• Lisa Ericson

How to avoid student loans scams?

Guest Post by Evan Polinsky

As Student loan debt has risen over the years, scammers have seen it as a growing opportunity. Student debt scams have cost borrowers over $100 million dollars already, so it is very important to be able to identify these scams. Here are some of the most common ones:


Advanced Fee Scam​


One of the most common scams comes with the promise of lower payments or even complete elimination of debt for just an upfront consultation fee. Don’t fall for it! There is nothing that these “consultants” can do for you, that you cannot do for yourself for free. All of the information you need is available online. Any legitimate service that is truly providing value, will not charge a fee up-front, but rather charge you once they have actually provided value. In fact, U.S. Department of Education considers advanced fees for such help to be illegal. However, that doesn’t stop the scammers from trying!


Loan Consolidation Scam


Upon graduation, it is often a good idea to consolidate your student loans. Scammers know this too and take advantage of this by charging various fees for services that do not provide any true value. If you have federal student loans, student loan consolidation can be done by yourself for free at StudentLoans.gov. There is no need to pay any third-party to do this for you.

You should note that while refinancing is similar to consolidation, it is a very different story. Consolidation simply combines all of your loans into one. Meanwhile refinancing, allows you to take out a new and different loan, with the new lender paying off your existing loans for you. This can often provide value for you and is therefore not a scam. However, there are still several scammers in this area, and as we discussed, a quick tell is if they are requiring an advanced fee.


Law Firm Lawsuit Scam


This scam occurs when some law firm claims that you can settle your student loans for thousands of dollars less than you owe through a lawsuit. No matter what the law firm says, there is never a guarantee that they will truly be able to settle your loans for you. Even when they are successful, the legal process can draw out for several years, and even then you will have to deal with a settlement in the end.

This is due to the risky process by which this lawsuit works. The law firm will normally make you pay it your full student loan payment right away with the promise that they will then negotiate a settlement with the lender. While the negotiation is occurring, the law firm won’t be paying your lender anything, causing you to default on your student loans, which will trash your credit score. Then the law firm will use this to claim to the lender that you are unable to pay the bills and negotiate a settlement off of that. This is all obviously, not an ideal process for paying off your loans, so you should always remain skeptical when confronted with the opportunity to be part of a lawsuit to pay less on your loans.


Disability Scam


Many scammers advertise themselves as being able to completely discharge your student loans if you have a disability. This is obviously a very exciting opportunity, so such services are able to charge very high fees to get the loans discharged.

Just like with most scams, there is some underlying truth. These services often are able to get your loans discharged if you have a disability that prevents you from working. However, there is no need to pay these services to do this for you. It is completely free for you to apply for a loan discharge by submitting your application directly to the Department of Education.


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If you're looking for advice on how to lower your monthly payment, reduce your cost of debt or become debt-free faster, you can simply download the Money Compass app and get your optimization plan. Any questions? contact us at Advice@moneycompass.io


#studentloans #studentdebt #studentloansscam

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