer, keep a very close eye on your credit report. They will likely have enough information to commit identity fraud. When you demand your money back, tell them that if it is not promptly returned you will be submitting a complaint to the consumer financial protection bureau and your state’s attorney general. Over the years we have found that law enforcement is good about going after these companies, but often slow to respond as they need time to build a case. These scammers go to great effort to stay off the law enforcement radar. The threat of reporting them is the threat they are most likely to respond to. Also, if you sent a check that has not cleared, you can put a stop payment on it. If they took payment via credit card, you can report the charge as a fraudulent charge to your credit card company.
Student loans are scary and they affect a lot of people. For years scammers have been taking advantage of the student loan problem in the United States. A good rule of thumb with anything student loans is to double-check everything you are told, regardless of the source. You might misunderstand something, a loan servicer might have told you something in error, or someone could by trying to take advantage of you. If you think that a situation is sketchy but you are not sure why, trust your judgment.