The federal government has taken a major step towards protecting borrowers with the Stop Student Debt Relief Scams Act.
For years, scammers have preyed upon borrowers overwhelmed by student loans. They often use real federal programs like student loan forgiveness and income-driven repayment to deceive.
In recent years, the government has gotten better about shutting down these scams.
The Stop Student Debt Relief Scams Act creates consequences for those that seek to profit by misleading borrowers.
What does the Stop Student Debt Relief Scams Act do?
The new law will attempt to curb scammers in several different ways.
In the words of co-sponsor Senator Deb Fischer (R-Neb.), the bill will do the following:
- Clarify that it is a federal crime to access U.S. Department of Education information technology systems for fraud, commercial advantage, or private financial gain, and impose fines on scammers for violations of the law.
- Create a new form of third-party access, akin to the current “preparer” function on the Free Application for Student Aid (FAFSA), in order to protect legitimate organizations.
- Requires the U.S. Department of Education to maintain common-sense reporting, detection, and prevention activities to stop potential or known debt relief scams.
- Requires student loan exit counseling to warn federal loan borrowers about debt relief scams.
Under the new law (full text here for those interested), borrowers should be more prepared to spot a scammer and have more resources to avoid scammers. Additionally, it provides clarity on potential consequences for scammers.
Will it make a difference?
Any effort to slow down student loan relief scammers is a positive.
The difference achieved through this legislation is unclear.
A single warning about scams during exit counseling is unlikely to have a lasting effect on most borrowers. The hope is that the Department of Education reporting on scams makes a difference, but this is far from a certainty.
Clarifying that these scams are crimes may help the prosecution of cases, but it seems unlikely to deter future scammers. I find it hard to believe that most scammers don’t already know they are breaking the law.
While I’m not optimistic that the Stop Student Debt Relief Scams Act is significant legislation, it does provide some hope. Congress is working in a bipartisan manner to make life with student loans better. A small step is better than no progress. Acknowledgment of student loan issues is an essential first step before solutions can happen.
Tips on Avoiding Student Loan Scams
Over the years, I’ve seen and written many tips, thoughts, and suggestions on avoiding scams.
However, the following tips from the Department of Education may be the most simple and the most helpful:
- Only scammers promise fast loan forgiveness.
- Never pay a fee upfront for help.
- Scammers can fake a government seal.
- Don’t share your FSA ID with anyone.
Shining a Light on Debt Relief Fraud
Student loan assistance schemes have been a major issue to borrowers for years.
Here are some recent examples: